-----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, HllcnbN4L6v4/Iq3kW+oORWP4HfGoVYl3HfO59EIsSJDU7rGw3AR6JIOg6Wk6PVS VFfDvD48czZCbZmPPCxQdg== 0000950123-05-000138.txt : 20050107 0000950123-05-000138.hdr.sgml : 20050107 20050107094637 ACCESSION NUMBER: 0000950123-05-000138 CONFORMED SUBMISSION TYPE: SC TO-T PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20050107 DATE AS OF CHANGE: 20050107 GROUP MEMBERS: F.I.L.A.- FABBRICA ITALIANA LAPIS ED AFFINI S.P.A. SUBJECT COMPANY: 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: SC TO-T SEC ACT: 1934 Act SEC FILE NUMBER: 005-08942 FILM NUMBER: 05517049 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Pencil Acquisition Corp. CENTRAL INDEX KEY: 0001311731 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC TO-T BUSINESS ADDRESS: STREET 1: C/O SHAPIRO FORMAN ALLEN MILLER & MCPHER STREET 2: 380 MADISON AVE, 25TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 212-972-4900 MAIL ADDRESS: STREET 1: C/O SHAPIRO FORMAN ALLEN MILLER & MCPHER STREET 2: 380 MADISON AVE, 25TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 SC TO-T 1 y04189sctovt.txt SCHEDULE TO-T SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE TO TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 DIXON TICONDEROGA COMPANY (Name of Subject Company (Issuer)) PENCIL ACQUISITION CORP., A WHOLLY-OWNED SUBSIDIARY OF F.I.L.A -- FABBRICA ITALIANA LAPIS ED AFFINI S.P.A. (Names of Filing Persons (Offerors)) COMMON STOCK, PAR VALUE $1.00 PER SHARE (Title of Class of Securities) 255860 10 8 (CUSIP Number of Common Stock) ROBERT W. FORMAN, ESQ. SHAPIRO FORMAN ALLEN MILLER & MCPHERSON LLP 380 MADISON AVENUE 25(TH) FLOOR NEW YORK, NEW YORK 10017 (212) 972-4900 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Filing Persons) CALCULATION OF FILING FEE
- --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- TRANSACTION VALUE* AMOUNT OF FILING FEE - --------------------------------------------------------------------------------------------- $22,455,258 $2,642.98 - --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
* Estimated for purposes of calculating the amount of the filing fee only. This amount assumes the purchase of 3,207,894 shares of common stock, par value $1.00 per share, of Dixon Ticonderoga Company (the "Shares"), representing all of the outstanding Shares, as of December 16, 2004. [ ] Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number or the Form or Schedule and the date of its filing. Amount Previously Paid: N/A Filing Party: N/A Form or Registration No.: N/A Date Filed: N/A
[ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [X] third-party tender offer subject to Rule 14d-1 [ ] issuer tender offer subject to Rule 13e-4 [ ] going private transaction subject to Rule 13e-3 [ ] amendment to Schedule 13D under Rule 13d-2 Check the following box if the filing is a final amendment reporting the results of the tender offer [ ] This Tender Offer Statement on Schedule TO ("Schedule TO") is filed by Pencil Acquisition Corp., ("Merger Sub"), a wholly owned subsidiary of F.I.L.A -- Fabbrica Italiana Lapis ed Affini S.p.A. ("Parent"). This Schedule relates to a tender offer by Merger Sub to purchase all outstanding shares of common stock, par value $1.00 per share, of Dixon Ticonderoga Company, a Delaware corporation (the "Company"), for a purchase price of $7.00 per share, net to the seller in cash, without interest thereon, upon the terms and conditions set forth in the Offer to Purchase, dated January 7, 2005 (the "Offer to Purchase"), a copy of which is attached hereto as Exhibit (a)(1)(A) and the related Letter of Transmittal and the instructions thereto, a copy of which is attached hereto as Exhibit (a)(1)(B) (which, as they may be amended or supplemented from time to time, together constitute the "Offer"). ITEMS 1 THROUGH 11. Pursuant to General Instruction F to Schedule TO, the information contained in the Offer to Purchase, including all schedules and annexes thereto, is hereby expressly incorporated herein by reference in response to Items 1 through 11 of this Statement and is supplemented by the information specifically provided herein. Each of the Agreement and Plan of Merger, dated as of December 16, 2004, by and among the Company, Merger Sub and Parent, a copy of which is attached as Exhibit (d) (1) hereto, and the Stock Purchase Agreement dated as of December 16, 2004 among Merger Sub and certain stockholders of the Company, a copy of which is attached as Exhibit (d) (2) hereto, is incorporated herein by reference with respect to Item 5 of this Schedule TO. ITEM 12. EXHIBITS (a)(1)(A) Offer to Purchase dated January 7, 2005. (a)(1)(B) Form of Letter of Transmittal. (a)(1)(C) Form of Notice of Guaranteed Delivery. (a)(1)(D) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(1)(E) Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(1)(F) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(1)(G) Summary Advertisement, as published in the New York Times on January 7, 2005. (b)(1) Facilities Agreement dated December 16, 2004, between Parent and Banca Intesa S.p.A. (d)(1) Agreement and Plan of Merger dated as of December 16, 2004, by and among the Company, Merger Sub and Parent. (d)(2) Stock Purchase Agreement dated as of December 16, 2004, by and among Merger Sub and certain stockholders of the Company. (g) Not applicable. (h) Not applicable.
ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3. Not applicable. 1 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. F.I.L.A -- FABBRICA ITALIANA LAPIS ED AFFINI S.P.A. By: /s/ MASSIMO CANDELA ------------------------------------ Name: Massimo Candela Title: Managing Director PENCIL ACQUISITION CORP. By: /s/ MASSIMO CANDELA ------------------------------------ Name: Massimo Candela Title: President Date: January 7, 2005 2 EXHIBIT INDEX (a)(1)(A) Offer to Purchase dated January 7, 2005. (a)(1)(B) Form of Letter of Transmittal. (a)(1)(C) Form of Notice of Guaranteed Delivery. (a)(1)(D) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(1)(E) Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(1)(F) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(1)(G) Summary Advertisement, as published in the New York Times on January 7, 2005. (b)(1) Facilities Agreement dated December 16, 2004, between Parent and Banca Intesa, S.p.A. (d)(1) Agreement and Plan of Merger dated as of December 16, 2004, by and among the Company, Merger Sub and Parent. (d)(2) Stock Purchase Agreement dated as of December 16, 2004, by and among Merger Sub and certain stockholders of the Company.
3 EX-99.A.1.A 2 y04189exv99waw1wa.txt OFFER TO PURCHASE EXHIBIT (a)(1)(A) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF DIXON TICONDEROGA COMPANY AT $7.00 NET PER SHARE BY PENCIL ACQUISITION CORP., A WHOLLY OWNED SUBSIDIARY OF F.I.L.A. -- FABBRICA ITALIANA LAPIS ED AFFINI S.P.A. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, FEBRUARY 7, 2005, UNLESS THE OFFER IS EXTENDED. THE OFFER IS BEING MADE PURSUANT TO AN AGREEMENT AND PLAN OF MERGER, DATED AS OF DECEMBER 16, 2004 (THE "MERGER AGREEMENT"), BY AND AMONG F.I.L.A. -- FABBRICA ITALIANA LAPIS ED AFFINI S.P.A. (THE "PARENT"), PENCIL ACQUISITION CORP. ("MERGER SUB") AND DIXON TICONDEROGA COMPANY (THE "COMPANY" OR "DIXON"). THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE (THE "SHARES"), OF THE COMPANY WHICH, TOGETHER WITH THE SHARES BENEFICIALLY OWNED BY PARENT AND MERGER SUB INCLUDING SHARES BEING SOLD TO MERGER SUB PURSUANT TO THE STOCK PURCHASE AGREEMENT DATED DECEMBER 16, 2004 AMONG MERGER SUB AND CERTAIN STOCKHOLDERS OF THE COMPANY, REPRESENT AT LEAST 66 2/3% OF THE THEN OUTSTANDING SHARES. THE OFFER IS ALSO SUBJECT TO OTHER CONDITIONS. SEE SECTION 14 -- "CONDITIONS OF THE OFFER." --------------------- THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY (I) DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER DESCRIBED HEREIN ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, (II) APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER, THE MERGER, AND THE STOCK PURCHASE AGREEMENT (AS DEFINED HEREIN), AND (III) RECOMMENDED THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. --------------------- IMPORTANT Any stockholder of the Company wishing to tender shares in the Offer must (i) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal and mail or deliver the Letter of Transmittal and all other required documents to the Depositary (as defined herein) together with certificates representing the Shares tendered or follow the procedure for book-entry transfer set forth in Section 3 -- "Procedures for Accepting the Offer and Tendering Shares" or (ii) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for the stockholder. A stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if such stockholder wishes to tender such Shares. Any stockholder of the Company who wishes to tender Shares and cannot deliver certificates representing such Shares and all other required documents to the Depositary on or prior to the Expiration Date (as defined herein) or who cannot comply with the procedures for book-entry transfer on a timely basis may tender such Shares pursuant to the guaranteed delivery procedure set forth in Section 3 -- "Procedures for Accepting the Offer and Tendering Shares." Questions and requests for assistance may be directed to the Information Agent at its address and telephone number set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other related materials may be obtained from the Information Agent. Stockholders may also contact their broker, dealer, commercial bank, trust company or other nominee for copies of these documents. The date of this Offer to Purchase is January 7, 2005 TABLE OF CONTENTS
PAGE ---- Summary Term Sheet................................................ S-1 Introduction...................................................... 1 The Tender Offer.................................................. 3 1. Terms of the Offer.......................................... 3 2. Acceptance for Payment and Payment for Shares............... 5 3. Procedures for Accepting the Offer and Tendering Shares..... 6 4. Withdrawal Rights........................................... 9 5. Certain United States Federal Income Tax Consequences....... 10 6. Price Range of Shares; Dividends............................ 11 7. Certain Information Concerning the Company.................. 11 8. Certain Information Concerning Parent and Merger Sub........ 13 9. Source and Amount of Funds.................................. 14 10. Background of the Offer; Past Contacts or Negotiations With the Company................................................. 15 11. The Merger Agreement and Related Agreements................. 16 12. Purpose of the Offer; Plans for the Company................. 27 13. Effect of the Offer on the Market for the Shares; Registration Under the Exchange Act......................... 29 14. Conditions of the Offer..................................... 30 15. Certain Legal Matters; Regulatory Approvals................. 31 16. Fees and Expenses........................................... 32 17. Miscellaneous............................................... 33 Schedule I -- Directors and Executive Officers of Parent and Merger Sub...................................................... 34
SUMMARY TERM SHEET Securities Sought: All outstanding shares of common stock of Dixon Ticonderoga Company. Price Offered Per Share: $7.00 Scheduled Expiration Date: February 7, 2005 at 5:00 p.m. (New York City time). Purchaser: Pencil Acquisition Corp., a wholly owned subsidiary of F.I.L.A. -- Fabbrica Italiana Lapis ed Affini S.p.A. Minimum Condition: Together with the shares purchased pursuant to the Stock Purchase Agreement, at least 66 2/3% of the outstanding shares. As of January 7, 2005, the required minimum number of shares would be 2,138,597 shares. Stock Purchase Agreement: Certain officers and directors, and their affiliates, of Dixon have agreed to sell to Pencil Acquisition Corp. an aggregate of 911,824 shares of Dixon Common Stock beneficially owned by them at the same offer price simultaneously with the purchase of shares pursuant to the Offer. Dixon Board Recommendation: Dixon's Board of Directors unanimously recommends that Dixon stockholders tender into the Offer. The following are some of the questions you, as a stockholder of Dixon, may have and answers to those questions. We urge you to read carefully the remainder of this Offer to Purchase, the Letter of Transmittal, and Dixon's Solicitation/Recommendation Statement on Schedule 14D-9, which is being mailed to you with these materials, because the information in this summary term sheet is not complete. Additional important information is contained in the remainder of this Offer to Purchase, the Letter of Transmittal, and the Schedule 14D-9. WHO IS OFFERING TO BUY MY SECURITIES? Our name is Pencil Acquisition Corp. We are a Delaware corporation formed for the purpose of making a tender offer for all of the outstanding common stock of Dixon. We are a wholly owned subsidiary of F.I.L.A. -- Fabbrica Italiana Lapis ed Affini S.p.A.. ("Fila"), a privately held Italian corporation. See the "Introduction" to this Offer to Purchase and Section 8 -- "Certain Information Concerning Parent and Merger Sub." WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER? We are seeking to purchase all of the outstanding shares of common stock of Dixon. See the "Introduction" to this Offer to Purchase and Section 1 -- "Terms of the Offer." HOW MUCH ARE YOU OFFERING TO PAY? WHAT IS THE FORM OF PAYMENT? WILL I HAVE TO PAY ANY FEES OR COMMISSIONS? We are offering to pay $7.00 per share, net to you, in cash, without interest. If you are the record owner of your shares and you tender your shares to us in the offer, you will not have to pay brokerage fees or similar expenses. If you own your shares through a broker or other nominee, and your broker or nominee tenders your shares on your behalf, your broker or nominee may charge you a fee for doing so. You should consult your broker or nominee to determine whether any charges will apply. See the "Introduction" to this Offer to Purchase. Payments made to you in connection with the offer or the merger may also be subject to "backup withholding" at a rate of 28%, if certain requirements are not met. See Section 5 -- "Certain United States Federal Income Tax Consequences." S-1 DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT? Yes. Fila obtained from Banca Intesa S.p.A. all necessary funds to purchase the shares. Fila will contribute such funds to Merger Sub prior to the expiration of the Offer. The offer is not conditioned upon any financing arrangements or any financing condition. See Section 9 -- "Source and Amount of Funds." IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN THE OFFER? No. We do not believe our financial condition is relevant to your decision whether to accept the offer and tender your shares because: - the offer is being made for all outstanding shares solely for cash; - we, through Fila, will have sufficient funds available to purchase all shares validly tendered in the offer; - the offer is not subject to any financing condition; and - if we consummate the offer, we will acquire all remaining shares for the same cash price per share in the merger. See Section 9 -- "Source and Amount of Funds." WHAT DOES THE DIXON BOARD OF DIRECTORS THINK OF THE OFFER? We are making the offer pursuant to the merger agreement, which has been approved by the board of directors of Dixon Ticonderoga Company. The board of directors of Dixon unanimously (1) determined that the terms of the offer and the merger are fair to and in the best interests of the stockholders of Dixon, (2) approved the merger agreement, the offer, the merger, and the Stock Purchase Agreement (discussed below) and (3) recommended that Dixon's stockholders accept the offer and tender their shares pursuant to the offer. See the "Introduction" to this Offer to Purchase. HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER? You will have until at least 5:00 p.m., New York City time, on Monday, February 7, 2005, to tender your shares in the offer. If you cannot deliver everything that is required in order to make a valid tender by that time, you may be able to use a guaranteed delivery procedure, which is described later in this Offer to Purchase. See Section 1 -- "Terms of the Offer" and Section 3 -- "Procedures for Accepting the Offer and Tendering Shares." CAN THE OFFER BE EXTENDED AND UNDER WHAT CIRCUMSTANCES? We have agreed in the merger agreement that: - In our sole discretion, we have the right to extend the offer for one 10 business day period for any reason. - At the request of Dixon, we will extend the offer for one or more periods of 10 business days each, but in no event beyond March 1, 2005 (the "Outside Date"), if all the conditions to our obligations to pay for the shares are not satisfied or, to the extent permitted by the merger agreement, waived at or prior to the time the offer otherwise would expire, except to the extent any such conditions that have not been waived are incapable of being satisfied. - Without the consent of Dixon, we may extend the offer beyond the scheduled expiration date for such period, but in no event beyond the Outside Date, as we believe necessary to cause the conditions to be satisfied. The Offer may be extended if the number of shares of Company Common Stock validly tendered and not withdrawn prior to the final expiration of the Offer, together with the shares of Company Common Stock then beneficially owned by Fila or its affiliates (including, without limitation, the shares of Company Common Stock to be sold to Merger Sub pursuant to the Stock Purchase Agreement), represents more than 66 2/3%, but less than 90% of the shares of Company S-2 Common Stock then outstanding and the Schedule 14C Information Statement, as filed with the SEC, would not be permitted by applicable SEC rules to be mailed to the Company's stockholders immediately after the offer is consummated. - Without the consent of Dixon, we may extend the offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission or its staff applicable to the offer. - Without the consent of Dixon, we may extend the offer on up to two occasions of 10 business days each beyond the latest expiration date that would be otherwise permitted as described above but in no event beyond the Outside Date if, on such date, all of the conditions to our obligation to accept for payment and pay for the shares are satisfied or, to the extent permitted by the merger agreement waived, but the number of shares validly tendered and not withdrawn pursuant to the offer, together with the Company shares then beneficially owned by us including the shares to be purchased by us pursuant to the stock purchase agreement, represents less than 90% of the outstanding shares of the Company. In the event we extend the offer in accordance with the foregoing sentence, we have agreed to waive any material adverse effect or breach of any representation or warranty that arises from any event occurring during such extension. - If the minimum condition discussed below is satisfied, without the consent of Dixon, we may elect to provide a "subsequent offering period" for the offer. A subsequent offering period, if one is included, will be an additional period of not less than three or more than twenty business days beginning after we have purchased shares tendered during the offer, during which stockholders may tender, but not withdraw, their shares and receive the offer consideration. See Section 1 -- "Terms of the Offer" of this Offer to Purchase for more details on our ability to extend the offer. HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED? If we extend the offer, we will inform Registrar and Transfer Company (the depositary for the offer) of that fact and will make a public announcement of the extension not later than 9:00 a.m., Eastern time, on the next business day after the day on which the offer was scheduled to expire. See Section 1 -- "Terms of the Offer." WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER? The most significant conditions to the offer are that: - We are not obligated to purchase any shares that are validly tendered unless the number of shares validly tendered and not withdrawn before the expiration date of the offer, including the shares to be purchased by us pursuant to the stock purchase agreement, represents at least 66 2/3% of the then outstanding shares. We call this condition the "minimum condition." - We are not obligated to purchase shares that are validly tendered if any effect, change, event, circumstance or condition which when considered with all other effects, changes, events, circumstances or conditions has materially adversely affected or would reasonably be expected to materially adversely affect the results of operations, financial condition, or business of the Company and its subsidiaries, taken as a whole. - We are not obligated to purchase shares that are validly tendered if there is any judgment, order, decree, statute, law, ordinance, rule, or regulation entered, enacted, promulgated, enforced or issued by any court or other governmental entity or other legal restraint or prohibition in effect preventing the consummation of the offer. - We are not obligated to purchase shares that are validly tendered if the board of directors of Dixon has withdrawn or modified or changed in an adverse manner its recommendation of the offer and the merger or recommended to Dixon's stockholders an alternative acquisition proposal. S-3 - We are not obligated to purchase shares that are validly tendered if Dixon has breached or failed in any material respect to perform or comply with its agreements under the merger agreement or its representations and warranties under the merger agreement are not true in all material respects. The offer is also subject to a number of other conditions. We can waive some of the conditions to the offer without Dixon's consent. We cannot, however, waive the minimum condition without Dixon's consent. See Section 14 -- "Conditions of the Offer." The Offer is not conditional on Fila or Pencil Acquisition Corp. obtaining financing. HOW DO I TENDER MY SHARES? To tender shares that are registered in your name, you must deliver the certificates representing your shares, together with a completed letter of transmittal and any other documents required by the letter of transmittal, to Registrar and Transfer Company, the depositary for the offer, not later than the time the tender offer expires. If your shares are held in street name by your broker, dealer, bank, trust company or other nominee, the shares can be tendered by your nominee through The Depository Trust Company. If you are unable to deliver any required document or instrument to the depositary by the expiration of the tender offer, you may gain some extra time by having a broker, a dealer, a bank or other fiduciary that is an eligible institution guarantee that the missing items will be received by the depositary within three American Stock Exchange trading days. For the tender to be valid, however, the depositary must receive the missing items within that three trading day period. See Section 3 -- "Procedures for Accepting the Offer and Tendering Shares." UNTIL WHAT TIME MAY I WITHDRAW PREVIOUSLY TENDERED SHARES? You may withdraw shares at any time until the offer has expired and, if we have not accepted your shares for payment by 5:00 p.m., New York City time, on Monday, February 7, 2005, you may withdraw them at any time after that date until we accept shares for payment. This right to withdraw will not apply to any subsequent offering period, if one is provided. See Section 4 -- "Withdrawal Rights." HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES? To withdraw shares, you must deliver a written notice of withdrawal, or a facsimile of one, with the required information to the depositary during the period that you still have the right to withdraw shares. See Section 4 -- "Withdrawal Rights." HAVE ANY STOCKHOLDERS OF DIXON AGREED TO TENDER THEIR SHARES? Yes. Stockholders owning approximately 28% of the outstanding shares of Dixon have entered into a Stock Purchase Agreement with us and Fila. Pursuant to the Stock Purchase Agreement, these stockholders have agreed to sell their shares to Pencil Acquisition Corp. simultaneously with the purchase of shares pursuant to the offer, to vote their shares in favor of the approval and adoption of the merger agreement, to grant to designees of Fila, under certain circumstances, a proxy with respect to the voting of such shares. See the "Introduction" to this Offer to Purchase and Section 11 -- "The Merger Agreement and Related Agreements." IF 66 2/3% OF THE SHARES ARE TENDERED AND ACCEPTED FOR PAYMENT, WILL DIXON CONTINUE AS A PUBLIC COMPANY? No. Following the purchase of shares in the offer we expect to consummate the merger as soon as practicable under applicable law. If the merger takes place, Dixon no longer will be publicly owned. Even if for some reason the merger does not take place, if we purchase all of the tendered shares, there may be so few remaining stockholders and publicly held shares that Dixon common stock will no longer be eligible to be traded on or through the American Stock Exchange or other securities exchanges, there may not be a public trading market for Dixon common stock, and Dixon may no longer be required to make filings with the Securities and Exchange Commission or otherwise comply with the SEC rules relating to publicly held companies. As soon as possible, and in any event promptly following the merger, we intend to cause the shares S-4 of Dixon to cease to be quoted on the American Stock Exchange and to cease to be registered under the Securities Exchange Act of 1934. See Section 13 -- "Effect of the Offer on the Market for the Shares; Registration Under the Exchange Act." WILL THE TENDER OFFER BE FOLLOWED BY A MERGER IF ALL OF THE DIXON SHARES ARE NOT TENDERED IN THE OFFER? Yes. If we accept for payment and pay for at least 66 2/3% of the shares of Dixon pursuant to the offer and stock purchase agreement, Pencil Acquisition Corp. will be merged with and into Dixon, and the separate corporate existence of Pencil Acquisition Corp. will cease. If that merger takes place, Fila will own all of the shares of Dixon, as the surviving corporation, and all remaining stockholders of Dixon (other than shares of Common Stock of Dixon owned by any subsidiary of Dixon, Fila or any affiliate of Fila, all of which will be cancelled, and other than shares that are held by stockholders properly exercising appraisal rights) will have a right to receive $7.00 per share in cash (or any higher price per share that is paid in the offer). See the "Introduction" to this Offer to Purchase. IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES? If you decide not to tender your shares and the merger described above occurs, you will receive the same amount of cash per share that you would have received had you tendered your shares in the offer, without any interest being paid on such amount, subject to your right to exercise appraisal rights under Delaware law. Therefore, if the merger takes place and you do not exercise your right to dissent, the only difference to you between tendering your shares and not tendering your shares is that you will be paid earlier if you tender your shares. If you decide not to tender your shares in the offer and we purchase the tendered shares, but the merger does not occur, there may be so few remaining stockholders and publicly held shares that Dixon common stock will no longer be eligible to be traded on or through the American Stock Exchange, or other securities exchanges and there may not be a public trading market for Dixon common stock. Also, as described above, Dixon may no longer be required to make filings with the Securities and Exchange Commission or otherwise comply with the SEC rules relating to publicly held companies. As soon as possible, and in any event promptly following the merger, we intend to cause the shares of Dixon to cease to be quoted on the American Stock Exchange and to cease to be registered under the Securities Exchange Act of 1934. See the "Introduction" to this Offer to Purchase and Section 13 -- "Effect of the Offer on the Market for the Shares; Registration Under the Exchange Act" of this Offer to Purchase. WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE? On December 16, 2004, the last trading day before we announced the execution of the merger agreement, the last sale price of Dixon common stock reported on the American Stock Exchange was $5.99 per share. The offer price of $7.00 per share represents a premium of approximately 17% over such price. On October 18, 2004, we signed a letter agreement with the Company giving us the exclusive right to negotiate a merger agreement for thirty days. On October 18, 2004, Dixon's common stock was trading for $3.89. We encourage you to obtain a recent quotation for shares of Dixon common stock in deciding whether to tender your shares. See Section 6 -- "Price Range of Shares; Dividends." GENERALLY, WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF TENDERING SHARES? The receipt of cash for shares pursuant to the offer or the merger will be a taxable transaction for United States federal income tax purposes and possibly for state, local and foreign income tax purposes as well. In general, if you sell your shares pursuant to the offer, or you receive cash in exchange for your shares pursuant to the merger, you will recognize gain or loss for United States federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received and your adjusted tax basis in the shares sold. If the shares constitute capital assets in your hands, such gain or loss will be capital gain or loss. In general, capital gains recognized by an individual will be subject to a maximum United States federal income tax rate of 15%, if the shares were held for more than one year, and at ordinary income tax rates, if held for one year or less. See Section 5 -- "Certain United States Federal Income Tax Consequences." S-5 WHOM SHOULD I TALK TO IF I HAVE QUESTIONS ABOUT THE TENDER OFFER? You may call MacKenzie Partners, Inc. at 800-322-2885 (toll free) or 212-929-5500 (call collect). MacKenzie Partners, Inc. is acting as the information agent for our tender offer. See the back cover of this Offer to Purchase. S-6 TO: THE HOLDERS OF COMMON STOCK OF DIXON TICONDEROGA COMPANY INTRODUCTION Pencil Acquisition Corp., a Delaware corporation ("Merger Sub"), and a wholly owned subsidiary of F.I.L.A. -- Fabbrica Italiana Lapis ed Affini S.p.A. (the "Parent"), an Italian corporation, hereby offers to purchase all outstanding shares of common stock, par value $1.00 per share (the "Shares"), of Dixon Ticonderoga Company, a Delaware corporation (the "Company"), at a price of $7.00 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of December 16, 2004 (the "Merger Agreement"), by and among the Parent, Merger Sub and the Company. The Merger Agreement provides that Merger Sub will be merged with and into the Company (the "Merger"), with the Company continuing as the surviving corporation (the "Surviving Corporation"), wholly owned by Parent. Pursuant to the Merger, at the effective time of the Merger (the "Effective Time"), each share of capital stock, par value $.01 per share, of Merger Sub issued and outstanding will be converted into one share of the common stock of the Surviving Corporation. Each Share outstanding immediately prior to the Effective Time (other than Shares owned by the Company, any subsidiary of the Company, Parent or any affiliate of Parent, all of which will be cancelled, and other than Shares that are held by stockholders, if any, who properly exercise their appraisal rights under the Delaware General Corporation Law (the "DGCL")), will be converted into the right to receive $7.00 or any greater per Share price paid in the Offer in cash, without interest (the "Merger Consideration"). In connection with the Merger Agreement, certain stockholders of the Company, who own 911,824 currently outstanding Shares in the aggregate (approximately 28% of the outstanding Shares), entered into a Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as of December 16, 2004, with Merger Sub. Pursuant to the Stock Purchase Agreement, such stockholders have agreed, among other things, to sell to Merger Sub the Shares held by them simultaneously with the expiration of the Offer, to vote such Shares in favor of the approval and adoption of the Merger Agreement, and to grant a proxy with respect to the voting of such Shares in favor of the Merger upon the terms and subject to the conditions set forth therein. The Merger Agreement and the Stock Purchase Agreement are more fully described in Section 11 -- "The Merger Agreement and Related Agreements." Tendering stockholders who are record owners of their Shares and tender directly to the Depositary (as defined below) will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Merger Sub pursuant to the Offer. Stockholders who hold their Shares through a broker, dealer, bank, trust company, or other nominee should consult such institution as to whether it charges any service fees. Merger Sub will pay all charges and expenses of Registrar and Transfer Company, as depositary (the "Depositary"), and MacKenzie Partners, Inc., as information agent (the "Information Agent"), incurred in connection with the Offer. See Section 16 -- "Fees and Expenses." The Board of Directors of the Company (the "Company Board") has unanimously (i) determined that the terms of the Offer and the Merger are fair to, and in the best interests of, the stockholders of the Company, (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, and approved the Stock Purchase Agreement, and the transactions contemplated thereby, and (iii) recommended that the Company's stockholders accept the Offer and tender their shares pursuant to the Offer. Sheldrick McGehee & Kohler, Inc., the Company's financial advisor, has delivered to the Company Board its written opinion, dated December 16, 2004, to the effect that, as of such date and based on and subject to the matters stated in such opinion, the consideration to be received by holders of Shares (other than certain affiliated holders) pursuant to the Offer and the Merger Agreement is fair, from a financial point of 1 view, to such holders. The full text of Sheldrick McGehee & Kohler, Inc.'s written opinion, which describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is included as an annex to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") under the Securities Exchange Act of 1934 (the "Exchange Act"), which is being mailed to stockholders with this Offer to Purchase. Stockholders are urged to read the full text of such opinion carefully and in its entirety. The Offer is conditioned upon, among other things, there being validly tendered in accordance with the terms of the Offer and not withdrawn prior to the expiration date of the Offer that number of Shares which, including those shares to be purchased by Merger Sub pursuant to the Stock Purchase Agreement, represents at least 66 2/3% of then outstanding Shares (the "Minimum Condition"). The Offer is also subject to the satisfaction of certain other conditions. See Section 14 -- "Conditions of the Offer." The Company has represented to Merger Sub that, on December 16, 2004, 3,207,894 Shares were issued and outstanding. Neither Parent nor Merger Sub beneficially owns any Shares. Accordingly, the Parent believes that the Minimum Condition would be satisfied if approximately 2,138,597 Shares (including those to be purchased pursuant to the Stock Purchase Agreement) were validly tendered and not withdrawn prior to the expiration of the Offer. Directors. The Merger Agreement provides that, promptly upon the payment for Shares pursuant to the Offer and the Stock Purchase Agreement, which represent at least 66 2/3% of the outstanding Shares, Merger Sub will be entitled to designate such number of directors, rounded to the closest whole number, of the Board of Directors of the Company, as will give Merger Sub representation on the Board equal to its proportionate ownership of the Shares and the Company shall, upon request by Merger Sub, promptly, at the Company's election, either increase the size of the Board or secure the resignation of such number of directors as is necessary to enable Merger Sub's designees to be elected or appointed to the Board and will use its reasonable best efforts to cause Merger Sub's designees to be so elected or appointed. The Company's obligations relating to the Company Board are subject to Section 14(f) of the Exchange Act and Rule 14f-1 under the Exchange Act. The Company has agreed to provide the information about Merger Sub's designees in its Schedule 14D-9, which is being mailed to Stockholders together with the Offer. If Merger Sub's designees are elected or appointed to the Company's Board, then until the Effective Time, the Company's Board shall have at least two directors, or such greater number as may be required by the rules of the American Stock Exchange, who are Independent Directors. The term "Independent Director" means a member of the Company's Board (i) who (except as otherwise provided in the Merger Agreement) was a member of the Board on the date of the Merger Agreement, (ii) who is not an Affiliate or Associate of Parent or Merger Sub, (iii) who is not an employee of the Company or any of its Subsidiaries, and (iv) who is otherwise considered an independent director within the meaning of the rules of the American Stock Exchange. The Independent Directors shall form a committee that, during the period from the time shares of Company Common Stock are accepted for purchase pursuant to the Offer until the Effective Time, shall, to the extent permitted by the DGCL and the Merger Agreement, have the sole power and authority, by a majority vote of such Independent Directors, to cause the Company to (a) agree to amend the Merger Agreement or to extend the time for the performance of any of the obligations or other acts of the Parent or Merger Sub under the Offer, the Merger or the Merger Agreement, or (b) exercise or waive any of the Company's rights, benefits, or remedies under the Merger Agreement, except for the right to terminate the Merger Agreement. In addition, during the period from the time Shares are accepted for purchase pursuant to the Offer until the effective date of the Merger, any (a) amendment to the Company's Certificate of Incorporation or Bylaws, (b) termination of the Merger Agreement by the Company, (c) other action that could adversely affect the interests of the holders of Shares (other than Parent or Merger Sub), and (d) action specified in the immediately preceding sentence with respect to which the DGCL does not permit a committee of the Board to exercise sole power and authority, shall require, in addition to any other affirmative vote required under the DGCL or the Company's Certificate of Incorporation or Bylaws, the affirmative vote of not less than a majority of the entire Board, which majority shall include the concurrence of a majority of the Independent Directors, and neither Parent nor Merger Sub shall approve (either in its capacity as a stockholder or as a party to the Merger Agreement, as applicable), and each shall use its reasonable best 2 efforts to prevent the occurrence of, any such actions, unless such action shall have received the concurrence of a majority of the Independent Directors. The Merger is subject to the satisfaction or waiver of certain conditions, including, if required, the approval and adoption of the Merger Agreement by the affirmative vote of the holders of 66 2/3% of the outstanding Shares. If the Minimum Condition is satisfied, Merger Sub would have sufficient voting power to approve the Merger without the affirmative vote of any other stockholder of the Company. The Company has agreed, if required, to cause a meeting of its stockholders to be held as promptly as practicable following consummation of the Offer for the purposes of considering and taking action upon the approval and adoption of the Merger Agreement. Additionally, under the DGCL, if Merger Sub acquires, pursuant to the Offer or otherwise, at least 90% of the outstanding Shares, Merger Sub would be able and intends to complete the Merger without a vote of the Company's stockholders. Merger Sub has agreed to vote its Shares in favor of the approval and adoption of the Merger Agreement. See Section 11 -- "The Merger Agreement and Related Agreements." This Offer to Purchase and the related Letter of Transmittal contain important information that should be read carefully before any decision is made with respect to the Offer. THE TENDER OFFER 1. TERMS OF THE OFFER. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment), Merger Sub will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not properly withdrawn as permitted under Section 4 -- "Withdrawal Rights." The term "Expiration Date" means 5:00 p.m., New York City time, on Monday, February 7, 2005, unless Merger Sub, in accordance with the Merger Agreement, extends the period during which the Offer is open, in which event the term "Expiration Date" means the latest time and date on which the Offer, as so extended (other than any extension with respect to the Subsequent Offering Period described below), expires. The Offer is conditioned upon the satisfaction of the Minimum Condition and the other conditions set forth in Section 14 -- "Conditions of the Offer." Subject to the provisions of the Merger Agreement, Merger Sub may waive any or all of the conditions to its obligation to purchase Shares pursuant to the Offer (other than the Minimum Condition). If by the initial Expiration Date or any subsequent Expiration Date any or all of the conditions to the Offer have not been satisfied or waived, subject to certain rights granted to the Company pursuant to the Merger Agreement, Merger Sub may elect to (i) terminate the Offer and return all tendered Shares to tendering stockholders, (ii) waive all of the unsatisfied conditions (other than the Minimum Condition) and, subject to any required extension, purchase all Shares validly tendered by the Expiration Date and not properly withdrawn, (iii) extend the Offer and, subject to the right of stockholders to withdraw Shares until the new Expiration Date, retain the Shares that have been tendered until the expiration of the Offer as extended or (iv) subject to the provisions of the Merger Agreement described below, amend the Offer. Merger Sub and Parent have agreed not to make any change to the Offer, without the prior written consent of the Company, that (i) amends or waives satisfaction of the Minimum Condition, (ii) decreases the Offer Price, (iii) changes the form of consideration payable in the Offer, (iv) decreases the number of Shares sought in the Offer, (v) imposes additional conditions to the Offer, (vi) amends any of the terms or conditions of the Offer in any manner that is materially adverse to the holders of Shares, or (vii) extends the Offer, except as permitted or required by the Merger Agreement. Subject to the terms of the Merger Agreement, Parent and Merger Sub may, in their sole discretion, extend the Offer for one ten Business Day period for any reason, and at the request of the Company, Parent and Merger Sub will extend the Offer for one or more periods of ten Business Days each, but in no event beyond the Outside Date, if all the conditions to their obligation to pay for the Shares are not satisfied or, to 3 the extent permitted by the Merger Agreement, waived at or prior to the time the Offer otherwise would expire, except to the extent any such conditions that have not been waived are incapable of being satisfied. Subject to the terms of the Merger Agreement, Parent and Merger Sub may, without the consent of the Company, (i) extend the Offer beyond the scheduled Expiration Date, for such period no later than the Outside Date, as described below, as Parent or Merger Sub reasonably believes is necessary to cause the conditions to be satisfied if, at or prior to the time the Offer otherwise would expire, any conditions to the Offer shall not have been satisfied or, to the extent permitted by the Merger Agreement, waived, (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or its staff applicable to the Offer, or (iii) extend the Offer up to two occasions of 10 Business Days each, but in no event beyond the outside Date if, on such date, all of the conditions to Merger Sub's obligation to accept for payment and to pay for the Shares have been satisfied or to the extent permitted by the Merger Agreement waived, but the number of shares validly tendered and not withdrawn pursuant to the Offer together with Company Common Stock then beneficially owned by Parent and Merger Sub represents less than 90% of the outstanding shares on a fully diluted basis. The Outside Date is March 1, 2005; provided, however, that if, on an Expiration Date occurring on or within ten (10) Business Days prior to March 1, 2005, all conditions to Merger Sub's obligations to pay for shares of Company Common Stock validly tendered pursuant to the Offer are satisfied or, to the extent permitted by the Merger Agreement, waived, other than the condition that the Company be permitted by applicable SEC rules and regulations to mail to stockholders the Schedule 14C Information Statement, then the Company or Parent may elect, by notifying the other in writing, to extend the Outside Date to a date up to ten (10) Business Days after March 1, 2005. The Merger Agreement also provides that, if the Minimum Condition is satisfied and Merger Sub purchases Shares in the Offer, Merger Sub may, in its sole discretion, provide a subsequent offering period in accordance with Rule 14d-11 under the Exchange Act (a "Subsequent Offering Period"). A Subsequent Offering Period is an additional period of time from three to 20 business days in length, beginning after Merger Sub purchases Shares tendered in the Offer, during which time stockholders may tender, but not withdraw, their Shares and receive the Offer Price. Rule 14d-11 provides that Merger Sub may include a Subsequent Offering Period so long as, among other things, (i) the Offer remained open for a minimum of 20 business days and has expired, (ii) all conditions to the Offer are deemed satisfied or waived by Merger Sub on or before the Expiration Date, (iii) Merger Sub accepts and promptly pays for all Shares tendered during the Offer prior to Expiration Date, (iv) Merger Sub announces the results of the Offer, including the approximate number and percentage of Shares deposited in the Offer, no later than 9:00 a.m. Eastern time on the next business day after the Expiration Date and immediately begins the Subsequent Offering Period, and (v) Merger Sub immediately accepts and promptly pays for Shares as they are tendered during the Subsequent Offering Period. In the event that Merger Sub elects to provide a Subsequent Offering Period, it will provide an announcement to that effect by issuing a press release to a national news service prior to 9:00 a.m., Eastern time, on the next business day after the previously scheduled Expiration Date. Any Shares tendered during a Subsequent Offering Period may not be withdrawn. Subject to the applicable rules and regulations of the SEC and the provisions of the Merger Agreement (including the provisions discussed above with respect to extensions of the Offer and prohibited amendments), Merger Sub expressly reserves the right, in its sole discretion (i) to terminate the Offer if any of the conditions set forth in Section 14 -- "Conditions of the Offer" have not been satisfied, (ii) to waive any condition to the Offer (other than the Minimum Condition) or (iii) otherwise to amend the Offer in any respect not prohibited by the Merger Agreement, in each case by giving oral or written notice of such extension, termination, waiver or amendment to the Depositary and by making a public announcement thereof. The rights reserved by Merger Sub by the preceding paragraph are in addition to Merger Sub's rights set forth in Section 14 -- "Conditions of the Offer." Any extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be made no later than 9:00 a.m., Eastern time, on the next business day after the previously scheduled Expiration Date, in accordance with the public announcement requirements of Rule 14e-1(d) under the Exchange Act. Subject to applicable law (including Rules 14d-4(d) and 14d-6(c) under the 4 Exchange Act, which require that material changes be promptly disseminated to stockholders in a manner reasonably designed to inform them of such changes) and without limiting the manner in which Merger Sub may choose to make any public announcement, Merger Sub shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release to a national news service. If Merger Sub extends the Offer, then, without prejudice to Merger Sub's rights under the Offer, the Depositary may retain tendered Shares on behalf of Merger Sub, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal rights as described herein under Section 4 -- "Withdrawal Rights." However, the ability of Merger Sub to delay the payment for Shares that Merger Sub has accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of stockholders promptly after the termination or withdrawal of such bidder's offer. If Merger Sub makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, Merger Sub will disseminate additional tender offer materials and extend the Offer to the extent required by applicable law and the applicable regulations of the SEC. The minimum period during which an offer must remain open following material changes in the terms of the Offer, other than a change in price, or percentage of securities sought or inclusion of or changes to a dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the changes. In the SEC's view, an offer should remain open for a minimum of five business days from the date any material change is first published, sent or given to stockholders and, if material changes are made with respect to price and share levels, a minimum of ten business days may be required to allow for adequate dissemination and investor response. The Company has provided Merger Sub with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares whose names appear on the Company's stockholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject to the conditions of the Offer (including the terms and conditions of the Offer as extended or amended) and the satisfaction or waiver of all the conditions to the Offer set forth in Section 14 -- "Conditions of the Offer," Merger Sub will accept for payment and will pay for all Shares validly tendered prior to the Expiration Date and not properly withdrawn promptly after the Expiration Date. Subject to the Merger Agreement and compliance with Rule 14e-1(c) under the Exchange Act, Merger Sub expressly reserves the right to delay payment for Shares in order to comply in whole or in part with any applicable law. See Section 15 -- "Certain Legal Matters; Regulatory Approvals." If Merger Sub decides to include a Subsequent Offering Period, Merger Sub will accept for payment, and promptly pay for, all validly tendered Shares as they are received during the Subsequent Offering Period. See Section 1 -- "Terms of the Offer." In all cases (including during any Subsequent Offering Period), payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the "Share Certificates") or confirmation of a book-entry transfer of such Shares (a "Book-Entry Confirmation") into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 -- "Procedures for Accepting the Offer and Tendering Shares," (ii) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined below) in lieu of the Letter of Transmittal and (iii) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times 5 depending upon when Share Certificates or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, that states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Merger Sub may enforce such agreement against such participant. For purposes of the Offer (including during any Subsequent Offering Period), Merger Sub will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not properly withdrawn as, if and when Merger Sub gives oral or written notice to the Depositary of Merger Sub's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the Offer Price for such Shares with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from Merger Sub and transmitting such payments to tendering stockholders whose Shares have been accepted for payment. If, for any reason whatsoever, acceptance for payment of any Shares tendered pursuant to the Offer is delayed, or Merger Sub is unable to accept for payment Shares tendered pursuant to the Offer, then, without prejudice to Merger Sub's rights under the Offer hereof, the Depositary may, nevertheless, on behalf of Merger Sub, retain tendered Shares, and such Shares may not be withdrawn, except to the extent that the tendering stockholders are entitled to withdrawal rights as described in Section 4 -- "Withdrawal Rights" and as otherwise required by Rule 14e-1(c) under the Exchange Act. Under no circumstances will interest be paid on the Offer Price for Shares, regardless of any delay in making payment for such Shares. If any tendered Shares are not accepted for payment for any reason pursuant to the terms and conditions of the Offer, or if Share Certificates that are submitted evidence more Shares than are tendered, then Share Certificates evidencing unpurchased Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedure set forth in Section 3 -- "Procedures for Accepting the Offer and Tendering Shares," such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable following the expiration or termination of the Offer. If, prior to the Expiration Date, Merger Sub increases the Offer Price to Company stockholders in the Offer, Merger Sub will pay the increased price to all Company stockholders from whom Merger Sub purchases Shares in the Offer, regardless of whether or not the Shares were tendered before the increase in price, if any. As of the date of this Offer to Purchase, Merger Sub has no intention to increase the Offer Price. 3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES. Valid Tenders. In order for a stockholder validly to tender Shares pursuant to the Offer, either (1) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, together with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal) and any other documents required by the Letter of Transmittal must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and either (A) the Share Certificates evidencing tendered Shares must be received by the Depositary at such address or (B) such Shares must be tendered pursuant to the procedure for book-entry transfer described below and a Book-Entry Confirmation must be received by the Depositary, in each case prior to the Expiration Date (or, prior to the expiration of any Subsequent Offering Period, if any), or (2) the tendering stockholder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, RECEIPT OF A BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY 6 MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Book-Entry Transfer. The Depositary will establish an account with respect to the Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make a book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer at the Book-Entry Transfer Facility, either the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any other required documents, must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date (or, with respect to any Subsequent Offering Period, if one is provided, prior to the expiration thereof), or the tendering stockholder must comply with the guaranteed delivery procedure described below. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. Signature Guarantees. All signatures on the Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program or any other "eligible grantor institution," as such term is defined in Rule 17Ad-15 of the Exchange Act (each an "Eligible Institution" and collectively, "Eligible Institutions") unless (i) the Letter of Transmittal is signed by the registered holder (which term, for purposes of this Section 3 includes any participant in the Book-Entry Transfer Facility's systems whose name appears on a security position listing as the owner of the Shares) of the Shares tendered therewith, and such holder has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal or (ii) the Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is an Eligible Institution. In all other cases, all signatures on a Letter of Transmittal must be guaranteed by an Eligible Institution. See Instructions to the Letter of Transmittal. If a Share Certificate is registered in the name of a person or persons other than the signer of the Letter of Transmittal, or if payment is to be made or delivered to, or a Share Certificate not accepted for payment or not tendered is to be issued, in the name of a person other than the registered holder(s), then the Share Certificate must be endorsed or accompanied by appropriate duly executed stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the Share Certificate, with the signature(s) on such Share Certificate or stock powers guaranteed by an Eligible Institution as provided in the Letter of Transmittal. See Instruction 3 of the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and the Share Certificates evidencing such stockholder's Shares are not immediately available or such stockholder cannot deliver the Share Certificates and all other required documents to the Depositary prior to the Expiration Date, or such stockholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, then such Shares may nevertheless be tendered; provided that all of the following conditions are satisfied: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Merger Sub, is received prior to the Expiration Date by the Depositary as provided below; and (iii) the Share Certificates (or a Book-Entry Confirmation) evidencing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other documents required by the Letter 7 of Transmittal are received by the Depositary within three American Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or mailed to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the form of Notice of Guaranteed Delivery made available by Merger Sub. Other Requirements. Notwithstanding any other provision of this Offer, payment for Shares accepted pursuant to the Offer will in all cases only be made after timely receipt by the Depositary of (i) Share Certificates or a Book-Entry Confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in this Section 3, (ii) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal and (ii) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when Share Certificates or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. Under no circumstances will interest be paid on the Offer Price to be paid by Merger Sub for the Shares, regardless of any extension of the Offer or any delay in making such payment. The tender of Shares pursuant to any one of the procedures described above will constitute the tendering stockholder's acceptance of the Offer, as well as the tendering stockholder's representation and warranty that such stockholder has the full power and authority to tender and assign the Shares tendered, as specified in the Letter of Transmittal. Merger Sub's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering stockholder and Merger Sub upon the terms and subject to the conditions of the Offer. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Merger Sub in its sole discretion, which determination shall be final and binding on all parties. Merger Sub reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of which may, in the opinion of its counsel, be unlawful. Merger Sub also reserves the absolute right to waive any defect or irregularity in the tender of any Shares of any particular stockholder, whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived to the satisfaction of Merger Sub. None of Merger Sub, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Merger Sub's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. Appointment. By executing the Letter of Transmittal as set forth above (or, in the case of a book-entry transfer, by delivering an Agent's Message in lieu of the Letter of Transmittal), the tendering stockholder will irrevocably appoint designees of Merger Sub, and each of them, as such stockholder's attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by Merger Sub and with respect to any and all other Shares or other securities or rights issued or issuable in respect of such Shares. All such powers of attorney and proxies will be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Merger Sub accepts for payment Shares tendered by such stockholder as provided herein. Upon such appointment, all prior powers of attorney, proxies and consents given by such stockholder with respect to such Shares or other securities or rights will, without further action, be revoked and no subsequent powers of attorney, proxies, consents or revocations may be given by such stockholder (and, if given, will not be deemed effective). The designees of Merger Sub will thereby be empowered to exercise all voting and other rights with respect to such Shares and other securities or rights, including, without limitation, in respect of any annual, special or adjourned meeting of the Company's stockholders, actions by written consent in lieu of any such meeting or otherwise, as they in their sole discretion deem proper. Merger Sub reserves the right to require that, in order 8 for Shares to be deemed validly tendered, immediately upon Merger Sub's acceptance for payment of such Shares, Merger Sub must be able to exercise full voting, consent and other rights with respect to such Shares and other related securities or rights, including voting at any meeting of stockholders. Backup Withholding. Under the "backup withholding" provisions of United States federal income tax law, the Depositary may be required to withhold 28% of the amount of any payments pursuant to the Offer. In order to prevent backup withholding with respect to payments to certain stockholders of the Offer Price for Shares purchased pursuant to the Offer, each such stockholder must provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") and certify that such stockholder is not subject to backup withholding by completing the Substitute Form W-9 in the Letter of Transmittal. Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. If a stockholder does not provide its correct TIN or fails to provide the certifications described above, the Internal Revenue Service may impose a penalty on the stockholder and payments of cash to the stockholder pursuant to the Offer may be subject to backup withholding. All stockholders surrendering Shares pursuant to the Offer should complete and sign the Substitute Form W-9 included in the Letter of Transmittal to provide the information necessary to avoid backup withholding. Non-corporate foreign stockholders should complete and sign an appropriate Form W-8 (a copy of which may be obtained from the Depositary) in order to avoid backup withholding. See Instruction 6 of the Letter of Transmittal. 4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section 4, tenders of Shares made pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by Merger Sub pursuant to the Offer, may also be withdrawn at any time after March 7, 2005. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover page of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of such Shares, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3 -- "Procedures for Accepting the Offer and Tendering Shares," any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with the Book-Entry Transfer Facility's procedures. If Merger Sub extends the Offer, is delayed in its acceptance for payment of Shares or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to Merger Sub's rights under the Offer, the Depositary may, on behalf of Merger Sub, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as described herein. Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date or during the Subsequent Offering Period (if any) by following one of the procedures described in Section 3 -- "Procedures for Accepting the Offer and Tendering Shares." No withdrawal rights will apply to Shares tendered into a Subsequent Offering Period and no withdrawal rights apply during the Subsequent Offering Period with respect to Shares tendered in the Offer and accepted for payment. See Section 1 -- "Terms of the Offer." 9 All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Merger Sub, in its sole discretion, whose determination will be final and binding. None of Merger Sub, the Depositary, the Information Agent or any other person will be under duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. 5. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES. The following is a general summary of certain United States federal income tax consequences of the Offer and the Merger relevant to a beneficial holder of Shares whose Shares are tendered and accepted for payment pursuant to the Offer or whose shares are converted into the right to receive cash in the Merger (a "Holder"). This discussion is for general information only and does not purport to consider all aspects of United States federal income taxation that may be relevant to Holders. The discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing regulations promulgated thereunder and administrative and judicial interpretations thereof, all as in effect as of the date hereof and all of which are subject to change (possibly with retroactive effect). This discussion applies only to Holders that hold Shares as "capital assets" within the meaning of Section 1221 of the Code (generally, property held for investment) and does not apply to Shares acquired pursuant to the exercise of employee stock options or otherwise as compensation, shares held as part of a "straddle," "hedge," "conversion transaction," "synthetic security" or other integrated investment, or to certain types of Holders (including, without limitation, financial institutions, insurance companies, tax-exempt organizations and dealers in securities) that may be subject to special rules. This discussion does not address the United States federal income tax consequences to a Holder that, for United States federal income tax purposes, is a non-resident alien individual, a foreign corporation, a foreign partnership or a foreign estate or trust and does not consider the effect of any state, local, foreign or other tax laws. THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR TAX EFFECTS TO SUCH STOCKHOLDER OF THE OFFER AND THE PROPOSED MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS. The receipt of cash for Shares pursuant to the Offer or the Merger will be a taxable transaction for United States federal income tax purposes. For United States federal income tax purposes, a Holder who sells Shares pursuant to the Offer or receives cash in exchange for Shares pursuant to the Merger will generally recognize capital gain or loss equal to the difference (if any) between the amount of cash received and the Holder's adjusted tax basis in Shares sold pursuant to the Offer or exchanged for cash pursuant to the Merger. Gain or loss must be determined separately for each block of Shares sold pursuant to the Offer or exchanged for cash pursuant to the Merger (for example, Shares acquired at the same cost in a single transaction). Such capital gain or loss will be long-term capital gain or loss if the Holder has held such Shares for more than one year at the time of the completion of the Offer or consummation of the Merger. Long-term capital gain of noncorporate stockholders generally is subject to federal income tax at the maximum rate of 15%. There are limitations on the deductibility of capital losses. Payments in connection with the Offer or the Merger may be subject to "backup withholding" at a rate of 28% unless a Holder of Shares (i) provides a correct TIN (which, for an individual Holder, is the Holder's social security number) and any other required information, or (ii) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, and otherwise complies with applicable requirements of the backup withholding rules. A Holder that does not provide a correct TIN may be subject to penalties imposed by the Internal Revenue Service (the "IRS"). Holders may prevent backup withholding by completing and signing the Substitute Form W-9 included as part of the Letter of Transmittal. Any amount paid as backup withholding does not constitute an additional tax and will be creditable against the Holder's United States federal income tax liability, provided that the required information is given to the IRS. If backup withholding results in an overpayment of taxes, a refund may be obtained from the IRS. Each Holder 10 should consult its tax advisor as to such Holder's qualification for exemption from backup withholding and the procedure for obtaining such exemption. 6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are quoted on the American Stock Exchange under the symbol "DXT." The following table sets forth, for the periods indicated, the high and low sale prices per Share. Share prices are as reported on the American Stock Exchange based on published financial sources. The Company did not declare or pay cash dividends on the Shares for the periods represented below.
HIGH LOW ----- ----- Fiscal Year 2003: First Quarter............................................. $2.50 $1.15 Second Quarter............................................ 1.75 1.35 Third Quarter............................................. 2.00 1.62 Fourth Quarter............................................ 2.84 1.63 Fiscal Year 2004: First Quarter............................................. 4.20 3.05 Second Quarter............................................ 4.90 3.35 Third Quarter............................................. 4.04 3.16 Fourth Quarter............................................ 4.60 3.40 Fiscal Year 2005: First Quarter............................................. 6.96 3.80
On December 16, 2004, the last full day of trading before the public announcement of the execution of the Merger Agreement, the closing price of the Shares on the American Stock Exchange was $5.99 per Share. Under the terms of the Merger Agreement, the Company is not permitted to declare, set aside for payment or pay any dividend or distribution with respect to the Shares, without the consent of Parent. WE URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. 7. CERTAIN INFORMATION CONCERNING THE COMPANY. General. The Company is a Delaware corporation with its principal offices located at 195 International Parkway, Heathrow, FL 32746. The telephone number of the Company is (407) 829-9000. The Company's business is the manufacture and sale of writing and drawing pencils, pens, artist materials, felt tip markers, industrial markers, lumber crayons, correction materials and allied products. Company Projections. The Company does not, as a matter of course, make public any specific forecasts or projections as to its future financial performance. However, in connection with Parent's due diligence, the Company provided certain projected and budgeted financial information concerning the Company to Parent. In addition the Company provided the same information to its own financial advisors. The Company advised Parent (as well as the Company's financial advisors) that the Company's internal financial forecasts (upon which the projections provided to the Parent were based in part) are, in general, prepared solely for internal use and are subjective in many respects, and, thus, susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. It is expected that there will be differences between actual and projected results, and actual results may be materially greater or less than those contained in the projections provided by the Company. The inclusion of the projections in this Offer to purchase should not be regarded as an indication that any of Parent, Merger Sub, the Company or their respective affiliates or representatives consider the projections to be a reliable prediction of future events, and the projections should not be relied upon as such. These projections are being provided in this document only because the Company made them available to Parent in connection with Parent's due diligence review of the Company. 11 The Company has advised Merger Sub and Parent that the projections were not prepared with a view to public disclosure or compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts. Furthermore, the projections do not purport to present operations in accordance with U.S. generally accepted accounting principles (GAAP), and the Company's independent auditors have not examined, compiled or otherwise applied procedures to the projections and accordingly assume no responsibility for them. The Company has advised Merger Sub and Parent that its internal financial forecasts (upon which the projections provided to Merger Sub and Parent were based in part) are prepared solely for internal use for budgeting and other management decisions and are subjective in many respects and thus susceptible to interpretations and periodic revision based on actual experience and business developments. The projections also reflect numerous assumptions made by the management of the Company, including assumptions with respect to industry performance, the market for the Company's existing and new products, general business, economic, market and financial conditions and other matters, all of which are difficult to predict, many of which are beyond the Company's control and none of which were subject to approval by Merger Sub and Parent. Accordingly, there can be no assurance that the assumptions made in preparing the projections will prove accurate or that any of the projections will be realized. It is expected that there will be differences between actual and projected results, and actual results may be materially greater or less than those contained in the projections due to numerous risks and uncertainties, including, but not limited to the risks and uncertainties described in reports filed by the Company with the SEC under the Exchange Act. All projections are forward-looking statements; these and other forward-looking statements are expressly qualified in their entirety by the risks and uncertainties identified above and the cautionary statements contained in the Company's 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission. None of Parent, Merger Sub, the Company or any of their respective affiliates or representatives makes any representation to any person regarding the projections, and none of them intends to update or otherwise revise the projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the projections are shown to be in error. In this regard, investors are cautioned not to place undue reliance on the projected information provided. The projections provided by the Company's management included the following for the Company on a consolidated basis for fiscal 2005.
($ IN MILLIONS) --------------- Total Revenue............................................... 94,934 Gross Profit................................................ 36,741 Net Profit.................................................. 2,026
The projections assume that the Company remained independent and reflect costs and expenses associated with investment banking fees, debt refinancing costs and Sarbanes-Oxley compliance costs. These projections should be read together with the Company's financial statements that can be obtained from the Commission as described below in this Section 7 under the heading "Available Information." Available Information. The Shares are registered under the Exchange Act. Accordingly, the Company is subject to the informational reporting requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the SEC relating to its business, financial condition and other matters. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Information regarding the public reference facilities may be obtained from the SEC by telephoning 1-800-SEC-0330. The Company's filings are also available to the public on the SEC's Internet site (http://www.sec.gov). Copies of such materials may also be obtained by mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. 12 Except as otherwise provided in this Offer to Purchase, the information concerning the Company contained herein has been obtained from or is based upon reports and other documents on file with the SEC or otherwise publicly available. Although Parent and Merger Sub have no knowledge which would indicate that any statements contained herein based upon such reports and documents are untrue, Parent and Merger Sub take no responsibility for the accuracy or completeness of the information obtained or contained in such reports and other documents or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information but that are unknown to Merger Sub. 8. CERTAIN INFORMATION CONCERNING THE PARENT AND MERGER SUB. General. The Parent is a privately held Italian corporation with its principal offices located at Via Sempione, 2/C, 20016 Pero (MI), Milan, Italy. The telephone number of the Parent is 011-39-02-38-100-363. Parent manufactures and markets a wide range of design and writing instruments, art materials and modeling paste. Its leading brands in the European market are Giotto, Tratto Pongo, Das and Dido. It employs about 600 people at four facilities in Italy, France, Spain and Chile. Merger Sub is wholly owned by Parent. Merger Sub was formed for the purpose of merging with the Company. Merger Sub is a Delaware corporation with its principal offices c/o Parent at its address and phone number set forth above. The name, citizenship, business address, business phone number, principal occupation or employment and five-year employment history for each of the directors and executive officers of the Parent and Merger Sub and certain other information are set forth in Schedule I to this Offer to Purchase. Except as described in this Offer to Purchase, (i) none of the Parent, Merger Sub or, to the knowledge of the Parent or Merger Sub, any of the persons listed in Schedule I to this Offer to Purchase or any associate or majority-owned subsidiary of the Parent or Merger Sub or any of the persons so listed beneficially owns or has any right to acquire, directly or indirectly, any Shares and (ii) none of the Parent or Merger Sub or, to the knowledge of the Parent or Merger Sub, any of the persons or entities referred to above nor any director, executive officer or subsidiary of any of the foregoing has effected any transaction in the Shares during the past 60 days. Except as provided in the Merger Agreement, the Stock Purchase Agreement, or as otherwise described in this Offer to Purchase, none of the Parent, Merger Sub nor, to the knowledge of the Parent, any of the persons listed in Schedule I to this Offer to Purchase, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or voting of such securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss, guarantees of profits, division of profits or loss or the giving or withholding of proxies. Except as set forth in this Offer to Purchase, none of the Parent or Merger Sub or, to the knowledge of the Parent or Merger Sub, any of the persons listed on Schedule I hereto, has had any business relationship or transaction with the Company or any of its executive officers, directors or affiliates that is required to be reported under the rules and regulations of the SEC applicable to the Offer. Except as set forth in this Offer to Purchase, there have been no contracts, negotiations or transactions between the Parent or Merger Sub or, to the knowledge of the Parent, any of the persons listed in Schedule I to this Offer to Purchaser, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets. None of the persons listed in Schedule I has, during the past five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). None of the persons listed in Schedule I has, during the past five years, been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. 13 Available Information. Pursuant to Rule 14d-3 under the Exchange Act, the Parent and Merger Sub filed with the SEC a Tender Offer Statement on Schedule TO (the "Schedule TO"), of which this Offer to Purchase forms a part, and exhibits to the Schedule TO. The Schedule TO and the exhibits thereto can be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Information regarding the public reference facilities may be obtained from the SEC by telephoning 1-800-SEC-0330. The Parent and Merger Sub's filings are also available to the public on the SEC's Internet site (http://www.sec.gov). Copies of such materials may also be obtained by mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. 9. SOURCE AND AMOUNT OF FUNDS. The offer is not conditioned upon any financing arrangements or subject to any financing condition or otherwise conditioned upon Parent's or Merger Sub's ability to finance the purchase of Shares pursuant to the Offer. Parent and Merger Sub estimate that the total amount of funds required to purchase all of the outstanding Shares pursuant to the Offer and the Merger will be approximately $23.1 million, plus any related transaction fees and expenses. Merger Sub expects to obtain the funds required to consummate the Offer and the Merger from the Parent. Parent has on hand the necessary funds which it obtained pursuant to the facility described below to complete the Offer and the Merger, and will cause Merger Sub to have sufficient funds available to complete the Offer and the Merger. After completion of the Offer, Parent expects to repay approximately $12 million (including accumulated interest) of outstanding subordinated indebtedness of the Company. Parent will obtain such funds pursuant to the facility described below. Parent has entered into a Facilities Agreement with Banca Intesa S.p.A. ("Intesa"), comprised of (i) a E20 million facility ("Tranche A") and (ii) a US $20 million facility ("Tranche B"). Both Tranches mature nine months from the date of the Facilities Agreement (September 15, 2005). Tranche A will be used to purchase the Shares pursuant to the Offer and the Merger. Parent has drawn down the funds subject to Tranche A. Tranche B will be used to extinguish the outstanding subordinated indebtedness of the Company which will become due and payable as a result of the Offer. The Facilities Agreement is secured by a negative pledge of Parent's assets (other than Merger Sub's shares) prior to the Merger, and thereafter, by an affirmative pledge on the shares of the Surviving Corporation. Borrowings under the Facilities Agreement will bear interest, (i) for Tranche A equal to the aggregate of 1.3 percent per annum, plus EURIBOR, and (ii) for Tranche B an aggregate of LIBOR plus (x) 1.75 percent per annum for borrowings up to and including US $10 million and (y) 2.0 percent per annum if the aggregate amount of Tranche B loans is greater than US $10 million up to an including US $20 million. The Facilities Agreement contains warranties, covenants, default provisions, and other conditions as are normally contained in documents relating to similar facilities provided by Intesa. Parent will be required to pay certain fees to, to pay certain expenses of, and to provide customary indemnities to, lenders in connection with the Facilities Agreement. Parent anticipates that the Facilities Agreement will be repaid, directly or indirectly, from the proceeds of future borrowings or other debt or equity financings. Parent currently has no specific plans or arrangements for any such future borrowings or other financings. The foregoing summary of the terms and conditions of the Facilities Agreement is qualified in its entirety by the Facilities Agreement, a copy of which has been filed as Exhibit (b) (i), to the Tender Offer Statement on Schedule TO. The Facilities Agreement may be examined and copies may be obtained at the places and in the manner set forth in Section 8 -- "Certain Information Concerning Parent and Merger Sub." 14 10. BACKGROUND OF THE OFFER; PAST CONTACTS OR NEGOTIATIONS WITH THE COMPANY. Parent understands that the Company had been in discussions with other parties prior to and during 2004 concerning a possible merger or other extraordinary transaction, including with representatives of California Cedar Products Company ("CCPC") and that in December 2003, the Company Board had appointed a committee (the "Committee") to oversee negotiations with the various suitors interested in acquiring the Company. During the summer of 2004, CCPC asked Parent to join with it to make an offer to acquire the Company. On August 6, 2004, and again on August 25, 2004, Lazard & Co., S.r.l. ("Lazard"), on behalf of Parent and CCPC (collectively "FC"), wrote to the Company expressing FC's interest in acquiring the Company and requesting due diligence information regarding the Company. In response, representatives of the Company advised FC's representatives that the Company was not in a position to discuss a transaction with FC at that time. On August 29, 2004, the Committee advised an FC representative that the Company was continuing discussions with another suitor but that as of that date, the Company was not restricted from discussing a possible transaction with FC, and that the Committee wanted more information about FC's proposal, including the arrangement between the FC parties, FC's ability to finance a transaction, and any contingencies to a closing. FC was informed by the Committee that the other suitor had substantially completed its due diligence investigation of the Company and that if FC wanted to proceed with a transaction, it would have to be able to proceed very quickly. Lazard then sent the Company a letter dated August 31, 2004, addressing some of the Committee's concerns, including pricing, due diligence, financing and timing. After discussions between the Committee and its representatives and FC's representatives about FC's ability to close a transaction and the other concerns the Committee had about FC's proposal, on or about September 3, 2004, the Company informed FC that it would be afforded access to information regarding Dixon and would be given until September 17, 2004, subsequently extended to September 22, 2004 due to complications posed by hurricanes in Florida, to make an offer for all of Dixon's outstanding shares. FC signed a Confidentiality Agreement with Dixon dated September 8, 2004, and was then provided detailed documentation regarding, among other things, Dixon's operations, financial results and condition, corporate structure, agreements and litigation. FC hired PriceWaterhouseCoopers LLC to assist in its due diligence efforts, which were conducted during September 2004, and included visits to Dixon's executive offices in Heathrow, Florida, and it plants in Versailles, Missouri and Mexico. On or about September 22, 2004, Lazard, on behalf of FC, proposed to the Committee that the parties negotiate a definitive agreement whereby FC would acquire all of Dixon's issued and outstanding shares for $7 per share. Such proposal was subject to, among other things, the approval by the respective boards of Parent and CCPC. On September 24, 2004, the Committee responded, advising Lazard that the $7 proposal was unacceptable, and proposing, among other things, that FC acquire Dixon's issued and outstanding shares for $7.25 per share. On FC's behalf, Lazard responded on September 29, 2004, confirming that Parent's and CCPC's respective boards had authorized proceeding with the proposed acquisition and confirming FC's proposal to acquire Dixon's issued and outstanding shares for $7 per share. In that letter, Lazard confirmed that any offer by FC would not be subject to financing. On October 1, 2004, the Committee responded to Lazard's September 29 letter. In its response, the Committee again requested a price of $7.25 per share, and set forth its position regarding a termination fee and FC's request that Dixon obtain a waiver by Dixon's senior and subordinated lenders of the change of control provisions contained in their respective loan agreements. On October 4, 2004, Lazard responded, on FC's behalf, to the Committee's October 1, 2004 letter. Lazard confirmed FC's belief that $7 per share represented a full and fair price for all of Dixon's outstanding shares. Lazard also requested certain information relating to Dixon's inventories, which Dixon supplied on or about October 8, 2004. 15 On October 8, 2004, counsel for the Committee and the Company sent FC's counsel a proposed letter agreement providing that the parties would negotiate exclusively for the acquisition of all of Dixon's issued and outstanding shares at a price of not less than $7 per share. Thereafter, counsel for the parties and the Committee negotiated the proposed letter agreement. The parties executed the letter agreement dated October 15, 2004 and effective on October 18, 2004 (the "Letter") providing for an exclusive 30 day period for the parties to negotiate a definitive merger agreement. The Letter assumed that FC had completed its due diligence other than that related to the calculation of reserves for Dixon's inventory in Mexico, and contemplated that the definitive agreement would provide for FC to commence a tender offer to purchase all of Dixon's issued and outstanding shares at a price not less than $7 per share in cash followed by a cash out merger at the same price. The Letter also contemplated that Gino Pala and Rick Joyce, Co-CEOs of Dixon, would enter into a Stock Purchase Agreement requiring them to tender their shares into the offer, if consummated. Following execution of the October 15, 2004 Letter, the parties continued to negotiate the terms of a definitive merger agreement. On or about October 29, 2004, representatives of FC met with Dixon's management in Heathrow, Florida to discuss FC's concerns regarding certain of Dixon's inventory. On November 16, 2004, Lazard sent a letter to the Committee requesting that the exclusivity provision contained in the Letter be extended to December 3, 2004 to allow Parent's lender, Intesa, time to document its credit approval of the loan to Parent to acquire the shares. In the November 16, 2004 letter, Lazard advised the Company that CCPC had withdrawn from the proposed acquisition, and that Parent would purchase the Shares without CCPC's participation. On November 17, 2004, the Committee responded to Lazard's November 16 letter proposing that the exclusivity agreement be extended until December 3, 2004. The Committee requested an acknowledgment by Parent that Dixon did not intend to extend the exclusivity period further unless Parent agreed that any further extension beyond December 3, 2004, would require Parent to make a non-refundable $800,000 deposit. Parent rejected the Committee's proposal, and on November 18, 2004, Dixon agreed to extend Parent's exclusivity period under the Letter until December 3, 2004. On or about December 2, 2004, counsel for Parent requested a further extension of the exclusivity provision of the Letter to finalize its financing arrangements. The parties were unable to agree upon the terms of such an extension, but continued to negotiate the terms of the Merger Agreement and related agreements. Before and during the week of December 13, 2004, counsel for Dixon and Parent negotiated for, and obtained, amendments and/or waivers from the Company's lenders regarding the change of control provisions under their respective loan agreements and continued the negotiation of the remaining open issues under the Merger Agreement. The agreements with Dixon's lenders provide that the execution and delivery of the Merger Agreement and the Stock Purchase Agreement and commencement of the offer will not to cause a "change in control" of Dixon and further provided, in the case of Dixon's senior lenders, that none of the consummation of the offer, the purchase of shares pursuant to the Stock Purchase Agreement, or the Merger will constitute a "change in control," provided certain conditions are met. On December 16, 2004, after the close of the financial markets, the parties executed the definitive Merger Agreement and Merger Sub and the other parties thereto executed the Stock Purchase Agreement. A joint press release announcing the transaction was issued prior to the opening of the financial markets the next morning. 11. THE MERGER AGREEMENT AND RELATED AGREEMENTS. Merger Agreement. The following is a summary of the material provisions of the Merger Agreement, a copy of which is filed as an exhibit to the Tender Offer Statement on Schedule TO. The summary is qualified in its entirety by reference to the Merger Agreement, which is incorporated by reference herein. Capitalized terms used herein and not otherwise defined have the meanings assigned to them in the Merger Agreement. The Offer. The Merger Agreement provides for the commencement of the Offer as promptly as reasonably practicable but in no event later than fifteen business days after the execution of the Merger Agreement, which occurred on December 16, 2004. The obligation of Merger Sub to accept for payment and 16 pay for Shares tendered pursuant to the Offer is subject to the satisfaction of the Minimum Condition and certain other conditions that are described in Section 14 -- "Conditions of the Offer." Directors. The Merger Agreement provides that, promptly upon the payment for Shares pursuant to the Offer and Stock Purchase Agreement, Merger Sub will be entitled to designate up to such number of directors, rounded to the closest whole number, of the Board of Directors of the Company, as will give Merger Sub representation on the Board equal to its proportionate ownership of the Shares and the Company shall, upon request by Merger Sub, promptly, at the Company's election, either increase the size of the Board or secure the resignation of such number of directors as is necessary to enable Merger Sub's designees to be elected or appointed to the Board and will use its reasonable best efforts to cause Merger Sub's designees to be so elected or appointed. The Company's obligations relating to the Company Board are subject to Section 14(f) of the Exchange Act and Rule 14f-1 under the Exchange Act. If Merger Sub's designees are elected or appointed to the Company's Board, then until the Effective Time, the Company's Board shall have at least two directors, or such greater number as may be required by the rules of the American Stock Exchange, who are Independent Directors. The term "Independent Director" means a member of the Company's Board (i) who (except as otherwise provided in the Merger Agreement) was a member of the Board on the date of the Merger Agreement, (ii) who is not an Affiliate or Associate of Parent or Merger Sub, (iii) who is not an employee of the Company or any of its Subsidiaries, and (iv) who is otherwise considered an independent director within the meaning of the rules of the American Stock Exchange. If the number of Independent Directors is reduced below two, or such greater number as may be required by the rules of the American Stock Exchange, the remaining Independent Director(s) will be entitled to designate persons to fill such vacancies who are not Affiliates or Associates of Parent or Merger Sub and who otherwise are considered independent directors within the meaning of the rules of the American Stock Exchange, and such persons shall be deemed to be Independent Directors for purposes of the Merger Agreement. If there shall be no Independent Directors, then the other directors shall use commercially reasonable efforts to designate two persons, or such greater number as may be required by the rules of the American Stock Exchange, to fill such vacancies who are not Affiliates or Associates of Parent or Merger Sub and who otherwise are considered independent directors within the meaning of the rules of the American Stock Exchange, and such persons shall be deemed to be Independent Directors for purposes of the Merger Agreement. Following the purchase by Merger Sub of shares of Company Common Stock pursuant to the Offer, and prior to the Effective Time, Parent and Merger Sub shall use their reasonable best efforts to ensure that at least two Independent Directors (or such greater number as may be required by the rules of the American Stock Exchange) serve as directors of the Company until the Effective Time and neither Parent nor Merger Sub will take any action to cause any Independent Director to be removed as a director of the Company except for cause. The Independent Directors shall form a committee that, during the period from the time shares of Company Common Stock are accepted for purchase pursuant to the Offer until the Effective Time, shall, to the extent permitted by the DGCL and the Merger Agreement, have the sole power and authority, by a majority vote of such Independent Directors, to cause the Company to (a) agree to amend the Merger Agreement or to extend the time for the performance of any of the obligations or other acts of the Parent or Merger Sub under the Offer, the Merger or the Merger Agreement, or (b) exercise or waive any of the Company's rights, benefits, or remedies under the Merger Agreement, except for the right to terminate the Merger Agreement. In addition, during the period from the time shares of Company Common Stock are accepted for purchase pursuant to the Offer until the Effective Time, any (a) amendment to the Company's Certificate of Incorporation or Bylaws, (b) termination of the Merger Agreement by the Company, (c) other action that could adversely affect the interests of the holders of shares of Company Common Stock (other than Parent or Merger Sub), and (d) action specified in the immediately preceding sentence with respect to which the DGCL does not permit a committee of the Board to exercise sole power and authority, shall require, in addition to any other affirmative vote required under the DGCL or the Company's Certificate of Incorporation or Bylaws, the affirmative vote of not less than a majority of the entire Board, which majority shall include the concurrence of a majority of the Independent Directors, and neither Parent nor Merger Sub shall approve (either in its capacity as a stockholder or as a party to the Merger Agreement, as applicable), and each shall use its reasonable best efforts to prevent the occurrence of, any such actions, unless such action shall have received the concurrence of a majority of the Independent Directors. 17 Conversion of Securities. Pursuant to the Merger Agreement, at the Effective Time (a) each Share outstanding immediately prior to the Effective Time (other than Shares owned by the Company or any Subsidiary of the Company, Parent or any Affiliate of Parent, all of which will be cancelled, and other than Shares that are held by stockholders, if any, who properly exercise their appraisal rights under the DGCL) will be converted into the right to receive the Offer Price; and (b) each Share that is owned by the Company or any Subsidiary of the Company, Parent or any Affiliate of Parent immediately prior to the Effective Time will be canceled and no payment will be made with respect to such Shares. Each share of capital stock of Merger Sub issued and outstanding immediately prior to the Effective Time will be converted into one share of Common Stock of the Surviving Corporation. Certificate of Incorporation and Bylaws. The Merger Agreement provides that at the Effective Time, the certificate of incorporation of the Company, as amended and restated in its entirety, will be the certificate of incorporation of the Surviving Corporation, until thereafter amended as provided therein or under the DGCL. The Merger Agreement also provides that the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, will be the bylaws of the Surviving Corporation. Directors and Officers of the Surviving Corporation. The Merger Agreement provides that, immediately prior to the Effective Time, each of the directors of the Company will resign, and that the directors and officers of Merger Sub immediately prior to the Effective Time will, from and after the Effective Time, be the directors and officers, respectively, of the Surviving Corporation. Options. Pursuant to the Merger Agreement, as soon as practicable following the execution of the Merger Agreement, the Company will take or cause to be taken such actions as are reasonably required to ensure that (i) each holder (each, an "Optionee") of a Company Stock Option that has not previously expired or been exercised in full as of or prior to the Effective Time, whether vested or unvested (each such option, an "Eligible Option"), shall have the right to irrevocably elect, no later than immediately prior to the consummation of the Merger, to surrender, following the consummation of the Merger, any Eligible Option then held by the Optionee in exchange for the right to receive a cash payment equal to (x) the excess, if any, of (A) the Merger Consideration over (B) the exercise price per share of Company Common Stock subject to such Eligible Option, multiplied by (y) the number of shares of Company Common Stock then issuable pursuant to the unexercised portion of such Eligible Option, payable not later than five days after the Effective Time, (ii) each Optionee shall have the right to purchase, effective no later than immediately prior to the consummation of the Merger, subject to the consummation of the Merger and in accordance with the terms of the relevant plan or document, all or any part of the shares of Company Common Stock subject to any Eligible Option held by the Optionee (that has not been surrendered pursuant to (i) above), and each share of Company Common Stock so purchased shall be converted, as of the Effective Time, into the right to receive the Merger Consideration, and (iii) each Eligible Option (with respect to which an Optionee has not exercised one of the rights set forth in (i) and (ii) above) shall following the Merger confer upon the Optionee only the right to receive upon exercise in accordance with the terms of the relevant plan or document (including payment of the aggregate exercise price), for each share of Company Common Stock that otherwise would be issuable pursuant to the unexercised portion of such Eligible Option, the Merger Consideration. The Merger. The Merger Agreement provides that, at the Effective Time, Merger Sub will be merged with and into the Company with the Company being the Surviving Corporation. Following the Merger, the separate existence of Merger Sub will cease, and the Company will continue as the Surviving Corporation, wholly owned by the Parent. Stockholders Meeting. If, after consummation of the Offer, a meeting of the Company's stockholders is necessary to consummate the Merger and the Merger has not become effective without a meeting of stockholders as described below, and has not been approved by Stockholders' Written Consent, then the Company will call and hold a meeting of its stockholders as soon as is reasonably practicable following consummation of the Offer for the purpose of voting upon the approval of the Merger Agreement. The Company will prepare and file with the SEC the Company Proxy Statement to the Stockholders of the Company, and the Company's Board of Directors, subject to any withdrawal, modification or amendment in 18 accordance with the provisions of the Merger Agreement, will recommend approval and adoption of the Merger Agreement and approval of the Merger by the Stockholders (and include such recommendation in the Company Proxy Statement), will not withdraw or modify such recommendation and will use its reasonable best efforts to solicit such Stockholder approval and obtain the vote required of the Stockholders to approve the Merger (the "Company Requisite Vote"). At any such meeting all Shares then owned by the Parent, Merger Sub or any other subsidiary of the Parent will be voted in favor of approval of the Merger Agreement and the Merger. Merger Without Meeting of Shareholders. If Merger Sub shall have accepted for payment pursuant to the Offer such number of shares of Company Common Stock which, when aggregated with the shares of Company Common Stock otherwise beneficially owned by the Parent or its Affiliates including shares of the Company's Common Stock subject to the Stock Purchase Agreement, represents 90% or more of the Company's common stock, then the parties will take all necessary action to cause the Merger to become effective pursuant to Section 253 of the DGCL as soon as practicable after Merger Sub accepts for payment and pays for shares tendered in the Offer. If Merger Sub shall have accepted for payment pursuant to the Offer and the Stock Purchase Agreement a number of shares greater than 66 2/3% but less than 90% of the then outstanding shares of Company Common Stock, then Parent and Merger Sub shall execute and deliver to the Company, in accordance with Section 228 of the DGCL, a consent or consents in writing voting all shares of Company Common Stock beneficially owned by them or over which they exercise control in favor of the approval and adoption of the Merger Agreement and the Merger (the "Stockholders' Written Consent"). Simultaneously with its filing of the Company's Schedule 14 D-9, the Company filed with the SEC an information statement on Schedule 14C (the "Schedule 14C Information Statement"), and the Company has agreed to use all reasonable efforts to respond as promptly as practicable to any comments of the SEC or its staff with respect to the Schedule 14C Information Statement. Upon Parent's request, if the Offer is consummated but the number of shares of Company Common Stock accepted for payment in the Offer, together with the shares of Company Common Stock then beneficially owned by the Parent or its Affiliates (including, without limitation, shares of Company Common Stock subject to the Stock Purchase Agreement) is less than 90% of the Company Common Stock then outstanding, the Company shall cause the Schedule 14C Information Statement to be mailed to the Company's stockholders as promptly as practicable following the Expiration Date and delivery by Merger Sub of the Stockholders' Written Consent. Representations and Warranties. Pursuant to the Merger Agreement, the Company has made customary representations and warranties to Merger Sub and Parent, including representations relating to: organization, standing, and corporate power; Company recommendation; rights agreement; Section 203 of the DGCL; subsidiaries; capitalization; authorization; enforceability; no violation or conflict; governmental approvals; SEC documents; financial statements; information provided by the Company for inclusion in the Offer documents, the Schedule 14D-9, and proxy statement; absence of certain changes or events; legal proceedings; existing permits and violations of law; environmental matters; real estate; title to tangible assets; intellectual property; agreements, documents and minute books; insurance; benefit plans; labor matters; taxes; vote required; brokers and finders fees; fairness opinion; interests of officers and directors; and absence of questionable payments. Certain representations and warranties in the Merger Agreement made by the Company are qualified as to "materiality" or "Material Adverse Effect." For purposes of the Merger Agreement, the term "Material Adverse Effect" means any effect, change, event, circumstance or condition which when considered with all other effects, changes, events, circumstances or conditions has materially adversely affected or would reasonably be expected to materially adversely affect the results of operations, financial condition, or business of the Company, including its Subsidiaries together with it taken as a whole. Any of the foregoing shall constitute a "Material Adverse Effect" or "Material Adverse Change" if such effect, change, event, circumstance or condition (i) does or would reasonably be expected to result in reducing the Company's EBITDA for the 12 months ending September 30, 2004 by 5% or more of the Company's EBITDA for the 12 months ending September 30, 2004, as reflected in the September 30, 2004 financial statements provided to Parent and Merger Sub prior to execution of the Merger Agreement, or (ii) does or would reasonably be expected to result in reducing the Company's EBITDA for the 12 months ending September 30, 2005 by 5% or more from the projected amount of the Company's EBITDA for the 12 months ending September 30, 2005, 19 as reflected in the projections delivered to Parent and Merger Sub prior to execution of the Merger Agreement. Pursuant to the Merger Agreement, the Parent and Merger Sub have made customary representations and warranties to the Company, including representations relating to: organization; standing; corporate power; authorization; enforceability; no violation or conflict; government approvals; information supplied; information in other documents; ownership of capital stock of the Company; interested stockholders; legal proceedings; and limited operation of Parent or Merger Sub. Certain representations and warranties in the Merger Agreement made by the Parent and Merger Sub are qualified as to "materiality." Company Conduct of Business Covenants. The Merger Agreement provides that, except (a) as expressly contemplated by the Merger Agreement, or (b) as the Parent may consent in writing, after the date of the Merger Agreement, and prior to the earliest of (i) the termination of the Merger Agreement in accordance with its terms, (ii) the time that Merger Sub's designees are elected or appointed to the Company's Board of Directors, or (iii) the Effective Time, the Company shall, and shall cause its Subsidiaries, to carry on their respective businesses only in the ordinary course consistent with past practice and in compliance in all material respects with all applicable laws and regulations and, to the extent consistent therewith, use commercially reasonable efforts to preserve intact their current business organizations, use commercially reasonable efforts to keep available the services of their current officers and other key employees and preserve their relationships with those persons having business dealings with them and the Company shall not, and shall not permit any of its Subsidiaries, to: (a) other than dividends and distributions (including liquidating distributions) by a direct or indirect wholly-owned Subsidiary of the Company to its parent, (i) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock, property or otherwise) in respect of, any of its capital stock, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (iii) purchase, redeem or otherwise acquire, directly or indirectly, for value any shares of capital stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (b) issue, deliver, sell, pledge or otherwise encumber or subject to any Lien (i) any shares of its capital stock, (ii) any other voting securities, (iii) any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities or (iv) any "phantom" stock or stock rights, SARs or stock-based performance units, other than the issuance of shares of Company Common Stock and associated rights upon the exercise of Company Stock Options outstanding as of the date hereof in accordance with their present terms; (c) amend its certificate of incorporation, bylaws or other comparable organizational documents; (d) merge or consolidate with another Person, acquire, license or agree to acquire or license any business, division or Person or any equity or debt interest therein, acquire, license or agree to acquire or license any assets, other than immaterial assets or assets acquired in the ordinary course of business consistent with past practice, or enter into any joint venture, partnership or similar arrangement; (e) sell, lease, license out, sell and leaseback, mortgage or otherwise encumber or subject to any Lien (other than any Lien imposed by Law, such as a carriers', warehousemen's or mechanics' Lien) or otherwise dispose of any of its properties or assets having a value of $200,000 or more, other than sales or non-exclusive licenses out of finished goods or services in the ordinary course of business consistent with past practice; (f) repurchase or incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person other than in the ordinary course of business consistent with past practice, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its Subsidiaries, guarantee any debt securities of another Person, enter into any "keep well" or other Contract to maintain any financial statement condition of another Person or enter into any Contract having the economic effect of any of the foregoing, other than intercompany indebtedness between the 20 Company and any of its direct or indirect wholly-owned Subsidiaries or between such Subsidiaries; provided, however, that the Company and its Subsidiaries shall be permitted to continue or renew, for a period of no more than three years, any existing revolving lines of credit on terms no less favorable in the aggregate to the Company than currently exist; (g) make any loans, advances or capital contributions to, or investments in, any other Person, other than the Company or any direct or indirect wholly-owned Subsidiary of the Company and except for investments in publicly traded securities or other investments in the ordinary course of the Company's cash management or benefit plan management systems; (h) make or agree to make any new capital expenditures, or enter into any Contract providing for payments by the Company or any of its Subsidiaries which, individually, are in excess of $100,000 or, in the aggregate, are in excess of $200,000, except for Contracts to purchase inventory or supplies entered into in the ordinary course of business or renewals or extensions of existing Contracts relating to capital projects already in progress as of the date of this Agreement identified in the Company Disclosure Letter; (i) pay, discharge, settle or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise) or Legal Proceedings (whether or not commenced prior to the date of this Agreement), other than the payment, discharge, settlement or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities recognized or disclosed in the most recent consolidated financial statements (or the notes thereto) of the Company included in Company SEC Documents or incurred in the ordinary course of business since the date of such financial statements; (j) except as required in order to comply with Law, (i) establish, enter into, adopt, amend or terminate any Company Benefit Plan or Company Stock Plan, (ii) change any actuarial or other assumption used to calculate funding obligations with respect to any Company Pension Plan, or change the manner in which contributions to any Company Pension Plan are made or the basis on which such contributions are determined, or (iii) take any action to accelerate any rights or benefits, or make any material determinations not in the ordinary course of business consistent with past practice, under any collective bargaining agreement or Company Benefit Plan, except in each case to the extent required to comply with any changes in the Laws applicable to any such Company Benefit Plan or Company Stock Plan; (k) other than in the ordinary course of business consistent with past practice (except with respect to directors and officers whose compensation may not be increased), (i) increase the compensation, bonus or other benefits of any current or former director, consultant or employee, (ii) grant any Person any increase in severance or termination pay, or (iii) pay any benefit or amount not required by an agreement, plan, or arrangement as in effect on the date of this Agreement to any such person; (l) transfer or license to any Person or otherwise extend, amend or modify or allow to revert, lapse or expire any material rights to the Intellectual Property Rights of the Company and its Subsidiaries, other than in the ordinary course of business consistent with past practice; (m) increase the number of full-time, permanent employees of the Company or any of its Subsidiaries other than as a result of hiring permanent employees for annual salaries of less than $100,000 in the ordinary course of business consistent with past practice; (n) except insofar as may be required by a change in GAAP or regulatory requirements, make any material changes in accounting methods, principles or practices; (o) authorize, or commit, resolve or agree to take, any of the foregoing actions. No Solicitation. In the Merger Agreement, the Company agrees that it will not, nor will any of its Subsidiaries, or their directors, officers, employees, investment bankers, accountants, attorneys or other professional advisors (collectively, the "Representatives") (i) solicit, initiate, or knowingly encourage (including by way of furnishing nonpublic information) any Acquisition Proposal, (ii) enter into, continue, or otherwise participate in any discussions or negotiations regarding, or furnish to any Person any nonpublic 21 information with respect to, any Acquisition Proposal, or (iii) enter into any agreement providing for an Acquisition Proposal. However, nothing in the Merger Agreement prohibits the Company, its Subsidiaries, or their respective Representatives from furnishing information regarding the Company to, or entering into discussions or negotiations with, any Person in response to an Acquisition Proposal that the Company's board of directors (or a committee thereof) determines in good faith, after consultation with outside legal counsel, reasonably could be expected to lead to a Superior Proposal if (1) none of the Company, its Subsidiaries, or any of their Representatives shall have violated certain restrictions set forth in the Merger Agreement in a manner that resulted in the submission of such Acquisition Proposal; (2) the board of directors of the Company (or a committee thereof) determines in good faith, after consultation with outside legal counsel, that failure to take such action is likely to constitute a breach of the fiduciary duties of the board of directors of the Company under applicable law; and (3) the Company receives from such Person an executed confidentiality agreement (the provisions of which are no less restrictive than the comparable provisions, and do not omit any restrictive provisions, contained in the confidentiality agreement between the Parent and the Company (the "Confidentiality Agreement")). The Company will notify Parent promptly (and at least 24 hours prior to furnishing nonpublic information to, or entering into discussions or negotiations with, any Person who has made or submitted an Acquisition Proposal) of the Company's intention to furnish nonpublic information to, or enter into discussions or negotiations with, any Person who has made or submitted an Acquisition Proposal. As used in the Merger Agreement, "Acquisition Proposal" means any inquiry, proposal, or offer from any third party relating to (i) any direct or indirect acquisition or purchase of substantially all of the assets of the Company and its Subsidiaries, taken as a whole, or a majority of the equity securities of the Company, (ii) any tender offer or exchange offer that if consummated would result in any Person beneficially owning more than 50% of the Company's common stock or (iii) any merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution, or similar transaction involving the Company, other than the Offer and the Merger. "Superior Proposal" means any offer made by a third party to consummate an Acquisition Proposal on terms that the board of directors of the Company (or a committee thereof) determines in good faith, after consultation with outside legal counsel, to be more favorable to the Company's stockholders than the Offer and the Merger (as the terms of the Offer and the Merger may be amended in accordance with this Agreement) after consideration of any factors permitted to be considered in such circumstances under Delaware law, including without limitation, any condition for obtaining financing and all financial, regulatory, legal and other aspects of such proposal. Nothing in the Merger Agreement prohibits the Company or its board of directors from taking and disclosing to its stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's stockholders required by applicable Law, or from making any disclosure to the Company's stockholders if, in the good faith judgment of the Company's board of directors (or a committee thereof), after consultation with outside legal counsel, failure to make such other disclosure could create a reasonable possibility of a breach of the Company's or board's obligations (including, without limitation, any fiduciary obligations) under applicable law. In the Merger Agreement, the Company agreed that it will advise Parent promptly (and in no event later than two Business Days after receipt) of any Acquisition Proposal or any request for nonpublic information in connection with any Acquisition Proposal (including the identity of the Person making or submitting such Acquisition Proposal or request, and the principal terms of any such Acquisition Proposal) that is made or submitted by any Person (other than Parent and its Affiliates) at any time prior to consummation of the Merger. The board of directors of the Company may withdraw, amend, or modify the Company Recommendation if, in the good faith judgment of the Company's board of directors (or a committee thereof), after consultation with outside legal counsel, failure to do so would likely constitute a breach of the board's fiduciary obligations under applicable Law. 22 Insurance and Indemnification. The Merger Agreement provides that, for a period of six years after the Effective Time, the Parent and Surviving Corporation, or any successor to the Surviving Corporation will jointly and severally indemnify each person who is now, or has been at any time prior to the date of the Merger Agreement, or who becomes prior to the Effective Time, a director or officer of the Company or any of its Subsidiaries (the "Covered Persons"), against all claims, losses, liabilities, damages, judgments, fines, and reasonable fees, costs, and expenses, including reasonable attorneys' fees and disbursements (collectively, "Costs"), incurred in connection with any claim, action, suit, proceeding, or investigation, whether civil, criminal, administrative or investigative (a "Proceeding"), arising out of or pertaining to the fact that the Covered Person is or was an officer, director, employee or agent of the Company or any of its Subsidiaries, to the fullest extent permitted under applicable law. Each Covered Person shall be entitled to advancement from the Surviving Corporation of reasonable expenses (including attorneys' fees and disbursements) incurred in the defense of any Proceeding arising out of or pertaining to the fact that the Covered Person is or was an officer, director, employee or agent of the Company or any of its Subsidiaries, such advancement to be made within twenty days of receipt by the Surviving Corporation from the Covered Person of a request therefore, provided, that any Covered Person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such Covered Person is not entitled to indemnification. Following the Effective Time, the Surviving Corporation shall maintain, at no expense to the Covered Persons, directors' and officers' liability insurance coverage for the Covered Persons for six (6) years following the Effective Time with respect to claims arising from or related to facts or events that occurred at or before the Effective Time, which insurance coverage shall provide them with the same coverage and amounts and shall contain terms and conditions that are in the aggregate no less advantageous to the Covered Persons than those in effect on the date of the Merger Agreement, so long as the annual premium therefore shall not be in excess of two hundred percent (200%) of the annual premiums currently paid by the Company in respect of the current policy or policies (the "Maximum Premium"). If such directors' and officers' liability insurance coverage expires, is terminated or is canceled during such six (6) year period or should the annual premium required to maintain such insurance exceed the Maximum Premium, the Surviving Corporation shall obtain and maintain, and the Parent shall cause the Surviving Corporation to obtain and maintain, at no expense to the Covered Persons, as much directors' and officers' insurance coverage as can be obtained and maintained for the remainder of such period for an annualized premium not in excess of the Maximum Premium, on terms and conditions no less advantageous to the Covered Persons than the terms and conditions of the coverage in effect on the date of the Merger Agreement. In lieu of maintaining such liability insurance coverage, Merger Sub or the Surviving Corporation may obtain, at no expense to the Covered Persons, a "tail" policy for the Covered Persons that provides the same coverage and amounts and contains terms and conditions that are in the aggregate no less advantageous to the Covered Persons than those in effect on the date hereof with respect to claims arising from or related to facts or events that occurred at or before the Effective Time and that is effective for claims asserted during the full six-year period referred to above. Rights Agreement. The Merger Agreement provides that the Board of Directors of the Company shall take all action necessary to prevent any Right, as defined in the Rights Agreement dated as of March 3, 1995, between the Company and First Union National Bank of North Carolina, as Rights Agent, and any supplements or amendments thereto, issued or issuable under the Rights Agreement, from becoming exercisable by virtue of the Merger Agreement, the Offer, or the Merger, or any combined effect of the foregoing while the Merger Agreement remains in effect or upon its consummation. The Company's Board took such action at a meeting held on December 15, 2004 by authorizing an amendment to the Rights Agreement which became effective on December 16, 2004. Conditions to the Merger. The Merger Agreement provides that the respective obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of each of the following conditions: (a) The Company Stockholder Approval, if required for consummation of the Merger, shall have been obtained, unless Merger Sub shall have accepted for payment pursuant to the Offer such number of shares of Company Common Stock which, when aggregated with the shares of Company Common Stock 23 otherwise beneficially owned by Parent and its Affiliates, represents at least 90 percent of the outstanding shares of Company Common Stock. (b) No judgment, order, decree, statute, law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or issued by any court or other Governmental Entity of competent jurisdiction or other legal restraint or prohibition (collectively, "Restraints") shall be in effect preventing the consummation of the Merger. (c) Merger Sub shall have purchased, or caused to be purchased, all Company Common Stock validly tendered and not withdrawn pursuant to the Offer. (d) The filing of the Certificate of Merger with the Secretary of State of the State of Delaware shall have been made and shall have become effective. (e) If the Stockholders' Written Consent has been delivered to the Company, then more than twenty (20) calendar days shall have elapsed since the date that the Company sent or gave the Schedule 14C Information Statement to its stockholders such that Rule 14c-2 promulgated under the Exchange Act is satisfied in all respects. Termination. The Merger Agreement may be terminated prior to the Effective Time, whether before or after stockholder approval of the Merger Agreement, as follows: (a) by mutual written consent of the Parent and the Company; (b) by either Parent or the Company if (1) as a result of the failure of any conditions described in Section 14 -- Conditions of the Offer, the Offer shall have terminated or expired in accordance with its terms without Merger Sub having purchased shares of Company Common Stock pursuant to the Offer or (2) the Offer shall not have been consummated on or before the Outside Date; provided, however, that the right to terminate the Merger Agreement as described in this subparagraph (b) shall not be available to any party whose failure to fulfill any obligation under the Merger Agreement has been the cause of, or resulted in, the circumstances specified in clause (1) or (2), of this subparagraph; (c) by either Parent or the Company if a court of or other Governmental Entity shall have issued a final and nonappealable order, judgment, decree or ruling, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Offer or the Merger; (d) by either Parent or the Company, at any time prior to consummation of the Offer, if the board of directors of the Company shall have authorized the Company to enter into a written agreement for a transaction that constitutes a Superior Proposal, and the Company shall have notified Parent in writing that it intends to enter into such an agreement; (e) by the Parent, at any time prior to consummation of the Offer, if the board of directors of the Company or any committee thereof, pursuant to the Merger Agreement, shall have withdrawn, amended or modified, or resolved to withdraw, amend or modify, in a manner adverse to the Parent, the Company Recommendation; (f) by the Parent, at any time prior to consummation of the Offer, if (i) any representation or warranty of the Company contained in the Merger Agreement that is qualified as to materiality shall not be true and complete in all respects, or any representation or warranty of the Company contained in the Merger Agreement that is not so qualified shall not be true and complete in all material respects, as of the date of the Merger Agreement and at any time through the time the Offer expires (provided that, to the extent any such representation or warranty speaks as of a specified date, it need be true and complete only as of such specified date) and such breach is incapable of being or has not been cured by the Company, in all material respects, by the earlier of 20 calendar days after Parent has given written notice to the Company of such breach or the Outside Date and such breach would cause the conditions set forth in subparagraph (d) of Section 14 -- "Conditions of the Offer" not to be satisfied, or (ii) the Company shall have breached or failed to perform in any material respect any of its covenants or other agreements contained in this Merger Agreement and such breach or failure to perform is incapable of being or has 24 not been cured by the Company, in all material respects, by the earlier of 20 calendar days after Parent has given written notice to the Company of such breach or failure to perform or the Outside Date and such breach or failure to perform would cause the conditions set forth in subparagraph (e) of Section 14 -- "Conditions of the Offer" not to be satisfied; provided that neither Parent nor Merger Sub is then in material breach of any of its representations, warranties, covenants or other agreements in this Merger Agreement; (g) by the Company, at any time prior to consummation of the Offer, if (i) any representation or warranty of the Parent or Merger Sub contained in the Merger Agreement that is qualified as to materiality shall not be true and complete in all respects, or any representation or warranty of the Parent or Merger Sub contained in the Merger Agreement that is not so qualified shall not be true and complete in all material respects, in each case as of the date of the Merger Agreement and at any time through the time the Offer expires (provided that, to the extent any such representation or warranty speaks as of a specified date, it need be true and complete only as of such specified date) and such breach is incapable of being or has not been cured by the Parent or Merger Sub, in all material respects, by the earlier of 20 calendar days after the Company has given written notice to the Parent of such breach or the Outside Date, or (ii) the Parent or Merger Sub shall have breached or failed to perform in any material respect any of its covenants or other agreements contained in this Merger Agreement and such breach or failure to perform is incapable of being or has not been cured by the Parent or Merger Sub, in all material respects, by the earlier of 20 calendar days after the Company has given written notice to the Parent of such breach or failure to perform or the Outside Date; provided that the Company is not then in material breach of any of its representations, warranties, covenants or other agreements in this Merger Agreement; and (h) by the Company, if without the Company's consent, Merger Sub fails to commence the Offer as provided in the Merger Agreement or if Parent or Merger Sub makes any changes to the Offer in contravention of the Merger Agreement, provided that any changes that are adverse to the holders of Company Common Stock shall be deemed material for purposes of this subsection. Fees and Expenses. Parent has deposited $800,000 with an escrow agent (the "Deposit"), which will be returned to the Parent within three Business Days of termination of the Merger Agreement if the Agreement is terminated (i) by agreement between the parties, (ii) as a result of the failure of any condition to Parent's obligations or (ii) as a result of the breach of any representation, warranty or covenant by the Company. If Parent breaches its obligations under the Merger Agreement, the Deposit is payable to the Company. At the time the Offer expires, upon the written request of Parent, the Deposit may be delivered to the Paying Agent for the purpose of purchasing shares of Company Common Stock in the Offer. Except as set forth below, all fees and expenses incurred in connection with the Merger Agreement, the Offer and the Merger shall be paid by the party incurring such expenses, whether or not the Offer or Merger are consummated. In the event the Merger Agreement is validly terminated pursuant to (g) or (h) described above under the heading "Termination", the Company shall be entitled to retain the Deposit as a non-refundable termination fee, and Parent shall reimburse the Company for all reasonable and documented out-of-pocket expenses incurred by the Company since September 1, 2004 in connection with the Merger Agreement, the Offer and the Merger in an aggregate amount not to exceed $750,000. In the event the Merger Agreement is validly terminated pursuant to (d) or (f) described above under the heading "Termination" (and, with respect to termination pursuant to (f), the Company's breach of any of its representations, warranties, covenants or other agreements contained in the Merger Agreement that creates such right of termination under (f) shall give rise to a Material Adverse Effect), the Company shall pay to Parent a non-refundable termination fee of $800,000 and shall reimburse Parent for all reasonable and documented out-of-pocket expenses incurred by Parent after September 1, 2004 in connection with the Merger Agreement, the Offer and the Merger in an aggregate amount not to exceed $750,000. In the event the Merger Agreement is validly terminated pursuant to such subsection (f) and the Company's breach of any of its representations, warranties, covenants or other agreements contained in the Merger Agreement that creates 25 such right of termination under such subsection (f) does not give rise to a Material Adverse Effect, the Company shall pay to Parent a non-refundable termination fee of $400,000 and shall reimburse Parent for all reasonable and documented out-of-pocket expenses incurred by Parent after September 1, 2004 in connection with the Merger Agreement, the Offer and the Merger in an aggregate amount not to exceed $750,000. In the event the Merger Agreement is terminated pursuant to (e) described above under the heading "Termination," because of withdrawal of the Company Recommendation by the Company's Board of Directors, the Company will pay to Parent a termination fee of $800,000 and shall reimburse Parent for all reasonable and documented out-of-pocket expenses incurred by Parent after September 1, 2004 in connection with the Merger Agreement, the Offer and the Merger in an aggregate amount not to exceed $750,000. If (i) prior to the Expiration Date an Acquisition Proposal shall have been publicly disclosed, announced, commenced, submitted, or made by a third party (other than by Parent or an Affiliate of Parent) and shall not have been withdrawn or abandoned, and (ii) the Merger Agreement is validly terminated pursuant to (b) described above under the heading "Termination" because the Minimum Condition has not been satisfied, and at the time of termination, there are no Restraints in effect preventing consummation of the Offer, and Parent is not in breach of any material obligation under the Merger Agreement, then the Company shall pay to Parent a non-refundable termination fee of $800,000 and shall reimburse Parent for all reasonable and documented out-of-pocket expenses incurred by Parent after September 1, 2004 in connection with the Merger Agreement, the Offer and the Merger in an aggregate amount not to exceed $750,000. If either the Parent or the Company fails to pay when due any amount payable described above, then the party failing to pay such amount shall reimburse the other party for all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred in connection with the collection of such overdue amount and the enforcement by the other party of its rights. Payment of the fees and expenses described above are the sole and exclusive remedy of Parent and Merger Sub against the Company and the Company against Parent and Merger Sub for any damages suffered or incurred in connection with the Merger Agreement, except that the parties shall be entitled to the equitable remedies set forth in the Merger Agreement, including injunction and specific performance, and all other remedies available in equity to which a party is entitled. The parties specifically agreed that any amount to be paid as described above represents liquidated damages and not a penalty. Amendment. The Merger Agreement may be amended by the parties at any time prior to the Effective Time; provided that after the Company Stockholder Approval has been obtained, there shall not be made any amendment that by law requires further approval by the stockholders of the Company unless such approval is obtained. Stock Purchase Agreement. The following is a summary of the material provisions of the Stock Purchase Agreement, a form of which is filed as an exhibit to the Tender Offer Statement on Schedule TO. The summary is qualified in its entirety by reference to the form of Stock Purchase Agreement, which is incorporated by reference herein. Transfer of the Shares. Pursuant to the Stock Purchase Agreement, Gino Pala, Rick Joyce and certain of their affiliates, Richard Asta, Len Dahlberg, John Adornetto and Laura Hemmings, who currently own 911,824 outstanding Shares in the aggregate, or approximately 28% of the outstanding Shares (each referred to as a "Stockholder," and collectively as the "Stockholders") each agreed to sell the Shares owned by him or her to Merger Sub at a purchase price of $7.00 per share (or any higher price which may be paid pursuant to the Offer). In the event that, after entering into the Stock Purchase Agreement, any Stockholder shall become the beneficial owner of any additional shares of Company Common Stock, such additional shares of Company Common Stock shall be deemed "Shares" subject to purchase and sale pursuant to and subject to all terms and conditions of the Stock Purchase Agreement. The Closing of the purchase of the Share pursuant to the Stock Purchase Agreement shall take place simultaneously with the Closing of the Offer. At Parent's request, such Stockholders may be required to tender their Shares on the Offer. The obligations of Merger Sub to purchase the Shares pursuant to the Stock Purchase Agreement is subject to the fulfillment of the following conditions: (a) no preliminary or permanent injunction or other 26 order against the delivery of the Shares or prohibiting the consummation of any of the transactions contemplated by the Stock Purchase Agreement or by the Merger Agreement issued by any court of competent jurisdiction shall be in effect, (b) the representations and warranties made by each Stockholder in the Stock Purchase Agreement shall be true in all material respects as of the date of the Stock Purchase Agreement and as of the time of the Closing, (c) all conditions to the Offer set forth in the Merger Agreement described in Section 14 -- "Conditions of Offer" shall have been satisfied or waived, and (d) substantially simultaneously with the purchase of the Shares pursuant to the Stock Purchase Agreement, Merger Sub shall have purchased all shares of Common Stock (if any) validly tendered and not properly withdrawn pursuant to the terms of the Offer. The obligations of each Stockholder to sell the Shares pursuant to the Stock Purchase Agreement shall be subject to the fulfillment of the conditions set forth in the prior paragraph and to the conditions that (i) the representations and warranties made by Merger Sub in the Stock Purchase Agreement shall be true in all material respects as of the date of the Stock Purchase Agreement and as of the time of the Closing and (ii) Merger Sub shall have commenced the Offer and purchased all shares of Common Stock validly tendered and not properly withdrawn pursuant to the terms of such Offer. Prior to the termination of the Stock Purchase Agreement, each Stockholder agrees he or it will not sell, transfer, assign, pledge, hypothecate or otherwise dispose of or limit his or its right vote in any manner, or otherwise encumber, any of the Shares which are the subject matter of the Stock Purchase Agreement, or enter into any agreement to do any of the foregoing. Each Stockholder will not take any action which would have the effect of preventing or disabling such Stockholder from performing his or its obligations under this Agreement. Voting Arrangements. Effective upon the execution of the Stock Purchase Agreement, each Stockholder appointed Massimo Candela, President of Parent, and Greg Byrne, an independent financial consultant who assisted Parent in connection with certain aspects of the transaction, and each of them, as proxies, (a) to vote the Shares at any meeting of stockholders of the Company or any adjournment or adjournments thereof or (b) to execute and deliver consents with respect to the Shares upon any and all such matters as each such proxy or his substitute shall in his sole discretion deem proper. Effective upon the execution and delivery of the Stock Purchase Agreement, each Stockholder agreed to vote the Shares in favor of the approval of the Merger and adoption of the Merger Agreement at any meeting of stockholders of the Company or any adjournment or adjournments thereof and in opposition to any transaction or action inconsistent with the Merger or the Merger Agreement and, if requested by Merger Sub, to execute and deliver a consent to the approval of the Merger and adoption of the Merger Agreement and in opposition to any transaction or action inconsistent with the Merger or the Merger Agreement. Representations and Warranties of the Stockholders. Pursuant to the Stock Purchase Agreement, each Stockholder has made certain representations and warranties to Merger Sub, including representations relating to: ownership of the Shares; legal capacity, power and authority; due authorization and execution, enforceability; absence of conflicts; title to Shares; consents; and certain tax matters. Representations and Warranties of Merger Sub. Pursuant to the Stock Purchase Agreement, Merger Sub has made certain representations and warranties to the Stockholders, including representations relating to: power and authority to execute and consummate the transactions contemplated by the Stock Purchase Agreement; and due authorization and enforceability. Termination. The Stock Purchase Agreement will terminate immediately upon termination of the Merger Agreement in accordance with the terms of the Merger Agreement. 12. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY. Purpose of the Offer. The purpose of the Offer is to acquire the entire equity interest in the Company. The purpose of the Merger is to acquire all outstanding Shares not tendered and purchased pursuant to the Offer. If the Offer is successful, Merger Sub intends to consummate the Merger as promptly as practicable. 27 The Company Board has approved the Merger and the Merger Agreement. Depending upon the number of Shares purchased by Merger Sub pursuant to the Offer, the Company Board may be required to submit the Merger Agreement to the Company's stockholders for approval at a stockholder's meeting convened for that purpose in accordance with the DGCL. If stockholder approval is required, the Merger Agreement must be approved by the affirmative vote of 66 2/3% of all outstanding Shares of Common Stock, as of the record date for the meeting called to vote on the merger. If the Minimum Condition is satisfied, Merger Sub will have sufficient voting power to approve the Merger Agreement at the Company stockholders' meeting without the affirmative vote of any other stockholder. If Merger Sub acquires at least 90% of the then outstanding Shares pursuant to the Offer and Stock Purchase Agreement, the Merger may be consummated without a stockholder meeting and without the approval of the Company's stockholders. Appraisal Rights. Under the DGCL, holders of Shares do not have appraisal rights as a result of the Offer. In connection with the Merger, however, stockholders of the Company will have the right to dissent and demand appraisal of their Shares under the DGCL. Dissenting stockholders who comply with the applicable statutory procedures under the DGCL will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of the Merger) and to receive payment of such fair value in cash. Any such judicial determination of the fair value of the Shares could be based upon considerations other than or in addition to the price per Share paid in the Merger and the market value of the Shares. The Delaware Supreme Court has stated that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal proceeding. Stockholders should recognize that the value so determined could be higher or lower than the price per Share paid pursuant to the Offer or the consideration per Share to be paid in the Merger. Moreover, Merger Sub may argue in an appraisal proceeding that, for purposes of such a proceeding, the fair value of the Shares is less than the price paid in the Offer or the Merger. The preservation, exercise and perfection of appraisal rights requires strict adherence to the applicable provisions of the DGCL, which will be provided to Company stockholders that do not tender Shares into the Offer. Company stockholders who tender Shares into the Offer will not have appraisal rights. If any holder of Shares who demands appraisal rights under the DGCL fails to properly preserve, exercise and perfect or effectively withdraws or otherwise loses rights to appraisal as provided in the DGCL, the Shares of such stockholder will be converted into the right to receive the price per share paid in the Offer only. A stockholder may withdraw demand for appraisal by delivering to us a written withdrawal of such demand for appraisal and acceptance of the Merger. The foregoing discussion is not a complete statement of law pertaining to appraisal rights under Delaware law and is qualified in its entirety by reference to Delaware law. Plans for the Company. Pursuant to the terms of the Merger Agreement, promptly upon the purchase of and payment for any Shares by Merger Sub pursuant to the Offer, Merger Sub currently intends to seek maximum representation on the Company Board, subject to the requirement in the Merger Agreement regarding the presence of Independent Directors on the Company Board until the Effective Time. Merger Sub currently intends, as soon as practicable after consummation of the Offer, to consummate the Merger. It is expected that, initially following the Merger, the business and operations of the Company will, except as set forth below or elsewhere in this Offer to Purchase, be continued substantially as they are currently being conducted. Following the Merger, Parent and its two partners in a pencil manufacturer have agreed to contribute their own interest in such company to the Company. Following such contribution to the Company, Parent will own 75.4% of the Company, and the two minority shareholders will own an aggregate of 24.6%. It is expected that Massimo Candela will become chairman and chief executive officer of the Company replacing the current co-chief executive officers. Except as described above or elsewhere in this Offer to Purchase, Merger Sub and Parent have no present plans or proposals that would relate to or result in (i) any extraordinary corporate transaction involving the Company or any of its subsidiaries (such as a merger, reorganization or liquidation), (ii) any purchase, sale or 28 transfer of a material amount of assets of the Company or any of its subsidiaries, (iii) any material change in the Company's dividend policy, capitalization or indebtedness, (iv) any change in the Company Board or management of the Company, (v) any other material change in the Company's corporate structure or business, (vi) a class of securities of the Company being delisted from a national securities exchange or ceasing to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association or (vii) a class of equity securities of the Company being eligible for termination of registration pursuant to Section 12(g) of the Exchange Act. 13. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; REGISTRATION UNDER THE EXCHANGE ACT. Market for the Shares. The purchase of Shares pursuant to the Offer will reduce the number of holders of Shares and the number of Shares that might otherwise trade publicly, which could adversely affect the liquidity and market value of the remaining Shares held by stockholders other than Merger Sub. The purchase of Shares pursuant to the Offer also can be expected to reduce the number of holders of Shares. Merger Sub cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or marketability of, the Shares or whether such reduction would cause future market prices to be greater or less than the Offer Price. Stock Quotation. The Shares are traded on the American Stock Exchange ("AMEX"). According to the American Stock Exchange's published guidelines, the Shares might no longer be eligible for inclusion on the American Stock Exchange if, among other things, the number of publicly held Shares falls below 200,000, the total number of public stockholders falls below 300 or the market value of publicly held Shares over a 90-consecutive business day period is less than $1,000,000. Shares held by officers, directors, controlling stockholders of the Company or their immediate families, ordinarily will not be considered to be publicly held for this purpose. If as a result of the purchase of Shares in the Offer or otherwise, the Shares cease to be traded on the American Stock Exchange, the market for the Shares could be adversely affected. It is possible that the Shares would be traded on other securities exchanges (with trades published by such exchanges), the OTC Bulletin Board or in a local or regional over-the-counter market. The extent of the public market for the Shares and the availability of such quotations would, however, depend upon the number of holders of Shares and the aggregate market value of the Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act, as described below, and other factors. Margin Regulations. The Shares are currently "margin securities" under the Regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding the market for the Shares and stock quotations, it is possible that, following the Offer, the Shares would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers. In addition, if registration of the Shares under the Exchange Act were terminated, the Shares would no longer constitute margin securities. Securities Exchange Act Registration. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application of the Company to the SEC if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to its stockholders and to the SEC and would make certain provisions of the Securities Exchange Act no longer applicable to the Company, such as the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy statement pursuant to Section 14(a) of the Exchange Act in connection with stockholders' meetings and the related requirement of furnishing an annual report to stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 promulgated 29 under the Securities Act of 1933, as amended, may be impaired or eliminated. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities" or be eligible for trading on the American Stock Exchange. Merger Sub currently intends to seek to cause the Company to terminate the registration of the Shares under the Exchange Act as soon after consummation of the Offer as the requirements for termination of registration are met. 14. CONDITIONS OF THE OFFER. Notwithstanding any other provisions of the Offer, and in addition to (and not in limitation of) Merger Sub's right to extend and amend the Offer as permitted by the Merger Agreement and subject to any applicable rules and regulations of the SEC, including Rule 14e(1)(c) under the Exchange Act, Merger Sub shall not be required to accept for payment, or may delay the acceptance for payment of, any validly tendered Company Common Stock if: (i) by the expiration of the Offer (as it may be extended in accordance with the requirements of Section 1.1 of the Merger Agreement), the Minimum Condition shall not be satisfied, or (ii) any of the following events shall occur and be continuing as of the Expiration Date: (a) there shall be any judgment, order, decree, statute, law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or issued by any court or other Governmental Entity of competent jurisdiction or other legal restraint or prohibition (collectively, "Restraints") in effect preventing the consummation of the Offer; (b) since the date of this Agreement, there shall have occurred any Material Adverse Effect on the Company and any of its Subsidiaries taken as a whole; (c) the Company's board of directors shall have (i) withdrawn or modified in a manner adverse to Parent and Merger Sub the Company Recommendation, (ii) recommended any Acquisition Proposal, or (iii) resolved to do any of the foregoing of this subsection (c); (d) any representation or warranty of the Company contained in the Agreement that is qualified as to materiality shall not be true and complete in all respects or any representation or warranty of the Company contained in the Agreement that is not so qualified shall not be true and complete in all material respects, in each case as of the time the Offer otherwise would expire (provided that, to the extent any such representation or warranty speaks as of a specified date, it need be true and complete only as of such specified date); (e) the Company shall have breached or failed, in any material respect, to perform or to comply with its covenants and other agreements to be performed or complied with by it under the Agreement; (f) all consents, permits and approvals of Governmental Entities and other Persons necessary to permit Merger Sub to purchase the shares of Company Common Stock validly tendered and not withdrawn shall not have been obtained other than those the failure of which to obtain, individually or in the aggregate, would not have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole; provided that in no event shall any consent of any kind of the Company's lenders be a condition to consummation of the Offer; or (g) the Agreement shall have been validly terminated in accordance with its terms. (iii) any of the following have occurred and continue to exist (A) any general suspension of trading in, or limitation on prices for, securities on any major United States stock exchange or market, (excluding suspensions or limitations resulting solely from physical damage or interference with such exchanges not related to market conditions), (B) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, or (C) any material limitation (whether or not mandatory) by any United States Federal or United States state or governmental authority or agency on the extension of credit by banks or other financial institutions; 30 (iv) the Company has not filed with the SEC its Form 10-K for the year ended September 30, 2004, accompanied by certifications, without qualification, required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002; or (v) the Company's shareholders who are party to a Stock Purchase Agreement with Parent and Merger Sub shall have failed to sell their stock pursuant to such Stock Purchase Agreement. (vi) the number of shares of Company Common Stock validly tendered and not withdrawn prior to the final expiration of the Offer, together with the shares of Company Common Stock then beneficially owned by the Parent or its Affiliates, (including, without limitation, the shares of Company Common Stock to be sold to Merger Sub pursuant to the Stock Purchase Agreement), represents less than 90% of the shares of Company Common Stock then outstanding and the Schedule 14C Information Statement, as filed with the SEC, would not be permitted by applicable SEC rules to be mailed to the Company's stockholders immediately after the Offer is consummated and the Stockholders' Written Consent is delivered to the Company. The foregoing conditions are for the benefit of Parent and Merger Sub, may be asserted by Parent or Merger Sub regardless of the circumstances giving rise to such condition, and except for the Minimum Condition may be waived by Parent or Merger Sub in whole or in part at any time and from time to time, subject in each case to the terms of the Merger Agreement. The failure by Parent or Merger Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. 15. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS. General. Merger Sub is not aware of any pending legal proceeding relating to the Offer. Except as described in this Section 15, based on its examination of publicly available information filed by the Company with the SEC and other publicly available information concerning the Company, Merger Sub is not aware of any governmental license or regulatory permit that appears to be material to the Company's business that might be adversely affected by Merger Sub's acquisition of Shares as contemplated herein or of any approval or other action by any governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition or ownership of Shares by Merger Sub as contemplated herein. A notice filing must be made with the Mexican Antitrust Authority before Closing of the Offer. A notice filing must be made with Industry Canada within 30 days after Closing to report the indirect acquisition of a Canadian Subsidiary. Should any such approval or other action be required, Merger Sub currently contemplates that, except as described below under "State Takeover Statutes," such approval or other action will be sought. While Merger Sub does not currently intend to delay acceptance for payment of Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that if such approvals were not obtained or such other actions were not taken, adverse consequences might not result to the Company's business, or certain parts of the Company's business might not have to be disposed of, any of which could cause Merger Sub to elect to terminate the Offer without the purchase of Shares thereunder under certain conditions. See Section 14 -- "Conditions of the Offer." State Takeover Statutes. A number of states have adopted laws that purport, to varying degrees, to apply to attempts to acquire corporations that are incorporated in, or that have substantial assets, stockholders, principal executive offices or principal places of business or whose business operations otherwise have substantial economic effects in, such states. In December 1988, a U.S. federal district court in Florida held in Grand Metropolitan PLC v. Butterworth that the provisions of the Florida Affiliated Transactions Act and the Florida Control Share Acquisition Act were unconstitutional as applied to corporations incorporated outside of Florida. The Parent and Merger Sub are not aware of any state takeover laws or regulations which are applicable to the Offer or the Merger and has not attempted to comply with any state takeover laws or regulations. If any government official or third party should seek to apply any state takeover law to the Offer or the Merger or 31 other business combination between the Parent and Merger Sub or any of its affiliates and the Company, the Parent and Merger Sub will take such action as then appears desirable, which action may include challenging the applicability or validity of such statute in appropriate court proceedings. In the event it is asserted that one or more state takeover statutes is applicable to the Offer or the Merger and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, the Parent and Merger Sub might be required to file certain information with, or to receive approvals from, the relevant state authorities or holders of Shares, and the Parent and Merger Sub might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer or the Merger. In such case, the Parent and Merger Sub may not be obligated to accept for payment or pay for any tendered Shares. See Section 14 - "Conditions of the Offer." The Company is incorporated under the laws of the State of Delaware. In general, Section 203 of the DGCL ("Section 203") prevents an "interested stockholder" (including a person who has the right to acquire 15% or more of the corporation's outstanding voting stock) from engaging in a "business combination" (defined to include mergers and certain other actions) with a Delaware corporation for a period of three years following the date such person became an interested stockholder. The Company's Board approved for purposes of Section 203 the entering into by the Parent and Merger Sub and the Company of the Merger Agreement and the consummation of the transactions contemplated thereby and has taken all appropriate action so that Section 203, with respect to the Company, will not be applicable to the Parent or Merger Sub by virtue of such actions. In addition, the Company's Board approved for purposes of Section 203 the entering into of the Stock Purchase Agreement by Merger Sub and the stockholders of the Company who are parties thereto and the transactions contemplated thereby and has taken all appropriate action so that Section 203 with respect to the Company, will not be applicable to the Parent and Merger Sub by virtue of such action. United States Antitrust Law. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules that have been promulgated under the HSR Act by the Federal Trade Commission (the "FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the FTC and the Antitrust Division of the Department of Justice (the "Antitrust Division") and certain waiting period requirements have been satisfied. The Offer and the Merger are not subject to the filing and waiting period requirements of the HSR Act. Foreign Antitrust Law. The antitrust and competition laws of certain foreign countries may apply to the Offer and the Merger and filings and notifications may be required. Merger Sub and the Company are reviewing whether any such filings are required in connection with the Offer or the Merger and intend to make such filings promptly to the extent required. However, other than the filings with the Mexican Anti-Trust Authority and Industry Canada described above, Merger Sub does not currently believe that any such filings will be required. Going Private Transactions. The SEC has adopted Rule 13e-3 under the Exchange Act which is applicable to certain "going private" transactions and which may under certain circumstances be applicable to the Merger or another business combination following the purchase of Shares pursuant to the Offer in which Merger Sub seeks to acquire the remaining Shares not held by it. Merger Sub believes that Rule 13e-3 will not be applicable to the Merger because it is anticipated that the Merger will be effected within one (1) year following the consummation of the Offer and, in the Merger, stockholders will receive the same price per Share as paid in the Offer. Rule 13e-3 requires, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the proposed transaction and the consideration offered to minority stockholders be filed with the SEC and disclosed to stockholders prior to consummation of the transaction. 16. FEES AND EXPENSES. Merger Sub has retained Registrar and Transfer Company to be the Depositary and MacKenzie Partners, Inc. to be the Information Agent in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telecopy, telegraph and personal interview and may request banks, brokers, dealers and other nominees to forward materials relating to the Offer to beneficial owners of Shares. 32 The Depositary and the Information Agent each will receive reasonable and customary compensation for their respective services in connection with the Offer, will be reimbursed for reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under federal securities laws. Merger Sub will not pay any fees or commissions to any broker or dealer or to any other person (other than to the Depositary and the Information Agent) in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by Merger Sub for customary mailing and handling expenses incurred by them in forwarding offering materials to their customers. 17. MISCELLANEOUS. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, Merger Sub may, in its discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and to extend the Offer to holders of Shares in such jurisdiction. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF MERGER SUB NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. Merger Sub has filed with the SEC a Tender Offer Statement on Schedule TO pursuant to Rule 14d-3 of the General Rules and Regulations under the Exchange Act, together with exhibits furnishing certain additional information with respect to the Offer, and may file amendments thereto. In addition, the Company has filed with the SEC a Solicitation/ Recommendation Statement on Schedule 14D-9, together with exhibits, pursuant to Rule 14d-9 under the Exchange Act, setting forth the recommendation of the Company Board with respect to the Offer and the reasons for such recommendation and furnishing certain additional related information. A copy of such documents, and any amendments thereto, may be examined at, and copies may be obtained from, the SEC (but not the regional offices of the SEC) in the manner set forth under Section 7 -- "Certain Information Concerning the Company" above. PENCIL ACQUISITION CORP. January 7, 2005 33 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF MERGER SUB AND PARENT 1. Directors and Executive Officers of Parent. The name, current principal occupation or employment and material occupations, positions, offices or employment for the past five years, and citizenship of each director and executive officer of F.I.L.A. -- Fabbrica Italiana Lapis ed Affini S.p.A., ("Fila") and of Torroanstalt S.A., the owner of approximately 80% of the share capital of Fila ("Torroanstalt"), are set forth below. Unless otherwise indicated below, the business address of each director and officer is c/o F.I.L.A. -- Fabbrica Italiana Lapis ed Affini S.p.A., Via Sempione, 2/C, 20016 Pero (MI), Italy. Unless otherwise indicated below, the business address of each officer and director of Torroanstalt is 5 Boulevard de la Foire, L-1528 Luxembourg. Massimo Candela beneficially owns 51% of the share capital of Torroanstalt. Where no date is shown, the individual has occupied the position indicated for the past five years. None of the directors and officers of Fila or Torroanstalt listed below has, during the past five years, (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. A. F.I.L.A. -- FABBRICA ITALIANA LAPIS ED AFFINI S.P.A., VIA SEMPIONE 2/C, 20016 PERO (MI), ITALY
PRINCIPAL OCCUPATION, FIVE YEAR EMPLOYMENT NAME TITLE HISTORY AND CITIZENSHIP - ---- ----- ------------------------------------------ Alberto CANDELA........... President and Director President of FILA since 1979. President of Omyacolor S.A., a French subsidiary of Fila, (rue Nationale, 5124 St. Germain la Ville -- France) since May 2000. With rotation every three years, President and Vice President of Interfila S.r.l. (Viale Mille 3, 20051 Limbiate (MI), a company organized under the laws of Italy engaged in the business of cosmetic pencils, from January 1992 until September 2004. Country of citizenship: Italy Massimo CANDELA........... Managing Director and Director Managing Director of FILA since January 2004. Director of Omyacolor S.A. since May 2000. Managing Director of Papeleria Mediterranea S.L., a Spanish subsidiary of Fila (Passeig Fluvial 4, 8150 Paretes del Valles Barcelona -- Spain) since April 2000. Director of CLAC Ltda, a company participated by Fila (Manuel A. Matta, 1801 Quilicura Santiago -- Chile) since July 2000. Director of FILA from June 1992 until December 2003. With rotation every three years, Managing Director and simple Director of Interfila from January 1992 until September 2004. Country of citizenship: Italy
34
PRINCIPAL OCCUPATION, FIVE YEAR EMPLOYMENT NAME TITLE HISTORY AND CITIZENSHIP - ---- ----- ------------------------------------------ Guido TRESOLDI............ Vice President and Director Vice President of FILA since 1979. Director of TORROANSTALT S.A. since June 1998. CEO of Tecno-Tre di Guido Tresoldi (via Soldino 28, 6900 Lugano -- Switzerland), Advisor for international companies and Trade, Business activities. Country of citizenship: Switzerland Simone Franco CITTERIO.... Director Director of FILA since June 2000. General Manager of Euromobiliare Corporate Finance S.p.A (via Turati 9, 20121 Milano -- Italy) since October 2002. (Condirettore Centrale) Manager of Abax Bank S.p.A. (corso Monforte 34, 20122 Milano) since November 2004. Director of Euromobiliare Corporate Finance S.p.A. from 1995 until September 2002. Country of citizenship: Italy Sauro ALBERTINI........... Director Director of FILA since 1979. CEO of Albe, Lugano, Financial Advisor of Deutsche Bank (Switzerland) Ltd. Retired since 1980. Country of citizenship: Switzerland Luca PELOSIN.............. Director Director of FILA since June 2002. General Director of Omyacolor S.A. since November 2004. Consultant of Nuova Alpa Collanti S.r.l. (via Berlinguer 28, 20060 Colnago (MI), engaged in the glue business. Consultant of FILA from January 2002 until June 2002. Country of citizenship: Italy Amedeo NODARI............. Director Director of FILA since September 1999. President of Board of Directors of P.B. S.r.l. (piazza Scala 6, 20121 Milano), holding company indirectly owning company in the business of motorbikes since September 2003. Director of TURISMO E IMMOBILIARE S.p.A. (via Brera 16, 20121 Milano), engaged in the business of real estate investments in the tourism sector since November 2004. Manager of Banca Intesa S.p.A. (piazza Scala 6, 20121 Milano), Direzione Corporate, Responsabile Partecipazioni Istituzionali ("corporate director, responsible for institutional participations') since 1999. Manager of Banca Intesa S.p.A. since February 1996. Country of citizenship: Italy
35 B. TORROANSTALT S.A., 5 BOULEVARD DE LA FOIRE, L-1528 LUXEMBOURG
PRINCIPAL OCCUPATION, FIVE YEAR EMPLOYMENT NAME TITLE HISTORY AND CITIZENSHIP - ---- ----- ------------------------------------------ John SEIL................. Director Director of Torroanstalt S.A. since June 1998. Partner of BDO, Compagnie Fiduciaire, Luxembourg. Independent auditor, public accountant and tax advisor. Country of citizenship: Luxembourg Luc HANSEN................ Director Director of Torroanstalt S.A. since June 2000. Partner of BDO, Compagnie Fiduciaire, Luxembourg. Independent auditor, public accountant and tax advisor. Country of citizenship: Luxembourg Nico SCHAFFER............. Director Director of Torroanstalt S.A. since June 2000. Lawyer in Luxembourg, Partner of Law Firm Schaeffer Hengel & Associates, Luxembourg. Country of citizenship: Luxembourg Fausto ORTELLI............ Director Director of Torroanstalt S.A. since June 1998. CEO of SCA, Studio commercialisti associati SA, Lugano. Independent auditor, public accountant and tax advisor. Country of citizenship: Switzerland Guido TRESOLDI............ Director Vice President of FILA since 1979. Director of Torroanstalt S.A. since June 1998. CEO of Tecno-Tre di Guido Tresoldi (via Soldino 28, 6900 Lugano -- Switzerland), Advisor for international companies and Trade, Business activities. Country of citizenship: Switzerland
2. Directors and Executive Officers of Merger Sub. The name and position with Merger Sub of each director and officer of Merger Sub are set forth below. The business address, principal occupation or employment, five-year employment history and citizenship of each such person is set forth above.
NAME TITLE - ---- ----- Alberto CANDELA........................... Chairman and Director Massimo CANDELA........................... President, Secretary and Director Luca PELOSIN.............................. Vice President, Treasurer and Director
36 Manually signed facsimiles of the Letter of Transmittal, properly completed, will be accepted. The Letter of Transmittal and certificates evidencing Shares and any other required, documents should be sent or delivered by each stockholder or his broker, dealer, commercial bank, trust company or other nominee to the Depositary to one of its addresses set forth below: THE DEPOSITARY FOR THE OFFER IS: REGISTRAR AND TRANSFER COMPANY By Mail: By Hand and Overnight Delivery: Registrar and Transfer Company Registrar and Transfer Company P.O. Box 645 10 Commerce Drive Cranford, NJ 07016 Cranford, NJ 07016
Questions or requests for assistance may be directed to the Information Agent at the address and telephone number listed below. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent. Stockholders may also contact brokers, dealers, commercial banks or trust companies for assistance concerning the Offer: The Information Agent for the Offer is: (MACKENZE PARTNERS, INC. LOGO) 105 Madison Avenue New York, New York 10016 (212) 929-5500 (Call Collect) E-mail: proxy@mackenziepartners.com or CALL TOLL-FREE (800)322-2885 EX-99.A.1.B 3 y04189exv99waw1wb.txt FORM OF LETTER OF TRANSMITTAL Exhibit (a)(1)(B) LETTER OF TRANSMITTAL To Accompany Certificates Formerly Representing Shares of Common Stock of Dixon Ticonderoga Company Depositary: REGISTRAR AND TRANSFER COMPANY By Facsimile Transmission: (908) 497-2311 Confirm by Telephone: (800) 525-7686, ext. 2652 By Mail: By Hand and Overnight Delivery: Registrar and Transfer Company Registrar and Transfer Company P.O. Box 645 10 Commerce Drive Cranford, New Jersey 07016 Cranford, New Jersey 07016 DESCRIPTION OF CERTIFICATES SURRENDERED Certificate(s) Enclosed (Attach List if necessary) Total Number of (See Instructions) Certificate Shares Represented Name and Address of Registered Holder Number(s) by Certificate(s) TOTAL SHARES I have lost my certificate(s) for _____________ shares of Dixon Ticonderoga Company Common Stock and have completed the Affidavit for Lost Stock Certificate(s) on the reverse side and submitted the required check. (See Instruction 4.) SIGNATURES MUST BE PROVIDED BELOW -- PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY A properly executed Letter of Transmittal, along with the stock certificates covered thereby or a guarantee of delivery of such certificates, must be received by the Depositary by 5:00 p.m., New York City time, on February 7, 2005 (the "Expiration Date"), unless the Offer is extended. Ladies and Gentlemen: The undersigned hereby tenders to Pencil Acquisition Corp., a Delaware corporation (the "Merger Sub"), a wholly owned subsidiary of F.I.L.A. - Fabbbrica Italiana Lapis ed Affini, S.p.A., the above-described shares of common stock, par value $1.00 per share (the "Shares"), of Dixon Ticonderoga Company, a Delaware corporation (the "Company"), pursuant to Merger Sub's offer to purchase all outstanding Shares, at a purchase price of $7.00 per Share, net to the seller in cash (the "Offer Price"), without interest thereon, or such higher price per share as may be paid pursuant to the Offer (as defined below), upon the terms and subject to the conditions set forth in the Offer to Purchase dated January 7, 2005, receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together with any amendments or supplements thereto or hereto, collectively constitute the "Offer"). I (we) (i) hereby represent and warrant that I (we) have full authority to deliver, tender, transfer and assign the above certificate(s) as provided herein and agree to furnish or execute any additional documents requested, and to comply with any additional requirements imposed, by the Depositary or Merger Sub to complete such delivery, tender, transfer and exchange; and (ii) understand and agree that the Instructions on the reverse side of this Transmittal Letter are part of the terms and conditions for tender of the enclosed certificate(s) and are incorporated herein by reference. By executing this Letter of Transmittal, the undersigned hereby irrevocably appoints Greg Byrne and Massimo Candela, and each of them, and any other designees of Merger Sub, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to vote at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof or otherwise in such manner as each attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem proper with respect to, to execute any written consent concerning any matter as each such attorney-in-fact and proxy or his or her substitute shall in his or her sole discretion deem proper with respect to, all of the Shares (and any and all Distributions) tendered hereby and accepted for payment by Merger Sub. This appointment will be effective if and when, and only to the extent that, Merger Sub accepts such Shares for payment pursuant to the Offer. This power of attorney and proxy are irrevocable and are granted in consideration of the acceptance for payment of such Shares in accordance with the terms of the Offer. This Letter of Transmittal must be signed by registered holder(s) exactly as name appears on the certificate(s), or by the authorized agent of such registered holder(s). The signature must be accompanied by a signature guarantee if Special Payment Instructions are provided below. SPECIAL Payment INSTRUCTIONS (You must also comply with Instruction 3) Fill in ONLY if check(s) are payable to and mailed to a person other than the Registered Holder(s) of the enclosed Certificate(s). Issue the check(s) in the name of: Name: (Please Print First, Middle & Last Name) Address: (including Zip Code) (Taxpayer Identification or Social Security Number) SPECIAL mailing INSTRUCTIONS (You must also comply with Instruction 3) Fill in ONLY if check(s) are to be mailed to someone other than the Registered Holder of the enclosed Certificate(s) or to the Registered Holder at an address other than that shown above. Mail check(s) to: Name: (Please Print First, Middle & Last Name) Address: (including Zip Code) IMPORTANT -- PLEASE SIGN AND DATE BELOW AND COMPLETE SUBSTITUTE FORM W-9 ON REVERSE (See Instruction 2 on the reverse hereof) Dated: Signature(s) of Shareholder (or Agent or Representative if proper documentation is submitted) Telephone Number: Signature(s) (Authorized Guaranteed Signature) MEDALLION SIGNATURE GUARANTEE Required only if Special Payment Instructions or Special Mailing Instructions are provided above. (See Instruction 3) The signature(s) should be guaranteed by an eligible financial institution or a member of a registered national securities exchange or the NASD pursuant to Securities and Exchange Commission Rule 17Ad-15. PAYER'S NAME: PENCIL ACQUISITION CORP. SUBSTITUTE Form W-9 (See Instruction 6) Please fill in your name and address below. - ------------------------------------------ Name - ------------------------------------------ Address (number and street) - ------------------------------------------ City, State and Zip Code Department of the Treasury Internal Revenue Service Payer's Request for Taxpayer Identification Number Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT THE RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. - ------------------------------------------ Social Security Number(s) OR - ------------------------------------------ Employer Identification Number(s) Part 2 -- Certification -- Under Penalties of Perjury, I certify that: (1) The number shown on the form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me); and (2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of failure to report all interest or dividends or (c) the IRS has notified me that I am no longer subject to backup withholding. (3) I am a U.S. person (including a U.S. resident alien). Part 3 -- Awaiting TIN M Part 4 -- For Payee Exempt from Backup Withholding Exempt M Certificate Instructions -- You must cross out Item (2) in Part 2 above if you have been notified by the IRS that you are currently subject to backup withholding because of under reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out Item (2). If you are exempt from backup withholding, check the box in Part 4 above. SIGNATURE ______________________________________________ DATE ________________, 20___ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING AT THE APPLICABLE WITHHOLDING RATE OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW INSTRUCTION 6 BELOW FOR ADDITIONAL INFORMATION. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number to you within 60 days, you are required to withhold the applicable withholding rate of all reportable payments thereafter made to me until I provide a number. SIGNATURE ______________________________________________ DATE ________________, 20___ INSTRUCTIONS FOR TENDERING CERTIFICATES Forming Part of the Terms and Conditions of this Letter of Transmittal 1. General. The Letter of Transmittal, properly filled in and signed by or on behalf of the registered holder(s) of Dixon Ticonderoga Company Common Stock (or properly constituted assignees) and accompanied by certificate(s) for shares of Dixon Ticonderoga Company Common Stock, when tendered to the Depositary, Registrar and Transfer Company, at the addresses set forth on the reverse side, will entitle you to receive the Offer Price, subject to the terms and conditions of the Offer. For your convenience, a return envelope addressed to the Depositary is enclosed. The method of delivery of the certificate(s) is at the option and risk of the stockholder, but if the certificate(s) or documents are sent by mail, it is suggested that insured or registered mail be used for the stockholder's protection, and you should insure your certificate(s) for 1.5% of their value at $7.00 per share. Please note that the certificate(s) or documents must be in good order and received by the Depositary prior to the Expiration Date in order to be accepted. Insert in the box at the top of the letter of transmittal the certificate number(s) of the common stock certificate(s) which you are tendering herewith and the number of shares represented by each certificate. If the space provided is insufficient, attach a separate sheet listing this information. 2. Authority of Signatory. If the Letter of Transmittal is executed by an agent, attorney, executor, administrator, trustee, guardian or other fiduciary, or by a person acting in any other fiduciary or representative capacity, or by an officer of a corporation on behalf of the corporation, the full title of such person must be given and proper documentary evidence of his appointment and authority to act in such capacity (including, where necessary, bylaws, corporate resolutions and court orders) must be forwarded with the tendered stock certificate(s) and this letter of transmittal. 3. Special Payment Instructions/Special Mailing Instructions. If the Offer Price for shares of Dixon Ticonderoga Company Common Stock is to be paid to a person other than registered holder(s) of the tendered certificate(s) or mailed to an address other than the address of record, the tendered certificate(s) must be endorsed to such person or accompanied by appropriately endorsed stock powers. Signatures on this form and on the endorsement of stock power must be guaranteed by an eligible financial institution or broker who is a member/participant in a medallion program approved by Pencil Acquisition Corp. 4. Lost Certificate(s). If you cannot locate your certificate(s), please complete the Affidavit for Lost Certificates below along with the rest of this Letter of Transmittal and return it to the Depositary at the address listed on the front. If the Bond premium exceeds $1,500.00 please contact the Information Agent at (800) 368-5948 immediately, (bond premium calculation: Offer Price x number of shares of Dixon Ticonderoga Company common stock you have lost x 1.5% = bond premium -- example 1,000 shares of Dixon Ticonderoga Company x $7.00 = $7,000.00 x 1.5% = $105.00 bond premium). (Minimum $20.00) AFFIDAVIT FOR LOST STOCK CERTIFICATE(S) The undersigned hereby attests and certifies the following: That I am the lawful owner of the certificate(s) listed on this letter of transmittal as lost. That a search for the certificate(s) has been conducted and that these certificate(s) cannot be located. That these certificate(s) have not been endorsed, hypothecated, sold or had their ownership pledged or encumbered in any form, whatsoever. In requesting the replacement of this certificate(s), I hereby agree that: If these certificate(s) are subsequently located, they will be tendered for cancellation. That I indemnify, protect and hold harmless Pencil Acquisition Corp., Seaboard Surety Company, and Registrar and Transfer Company, and any other party from and against all losses, expenses, costs and damages including legal fees that may be subjected to these parties at any time in the future as a result of the cancellation and replacement of the certificate(s). All rights accruing to these parties will not be limited by their negligence, breach of duty, accident, or other obligation on the part of or by any officer or employee of the parties. I acknowledge that the certificate(s) will be replaced under an insurance bond underwritten by Seaboard Surety Company. My check, payable to the Seaboard Surety Company, to cover the lost stock certificate bond premium of 1.5% of the value of the stock at $7.00 per share (Minimum $20.00) is enclosed. I further acknowledge that any filing of an insurance application with materially false or misleading information is a fraudulent insurance act and may be considered a crime. Sign Here: Co-Owner, if any: Date: _______________, 20____ 5. Validity of Tender; Irregularities. All questions as to validity, form and eligibility of any tender of certificate(s) will be determined by Merger Sub (which may delegate the power to so determine in whole or in part to the Depositary), and such determination shall be final and binding absent manifest error. Merger Sub reserves the right to waive any irregularities or defects in the tender of any certificate(s) and its interpretation of the terms and conditions of this letter of transmittal or any other documents delivered therewith with respect to such irregularities or defects shall be in its sole discretion. A tender will not be deemed to have been validly made until all irregularities and defects have been cured. 6. Substitute Form W-9. Each tendering shareholder is required to provide the Depositary with such holder's correct taxpayer identification number ("TIN") on the above Substitute Form W-9 and to certify whether the shareholder is subject to backup withholding. Failure to provide such information on the form, may subject the tendering shareholder to federal income tax withholding at the applicable withholding rate on payments made to such tendering shareholder with respect to the shares. If such holder is an individual, the TIN is his or her social security number. A holder must cross out item (2) in part 2 of Substitute Form W-9 if such holder is subject to backup withholding. The box in part 3 of the form should be checked if the tendering holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in part 3 is checked, the tendering holder must also complete the certificate of awaiting taxpayer identification number in order to avoid backup withholding. If you checked the box in part 3 and do not provide the Depositary with a properly certified TIN within 60 days, the Depositary will withhold taxes at the applicable withholding rate on reportable payments made thereafter until a properly certified TIN is received by the Depositary. During the 60-day period, the Depositary will withhold the applicable withholding rate on any reportable dividend payments made prior to the time a properly certified TIN is provided to the Depositary. However, such amounts will be refunded to such tendering holder if a TIN is provided to the Depositary within 60 days. Certain holders, (including, among others, all corporations and certain foreign individuals) are exempt from these backup withholding and reporting requirements. Exempt holders should indicate their exempt status by checking the box in part 4 of substitute form W-9 above. In order for a foreign individual to qualify as an exempt recipient, such individual must submit a statement, signed under penalties of perjury, attesting to such individual's exempt status. Forms of such statements may be obtained from the Depositary. If backup withholding applies, the Depositary is required to withhold tax at the applicable rate of any payments made to the holder or other payee. Backup withholding is not an additional tax. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. 7. Inquiries. All inquiries with respect to the tender of certificates of common stock should be made directly to the Depositary, Registrar and Transfer Company, at 1-800-368-5948, or via email to info@rtco.com. EX-99.A.1.C 4 y04189exv99waw1wc.txt FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT (a)(1)C) NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK OF DIXON TICONDEROGA COMPANY TO PENCIL ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF F.I.L.A. -- FABBRICA ITALIANA LAPIS ED AFFINI S.p.A (NOT TO BE USED FOR SIGNATURE GUARANTEES) THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY FEBRUARY 7, 2005, UNLESS THE OFFER IS EXTENDED. This Notice of Guaranteed Delivery, or a form substantially equivalent hereto, must be used to accept the Offer (as defined below) if certificates for Shares (as defined below) are not immediately available, if the procedure for book-entry transfer cannot be completed on a timely basis, or if time will not permit all required documents to reach Registrar and Transfer Company (the "Depositary") on or prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase). This form may be delivered by hand, transmitted by facsimile transmission or mailed to the Depositary. See Section 3 of the Offer to Purchase. The Depositary for the Offer is: REGISTRAR AND TRANSFER COMPANY By Mail: By Hand and Overnight Delivery: Registrar and Transfer Company Registrar and Transfer Company P.O. Box 645 10 Commerce Drive Cranford, NJ 07016 Cranford, NJ 07016
By Facsimile Transmission (For Eligible Institutions Only): (908) 497-2311 Confirm Facsimile by Telephone: 1-800-525-7686, ext. 2652 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN ONE SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN THE FACSIMILE NUMBER SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. THIS NOTICE OF GUARANTEED DELIVERY TO THE DEPOSITARY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" (AS DEFINED IN THE OFFER TO PURCHASE) UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEES MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal or an Agent's Message (as defined in the Offer to Purchase) and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. 1 Ladies and Gentlemen: The undersigned hereby tenders to Pencil Acquisition Corp., a Delaware corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase dated January 7, 2005, and the related Letter of Transmittal (which, together with any amendment or supplements thereto, constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares of common stock, par value $1.00 per share (the "Shares") of Dixon Ticonderoga Company, a Delaware corporation (the "Company"), set forth below, pursuant to the guaranteed delivery procedure set forth in the Offer to Purchase.
- ----------------------------------- ----------------------------------- Number of Shares Tendered Name(s) of Record Holder(s) (Please Print) ----------------------------------- - ----------------------------------- Certificate No(s). (if available) Address(es) ----------------------------------- (Zip Code) ----------------------------------- (Area Code and Telephone Number(s)) ----------------------------------- - ----------------------------------- [ ] Check here if securities will be tendered by Signature(s) book-entry transfer - ----------------------------------- Name of Tendering Institution ----------------------------------- - ----------------------------------- Account Number Date
2 THE GUARANTEE BELOW MUST BE COMPLETED GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEES) The undersigned, a firm that is a participant in the Securities Transfer Agents Medallion Program, or an "eligible guarantor institution" (as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended), hereby guarantees to deliver to the Depositary either the certificates evidencing all tendered Shares, in proper form for transfer, or to deliver Shares pursuant to the procedure for book-entry transfer into the Depositary's account at The Depository Trust Company, in either case together with the Letter of Transmittal (or a manually signed facsimile thereof) properly completed and duly executed, with any required signature guarantees or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery, and any other required documents, all within three American Stock Exchange trading days after the date hereof. - -------------------------------------------------------------------------------- (NAME OF FIRM) - -------------------------------------------------------------------------------- (AUTHORIZED SIGNATURE) - -------------------------------------------------------------------------------- (NAME AND TITLE) - -------------------------------------------------------------------------------- (ADDRESS) - -------------------------------------------------------------------------------- (ZIP CODE) - -------------------------------------------------------------------------------- (AREA CODE AND TELEPHONE NUMBER) NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES FOR SHARES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. Dated: , 2005 3 EX-99.A.1.D 5 y04189exv99waw1wd.txt FORM OF LETTER TO BROKERS, DEALERS EXHIBIT (a)(1)(D) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF DIXON TICONDEROGA COMPANY AT $7.00 NET PER SHARE BY PENCIL ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF F.I.L.A. -- FABBRICA ITALIANA LAPIS ED AFFINI S.P.A THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, FEBRUARY 7, 2005, UNLESS THE OFFER IS EXTENDED. January 7, 2005 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: Pencil Acquisition Corp., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of F.I.L.A. -- Fabbrica Italiana Lapis ed Affini S.p.A ("Parent"), has commenced an offer to purchase all outstanding shares of common stock, par value $1.00 per share (the "Shares"), of Dixon Ticonderoga Company, a Delaware corporation (the "Company"), at a purchase price of $7.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated January 7, 2005 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") enclosed herewith. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration date of the Offer a number of Shares that, including the number of Shares to be purchased by Merger Sub pursuant to a Stock Purchase Agreement with certain of the Company's officers and directors, and their affiliates, represents at least 66 2/3% of the then outstanding Shares. See Section 14 of the Offer to Purchase for additional conditions to the Offer. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee. 1. Offer to Purchase dated January 7, 2005; 2. Letter of Transmittal for your use in accepting the Offer and tendering Shares and for the information of your clients (manually signed facsimile copies of the Letter of Transmittal may be used to tender Shares); 3. Notice of Guaranteed Delivery to be used to accept the Offer if share certificates are not immediately available or if such certificates and all other required documents cannot be delivered to Registrar and Transfer Company (the "Depositary"), or if the procedures for book-entry transfer cannot be completed on a timely basis; 4. A printed form of letter that may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 1 5. The letter to stockholders of the Company from Gino Pala, Chairman and Co-Chief Executive Officer of the Company, and Richard Joyce, Vice Chairman of the Board and Co-Chief Executive Officer and President, accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by the Company; 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9; and 7. Return envelope addressed to the Depositary. The Board of Directors of the Company unanimously (i) determined that the terms of the Offer and the Merger are fair to, and in the best interests of, the stockholders of the Company, (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Offer, the Merger, and the related Stock Purchase Agreement, and (iii) recommended that the Company's stockholders accept the Offer and tender their shares pursuant to the Offer. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of December 16, 2004 (the "Merger Agreement"), by and among Merger Sub, Parent and the Company. The Merger Agreement provides for, among other things, the making of the Offer by Merger Sub, and further provides that, after the consummation of the Offer, Merger Sub will be merged with and into the Company (the "Merger") following the satisfaction or waiver of the conditions to the Merger set forth in the Merger Agreement. Following the Merger, the Company will continue as the surviving corporation, wholly owned by Parent, and the separate corporate existence of Merger Sub will cease. In order to take advantage of the Offer, (i) a duly executed and properly completed Letter of Transmittal and any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book- entry delivery of Shares, and other required documents should be sent to the Depositary and (ii) certificates representing the tendered Shares should be delivered to the Depositary, or such Shares should be tendered by book-entry transfer into the Depositary's account maintained at the Book-Entry Transfer Facility (as described in the Offer to Purchase), all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. Holders of Shares whose certificates for such Shares are not immediately available, who cannot complete the procedures for book-entry transfer on a timely basis, or who cannot deliver all other required documents to the Depositary prior to the Expiration Date (as defined in the Offer to Purchase) must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. Merger Sub will not pay any fees or commissions to any broker or dealer or other person (other than the Depositary and the Information Agent as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. Merger Sub will, however, upon request, reimburse you for customary mailing and handling costs incurred by you in forwarding the enclosed materials to your clients. Merger Sub will pay or cause to be paid all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, FEBRUARY 7, 2005, UNLESS THE OFFER IS EXTENDED. Any inquiries you may have with respect to the Offer should be addressed to, and additional copies of the enclosed materials may be obtained from, the Information Agent at the address and telephone number set forth on the back cover of the Offer to Purchase. Very truly yours, PENCIL ACQUISITION CORP. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS AN AGENT OF PARENT, MERGER SUB, THE COMPANY, THE INFORMATION AGENT, THE DEPOSITARY OR ANY AFFILIATE OF ANY OF THE FOREGOING OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 2 EX-99.A.1.E 6 y04189exv99waw1we.txt FORM OF LETTER TO CLIENTS EXHIBIT (a)(1)(E) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF DIXON TICONDEROGA COMPANY AT $7.00 NET PER SHARE BY PENCIL ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF F.I.L.A. -- FABBRICA ITALIANA LAPIS ED AFFINI S.P.A THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, FEBRUARY 7, 2005, UNLESS THE OFFER IS EXTENDED. January 7, 2005 To Our Clients: Enclosed for your consideration are the Offer to Purchase, dated January 7, 2005 (the "Offer to Purchase"), and a related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by Pencil Acquisition Corp., a Delaware corporation ("Merger Sub"), wholly owned by F.I.L.A. -- Fabbrica Italiana Lapis ed Affini S.p.A (the "Parent"), to purchase all outstanding shares of common stock, par value $1.00 per share (the "Shares"), of Dixon Ticonderoga Company, a Delaware corporation (the "Company"), at a purchase price of $7.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the Letter of Transmittal enclosed herewith. Also enclosed is the letter to stockholders of the Company from Gino Pala, Chairman and Co-Chief Executive Officer of the Company, and Richard Joyce, Vice Chairman, Co-Chief Executive Officer and President of the Company, accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by the Company. We or our nominees are the holder of record of Shares for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The enclosed Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer to Purchase. Your attention is invited to the following: 1. The offer price is $7.00 per Share, net to you in cash. 2. The Offer is being made for all outstanding Shares, without interest. 3. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of December 16, 2004 (the "Merger Agreement"), by and among Merger Sub, the Parent, and the Company. The Merger Agreement provides, among other things, that Merger Sub will be merged with and into the Company (the "Merger") following the satisfaction or waiver of each of the conditions to the Merger set forth in the Merger Agreement. At the effective 1 time of the Merger, each Share other than Shares that are held by stockholders, if any, who properly exercise their appraisal rights under Delaware law) will be converted into the same price per share, in cash, without interest, as paid pursuant to the Offer. 4. The Board of Directors of the Company unanimously (i) determined that the terms of the Offer and the Merger are fair to, and in the best interests of, the stockholders of the Company, (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Offer the Merger, and the Stock Purchase Agreement, and (iii) recommended that the Company's stockholders accept the Offer and tender their shares pursuant to the Offer. 5. The Offer and withdrawal rights will expire at 5:00 p.m., New York City time, on Monday, February 7, 2005 (the "Expiration Date"), unless the Offer is extended. 6. Any stock transfer taxes applicable to the sale of Shares to Merger Sub pursuant to the Offer will be paid by Merger Sub. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration date of the Offer a number of Shares that, including the number of Shares to be purchased pursuant to the Stock Purchase Agreement with certain of the Company's officers and directors, and their affiliates, represents at least 66 2/3% of the then outstanding Shares. See Section 14 of the Offer to Purchase for additional conditions to the Offer. The Offer is made solely by the Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. The Offer, however, is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. However, Merger Sub may, in its discretion, take such action as it may deem necessary to make the Offer in any jurisdiction and to extend the Offer to holders of Shares in such jurisdiction. In those jurisdictions where securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of Merger Sub by one or more registered brokers or dealers licensed under the laws of such jurisdiction to be designated by Merger Sub. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing and returning to us the instruction form contained in this letter. An envelope to return your instructions to us is also enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified in this letter. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf prior to the Expiration Date. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF DIXON TICONDEROGA COMPANY The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase dated January 7, 2005, and the related Letter of Transmittal in connection with the offer by Pencil Acquisition Corp., a Delaware corporation, to purchase all outstanding shares of common stock, par value $1.00 per share (the "Shares"), of Dixon Ticonderoga Company, a Delaware corporation, at a purchase price of $7.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal. This will instruct you to tender to Merger Sub the number of Shares indicated below (or, if no number is indicated below, all Shares) that are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal.
NUMBER OF SHARES TO BE TENDERED: ---------------------------------------------- SIGNATURE(S) - ------------------------------------------------ SHARES* ---------------------------------------------- PLEASE TYPE OR PRINT NAME(S) ---------------------------------------------- PLEASE TYPE OR PRINT ADDRESS ---------------------------------------------- AREA CODE AND TELEPHONE NUMBER Account No.: --------------------------------- ---------------------------------------------- TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER Dated: ----------------------------------------
- --------------- * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. 3 EX-99.A.1.F 7 y04189exv99waw1wf.txt TAX GUIDELINES ON FORM W-9 EXHIBIT (A)(1)(F) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. Social Security Numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer Identification Numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer.
- --------------------------------------------------------------- GIVE THE NAME AND SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF: - --------------------------------------------------------------- 1. Individual The individual 2. Two or more individuals The actual owner of the (joint account) account or, if combined funds, the first individual on the account(1) 3. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 4. a. The usual revocable The grantor -- trustee(1) savings trust account (grantor is also trustee) b. So-called trust account The actual owner(1) that is not a legal or valid trust under State law 5. Sole proprietorship or The owner (3) single member limited liability company ("LLC") that has not elected corporate status on IRS Form 8832 - ---------------------------------------------------------------
------------------------------------------------------------------------------- GIVE THE NAME AND EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF: ------------------------------------------------------------------------------- 6. Sole proprietorship or single The owner(3) member LLC that has not elected corporate status on IRS Form 8832 7. A valid trust, estate, or pension The legal entity(4) trust 8. Corporate or LLC electing The corporation or LLC corporate status on IRS Form 8832 9. Association, club, religious, The organization charitable, educational, or other tax-exempt organization 10. Partnership or multi-member LLC The partnership or LLC that has not elected corporate status on IRS Form 8832 11. A broker or registered nominee The broker or nominee 12. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district or prison) that receives agricultural program payments - ---------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has a Social Security Number, that person's Social Security Number must be furnished. (2) Circle the minor's name and furnish the minor's Social Security Number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your Social Security Number or Employer Identification Number. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) 1 THE GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 NOTE: If no name is circled when there is more than one name listed, the number will be considered to be that of the first name listed. OBTAINING A NUMBER If you do not have a Taxpayer Identification Number ("TIN") or you do not know your number, obtain Form SS-5, Application for a Social Security Card, from your local Social Security Administration office (or on-line at www.ssa.gov/online/ss5.html or by calling 1-800-772-1213). Certain resident and nonresident aliens should use Form W-7, Application for IRS Individual Taxpayer Identification Number. Use Form SS-4, Application for Employer Identification Number, to apply for an EIN. You can get Forms W-7 and SS-4 from the IRS by calling 1-800-TAX-FORM (1-800-829-3676) or on-line at www.irs.gov. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding include: - An organization exempt from tax under Section 501(a), any IRA, or a custodial account under Section 403(b)(7) if the account satisfies the requirements of Section 401(f)(2). - The United States or any of its agencies or instrumentalities. - A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. - A foreign government or any of its political subdivisions, agencies or instrumentalities. - An international organization or any of its agencies or instrumentalities. Payees that may be exempt from backup withholding include: - A corporation. - A financial institution. - A dealer in securities or commodities required to register in the U.S., the District of Columbia or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under Section 584(a). - A trust exempt from tax under Section 664 or described in Section 4947. - An entity registered at all times during the tax year under the Investment Company Act of 1940. - A foreign central bank of issue. - A middleman known in the investment community as a nominee or custodian. - A futures commission merchant registered with the Commodity Futures Trading Commission. Payments of dividends and patronage dividends not generally subject to backup withholding include: - Payments to nonresident aliens subject to withholding under Section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and that have at least one nonresident alien partner. - Payments of patronage dividends not paid in money. - Payments made by certain foreign organizations. - Section 404(k) distribution made by an ESOP. Payments of interest not generally subject to backup withholding include: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct TIN to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under Section 852). - Payments described in Section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under Section 1451. - Payments made by certain foreign organizations. - Mortgage or student loan interest paid to you. EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE SUBSTITUTE FORM W-9 TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. CHECK THE BOX ON THE FACE OF THE FORM IN PART 2, SIGN AND DATE THE FORM, AND RETURN IT TO THE PAYER. Certain payments, other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under Sections 6041, 6041(a), 6042, 6044, 6045, 6049, 6050A, and 6050N. PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend, interest, and other payments to give their correct TIN to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of tax returns. The IRS may also provide this information to the Department of Justice for civil and criminal litigation, and to cities, states, and the District of Columbia to carry out their tax laws. The IRS may also disclose this information to other countries under a tax treaty, or to Federal and state agencies to enforce Federal nontax criminal laws and to combat terrorism. Payees must provide their TINs whether or not they are required to file tax returns. Payers must generally withhold a certain percentage (currently 28%) of taxable interest, dividend, and certain other payments to a payee who does not give a TIN to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TIN. -- If you fail to furnish your TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis which results in no backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. (4) MISUSE OF TINS. -- If the requester discloses or uses TINs in violation of federal law, the requester may be subject to civil and criminal penalties. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX ADVISOR OR THE IRS. 2 EX-99.A.1.G 8 y04189exv99waw1wg.txt SUMMARY ADVERTISEMENT Exhibit (a)(1)(G) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made solely by the Offer to Purchase, dated January 7, 2005, and the related Letter of Transmittal, and any amendments thereto, and is being made to all holders of Shares. Merger Sub (as defined below) is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Merger Sub becomes aware of any valid state statute prohibiting the making of the Offer, Merger Sub will make a good faith effort to comply with such statute. If, after such good faith effort, Merger Sub cannot comply with such state statute, the Offer will not be made to nor will tenders be accepted from or on behalf of the holders of Shares in such state. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock of Dixon Ticonderoga Company at $7.00 Net Per Share by Pencil Acquisition Corp. a wholly owned subsidiary of F.I.L.A.-Fabbrica Italiana Lapis ed Affini S.p.A. Pencil Acquisition Corp., a Delaware corporation ( the "Merger Sub") and a wholly owned subsidiary of F.I.L.A. - Fabbrica Italiana Lapis ed Affini S.p.A., an Italian corporation ("Fila"), is offering to purchase all outstanding shares of common stock, par value $1.00 per share (the "Shares"), of Dixon Ticonderoga Company, a Delaware corporation (the "Company"), at a purchase price of $7.00 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase dated January 7, 2005 (the "Offer to Purchase"), and in the related Letter of Transmittal (the "Letter of Transmittal") (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Tendering stockholders who have Shares registered in their names and who tender directly to Registrar and Transfer Company (the "Depositary") will not be charged brokerage fees or commissions or, except as set forth in the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. Stockholders who hold their Shares through a broker, dealer, bank, trust company or other nominee should consult such institution as to whether it charges any service fees. Merger Sub will pay all charges and expenses of the Depositary and MacKenzie Partners, Inc., which is acting as the information agent for the Offer (the "Information Agent"), incurred in connection with the Offer. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, FEBRUARY 7, 2005, UNLESS THE OFFER IS EXTENDED. The Offer is conditioned upon, among other things, (1) there being validly tendered and not withdrawn prior to the Expiration Date (as defined below) a number of Shares of Company Common Stock which, together with Shares of Company Common Stock then beneficially owned by Fila or Merger Sub (including, without limitations, the Shares of Company Common Stock to be sold to Merger Sub pursuant to the Stock Purchase Agreement described below) that represents at least 66_% of the then outstanding Shares, (2) there not being any change, effect, event or state of facts that has occurred which, individually or together with other changes, effects, events or state of facts, materially and adversely affects the financial condition, business, operations or results of operations of the Company and its subsidiaries taken as a whole, (3) the Company's board of directors not having withdrawn or modified or changed in an adverse manner its recommendation of the Offer and the Merger (as defined below) or recommended to the Company's stockholders an alternative acquisition proposal, and (4) there being no breach of any representations, warrants, covenant or agreement made by the Company in the Merger Agreement. The Offer is also subject to other conditions. See Section 14 of the Offer to Purchase. The "Expiration Date" of the Offer is 5:00 p.m., New York City time, on Monday, February 7, 2005, unless Merger Sub shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by Merger Sub, shall expire. The purpose of the Offer is to acquire control of, and the entire equity interest in, the Company. As promptly as practicable following consummation of the Offer and after satisfaction or waiver of all conditions to the Merger (as defined below) set forth in the Merger Agreement (as defined below), Merger Sub intends to acquire the remaining equity interest in the Company not acquired in the Offer by consummating the Merger. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of December 16, 2004 (the "Merger Agreement"), by and among Fila, Merger Sub and the Company. The Merger Agreement provides that, among other things, Merger Sub will make the Offer and, after the purchase of Shares pursuant to the Offer and the satisfaction or waiver of the other conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the Delaware General Corporation Law (the "DGCL"), Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation (the "Merger"). At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by Fila or the Company or any of their respective subsidiaries, all of which will be cancelled, and other than Shares that are held by stockholders, if any, who properly exercise their dissenters' rights under the DGCL) will be converted into the right to receive $7.00 net per share in cash, or any greater price that is paid in the Offer in cash, without interest. The Merger Agreement is more fully described in Section 11 of the Offer. In connection with the Merger Agreement, certain stockholders of the Company who own in the aggregate 28% of the outstanding Common Shares entered into a Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as of December 16, 2004, with Merger Sub. Pursuant to the Stock Purchase Agreement, such stockholders have agreed, among other things, to sell the Shares held to Merger Sub simultaneously with the Closing of the Offer and to grant designees of Fila, under certain circumstances, a proxy with respect to the voting of such Shares in favor of the Merger, upon the terms and subject to the conditions set forth in the Stock Purchase Agreement. THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY (I) DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER DESCRIBED HEREIN ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, (II) APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER, THE MERGER AND THE STOCK PURCHASE AGREEMENT, AND (III) RECOMMENDED THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. For purposes of the Offer, Merger Sub will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not properly withdrawn as, if and when Merger Sub gives oral or written notice to the Depositary of Merger Sub's acceptance for payment of such Shares pursuant to the Offer. On the terms and subject to the conditions of the Offer, payment for Shares purchased pursuant to the Offer will be made by deposit of the Offer Price with the Depositary, which shall act as agent for tendering stockholders for the purpose of receiving payments from Merger Sub and transmitting such payments to tendering stockholders. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates evidencing such Shares or confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (as defined in the Offer to Purchase) pursuant to the procedures set forth in the Offer to Purchase, (ii) a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature guarantees or, in the case of book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) in lieu of the Letter of Transmittal and (iii) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when Share Certificates (as defined in the Offer to Purchase) or Book-Entry Confirmations (as defined in the Offer to Purchase) with respect to Shares are actually received by the Depositary. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Merger Sub in its sole discretion, which determination shall be final and binding on all parties. Under no circumstances will interest be paid on the Offer Price regardless of any delay in making payment for any of the Shares. Subject to the provisions of the Merger Agreement and the applicable rules and regulations of the United States Securities and Exchange Commission (the "Commission"), Merger Sub reserves the right, in its sole discretion, to waive any or all conditions to the Offer (other than the Minimum Condition (as defined in the Offer to Purchase, which only may be waived with the Company's prior written consent)) and to make any other changes in the terms and conditions of the Offer. Subject to the provisions of the Merger Agreement giving Dixon the right, in certain circumstances, to compel Merger Sub to extend the Offer, and the applicable rules and regulations of the Commission, if, by the Expiration Date, any or all of the conditions to the Offer have not been satisfied, Merger Sub reserves the right (but will not be obligated) to (1) terminate the Offer and return all tendered Shares to tendering stockholders, (2) waive such unsatisfied conditions (other than the Minimum Condition) and purchase all Shares validly tendered or (3) extend the Offer, and, subject to the terms of the Offer (including the rights of stockholders to withdraw their Shares), retain the Shares which have been tendered, until the termination of the Offer, as extended. The Merger Agreement also provides that Merger Sub may extend the Offer for a subsequent offering period (as provided in Rule 14d-11 under the Securities Exchange Act of 1934, as amended) for three to 20 business days in order to acquire at least 90% of the outstanding Shares, beginning after Merger Sub purchases Shares tendered in the Offer, during which the Company stockholders may tender, but not withdraw, their Shares and receive the Offer Price. Any extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof to be made no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. During any such extension, all Shares previously tendered and not properly withdrawn will remain subject to the Offer, subject to the rights of a tendering stockholder to withdraw such stockholder's Shares. "Expiration Date" means 5:00 p.m., New York City time, on Monday, February 7, 2005, unless and until Merger Sub, in its sole discretion (but subject to the terms and conditions of the Merger Agreement), has extended the period during which the Offer is open, in which event the term "Expiration Date" means the latest time and date at which the Offer, as so extended by Merger Sub, will expire. Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment pursuant to the Offer, also may be withdrawn at any time after March 7, 2005. Except as otherwise provided in Section 4 of the Offer to Purchase, tenders of Shares made pursuant to the Offer are irrevocable. For a withdrawal of Shares tendered pursuant to the Offer to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of such Shares, if different from that of the person who tendered the Shares. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered for the account of an Eligible Institution (as defined in the Offer to Purchase), the signature on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer as set forth in the Offer to Purchase, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of notices of withdrawal shall be determined by Merger Sub, in its sole discretion, and its determination shall be final and binding on all parties. None of Fila, Merger Sub, the Depositary, the Information Agent or any other person will be under duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. If Merger Sub elects to provide a Subsequent Offering Period, no withdrawal rights apply to Shares tendered during the Subsequent Offering Period, and no withdrawal rights apply during the Subsequent Offering Period with respect to Shares tendered in the Offer and accepted for payment. The receipt of cash for Shares pursuant to the Offer or the Merger will be a taxable transaction for United States federal income tax purposes and may also be a taxable transaction under applicable state, local or foreign tax laws. Stockholders should consult with their tax advisors as to the particular tax consequences of the Offer and the Merger to them, including the applicability and effect of the alternative minimum tax and any state, local or foreign income and other tax laws and of changes in such tax laws. For a more complete description of certain United States federal income tax consequences of the Offer and the Merger, see Section 5 of the Offer to Purchase. The information required to be disclosed by paragraph (d)(1) of Rule 14d-6 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided to Merger Sub its list of stockholders and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase, the Letter of Transmittal and other related materials are being mailed to record holders of Shares and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. The Offer to Purchase and the related Letter of Transmittal contain important information that should be read carefully before any decision is made with respect to the Offer. Questions and requests for assistance and copies of the Offer to Purchase, the Letter of Transmittal and all other tender offer materials may be directed to the Information Agent at its address and telephone number set forth below, and copies will be furnished promptly at Merger Sub's expense. Merger Sub will not pay any fees or commissions to any broker or dealer or any other person (other than the Information Agent) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: [MaKenzie Logo] 105 Madison Avenue New York, New York 10016 (212) 929-5500 (Call Collect) or Call Toll-Free (800) 322-2885 E-mail: proxy@mackenziepartners.com January 7, 2005 EX-99.B.1 9 y04189exv99wbw1.txt FACILITIES AGREEMENT EXHIBIT (b)(1) FACILITY AGREEMENT DATED 16 DECEMBER, 2004 CREDIT FACILITIES FOR F.I.L.A. - FABBRICA ITALIANA LAPIS ED AFFINI S.P.A. ARRANGED BY BANCA INTESA S.P.A. ALLEN & OVERY STUDIO LEGALE ASSOCIATO MILAN
CLAUSE PAGE 1. Interpretation................................................ 1 2. Facilities.................................................... 11 3. Purpose....................................................... 12 4. Conditions precedent.......................................... 12 5. Utilisation................................................... 13 6. Repayment..................................................... 14 7. Prepayment and cancellation................................... 14 8. Interest...................................................... 17 9. Terms......................................................... 18 10. Market disruption............................................. 19 11. Taxes ........................................................ 19 12. Increased Costs............................................... 21 13. Mitigation.................................................... 22 14. Payments...................................................... 23 15. Representations............................................... 24 16. Information covenants......................................... 30 17. General covenants............................................. 33 18. Default....................................................... 40 19. Security...................................................... 43 20. The Administrative Parties.................................... 44 21. Evidence and calculations..................................... 49 22. Fees.......................................................... 50 23. Indemnities and Break Costs................................... 50 24. Expenses...................................................... 52 25. Amendments and waivers........................................ 52 26. Changes to the Parties........................................ 53 27. Disclosure of information..................................... 56 28. Set-off....................................................... 56 29. Pro Rata Sharing.............................................. 57 30. Severability.................................................. 58 31. Counterparts.................................................. 58 32. Notices....................................................... 58 33. Language...................................................... 60 34. Governing law................................................. 60 35. Enforcement................................................... 60
SCHEDULE 1. Original Parties 2. Conditions precedent documents 3. Form of Request 4. Calculation of the Mandatory Cost 5. Form of Transfer Certificate 6. Existing Security 7. Security Agreements 8. Form of the Pledge over the shares of new Target 9. Financial Indebtedness of Target SIGNATORIES SUMMARY SHEET ("DOCUMENTO DI SINTESI") This is a Summary Sheet ("Documento di Sintesi") of the main terms and conditions of the facility agreement executed on 16 December, 2004 (the FACILITY AGREEMENT). (This document is not to be viewed as a substitute for the Facility Agreement and has been drafted in accordance with the transparency rules, which came into force on 1st October 2003 (D.Lgs. 385 of 1/9/1993 - CICR Resolution of 4th March, 2003). Capitalised terms not defined herein shall bear the same meaning ascribed to them in the Facility Agreement. SECTION 1 THE INFORMATION IN THIS SECTION IS INTENDED TO DRAW THE COMPANY'S' ATTENTION TO THE ECONOMIC/FINANCIAL CONDITIONS (LE CONDIZIONI ECONOMICHE) OF THE TRANSACTION DESCRIBED IN THE FACILITY AGREEMENT. INTEREST: the percentage rate per annum equal to the aggregate amount of the applicable: (a) Margin (equal to (i) with respect to Tranche A, 1.3 per cent, per annum; (ii) with respect to Tranche B: (A) 1.75 per cent, per annum, where the aggregate of all Loans are up to and including US$ 10 million; and (B) 2.00 per cent, per annum, where the aggregate of all Loans are greater than US$ 10 million and up to and including US$ 20 million); (b) in relation to any Loan in euro, EURIBOR or, in relation to any Loan in US$, LIBOR; and (c) Mandatory Costs. Alternative bases for determining the rate of interest are provided. TERMS AND CALCULATION OF INTERESTS: the Company must pay accrued interest on each Loan made to it on the last day of each Term. The Facility Agent must promptly notify each relevant Party of the determination of a rate of interest under this Agreement. INTEREST ON OVERDUE AMOUNTS: the Company must immediately on demand by the Facility Agent pay interest on the overdue amount from its due date up to the date of actual payment, calculated by the Facility Agent. Interest on an overdue amount is payable at a rate determined by the Facility Agent to be two per cent per annum above the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted a Loan in the currency of the overdue amount. INDEXATION CRITERIA: IBOR, which means LIBOR (which means for a Term of any Loan or overdue amount in US$: (a) the applicable Screen Rate; or (b) if no Screen Rate is available for the relevant currency or Term of that Loan or overdue amount, the arithmetic mean (rounded upward to four decimal places) of the rates, as supplied to the Facility Agent at its request, quoted by the Reference Banks to leading banks in the London interbank market, as of 11.00 a.m. on the Rate Fixing Day for the offering of deposits in the currency of that Loan or overdue amount for a period comparable to that Term); or EURIBOR (which means for a Term of any Loan or overdue amount in euro: (a) the applicable Screen Rate; or (b) if no Screen Rate is available for that Term of that Loan or overdue amount, the arithmetic mean (rounded upward to four decimal places) of the rates as supplied to the Facility Agent at its request quoted by the Reference Banks to leading banks in the European interbank market; as of 11.00 a.m. (Milan time) on the Rate Fixing Day for the offering of deposits in euro for a period comparable to that Term). COST AND EXPENSES OF THE COMPANY: the Company shall pay to the Finance Parties: (i) the Taxes and the tax indemnity, pursuant to Clause 11 (Taxes) of the Facility Agreement; (ii) the Increased Costs, subject to the terms and conditions of Clause 12 (Increased Costs) of the Facility Agreement; (iii) the Indemnities and the Break Costs pursuant to Clause 23 (Indemnities and Break Costs) of the facility Agreement; and (iv) and the cost and expenses pursuant to Clause 24 (Expenses) of the facility Agreement. FEES: the Company must pay: (i) to the Arranger, for its own account an arrangement and underwriting fee in relation to Tranche A and Tranche B in the amount and in the manner agreed in the Fee Letter; (ii) to the Facility Agent, a commitment fee computed at the rate of 0.875 per cent per annum on the undrawn and uncancelled amount of each Lender's Tranche A Commitment, payable quarterly in arrear from and including the date of the Facility Agreement; and (iii) to the Facility Agent, a commitment fee computed at the rate of 0.875 per cent, per annum on the undrawn and uncancelled amount of each Lender's Tranche B Commitment, payable quarterly in arrear from and including 31st March, 2005. INDICATORE SINTETICO DI COSTO (ISC): equal to: (i) in relation to Tranche A, 450 b.p. per annum, legal expenses ecluded (three months Euribor); in relation to Tranche B, 540 b.p. per annum, legal expenses ecluded (three months libor). SECTION 2 THE INFORMATION IN THIS SECTION IS INTENDED TO DRAW THE COMPANY'S ATTENTION TO THE PROVISIONS, INCLUDING THOSE WHICH ARE NOT STRICTLY ECONOMIC/FINANCIAL, CONTAINED IN THE FACILITY AGREEMENT. CLAUSE 1 identifies the terms used in the Facility Agreement. CLAUSE 2 specifies the amount of the Facility. CLAUSE 3 specifies the purposes of the Facility. CLAUSE 4 details the conditions precedent and the obligation to which each of the Lender who participate in any Loan are subject. CLAUSE 5 sets out (i) the procedure necessary to duly complete a Request and deliver it to the Facility Agent; and (ii) the procedure relating to the advance of Loan. CLAUSE 6 states that the Company must repay the Loans in full on the Final Maturity Date. CLAUSE 7 details the cases of (i) mandatory prepayment of the Facility; (ii) voluntary prepayment of the Facility; (iii) cancellation of the Commitments; and (iv) involuntary prepayment and cancellation of the Commitments. CLAUSE 8 sets out (i) the Interest for each Term; (ii) the interest on overdue amounts. CLAUSE 9 specifies the duration of the Terms. CLAUSE 10 identifies the criteria for determining the rate of interest if: (i) IBOR is to be calculated by reference to the Reference Banks but no, or only one, Reference Bank supplies a rate by 12.00 noon (Milan or London time depending on IBOR being EURIBOR or LIBOR, respectively) on the Rate Fixing Day; or (ii) the Facility Agent receives by close of business on the Rate Fixing Day notification from Lenders whose shares in the relevant Loan exceed 30 per cent, of that Loan that the cost to them of obtaining matching deposits in the relevant interbank market is in excess of the IBOR for the relevant Term. CLAUSE 11 states that (i) that the Company must make all payments to be made by it under the Finance Documents without any Tax Deduction, unless a Tax Deduction is required by law; (ii) what the Company must do if a Tax Deduction is required by law; (iii) that the Company must indemnify a Finance Party against any loss or liability which that Finance Party acting reasonably determines will be or has been suffered (directly or indirectly) by that Finance Party for or on account of Tax in relation to a payment received or receivable (or any payment deemed to be received or receivable) under a Finance Document; (iv) that the Company must pay and indemnify each Finance Party against any stamp duty, stamp duty land tax, registration or other similar Tax payable in connection with the entry into, performance or enforcement of any Finance Document, except for any such Tax payable in connection with the entry into a Transfer Certificate; and (v) that any amount payable under a Finance Document by the Company is exclusive of any value added tax or any other Tax of a similar nature which might be chargeable in connection with that amount. CLAUSE 12 states that the Company must pay to the a Finance Party the amount of any Increased Costs incurred by that Finance Party or any of its Affiliates. CLAUSE 13 states that each Finance Party must take all reasonable steps to mitigate any circumstances which arise and which result or would result in any Tax payment or Increased Cost being payable by the Company. CLAUSE 14 sets out (i) the place where all payments under the Finance Documents must be made; (ii) the relevant value and currency; (iii) how duly make the distribution of the payments under the Finance Documents; and (iv) how duly apply the partial payment made by the Company. In particular Clause 14 states that all payments made by the Company under the Finance Documents must be made without set-off or counterclaim. CLAUSE 15 details the representations made by the Company, also with respect to its Subsidiary, to each Finance Parties. CLAUSE 16 details the information covenants of the Company. CLAUSE 17 details the general covenants of the Company. CLAUSE 18 details the Events of Default, If any Event of Default is outstanding, and subject to the terms and condition provided under the Facility Agreement, the Facility Agent may, and must if so instructed by the Majority Lenders, (i) cancel all or any part of the Total Commitments; or (ii) declare that all or part of any amounts outstanding under the Finance Documents are: (A) immediately due and payable; and/or (B) payable on demand by the Facility Agent acting on the instructions of the Majority Lenders. CLAUSE 19 indicates the purposes of the Account Pledge and of the FILA Pledge and sets out the functions of the Security Agent. CLAUSE 20 stets out the appointments and the duties of the Facility Agent and the relationship between the Facility Agent and the Finance Parties. CLAUSE 21 states that (i) the accounts maintained by a Finance Party in connection with the Facility Agreement are prima facie evidence of the matters to which they relate for the purpose of any litigation or arbitration proceedings; and (ii) any certification or determination by a Finance Party of a rate or amount under the Finance Documents will be, in the absence of manifest error, conclusive evidence of the matters to which it relates. CLAUSE 22 states that the Company must pay to the Arranger the arrangement and underwriting fee in the amount and in the manner agreed in the Fee Letter; (ii) a commitment fee in relation, respectively, to the Tranche A and the Tranche B subject to the terms and condition referred to in the Facility Agreement. CLAUSE 23 states that the Company must (i) indemnify each Finance Party against any loss or liability which that Finance Party incurs in relation to the Facility; and (ii) pay to each Lender its Break Costs. CLAUSE 24 states that the Company must pay all the costs and expenses incurred in relation to the Facility Agreement and the other Finance Documents. CLAUSE 25 sets out the procedure necessary to amend or waive any term of the Finance Documents. CLAUSE 26 sets out the procedure pursuant to which a Lender may assign or transfer any of its rights and obligations under the Facility Agreement. CLAUSE 27 details in which cases a Finance Party is entitle to disclose information in connection with the Finance Documents. CLAUSE 28 states that a Finance Party may set off any matured obligation owned to it by the Company under the Finance Documents (to the extent beneficially owned by that Finance Party) against any obligation (whether or not matured) owed by that Finance Party to the Company, regardless of the place of payment, booking branch or currency of either obligation. CLAUSE 29 sets out the case in which any amount owing by the Company under the Facility Agreement to a Lender is discharged by payment, set-off or any other manner other than through the Facility Agent under the Facility Agreement. CLAUSE 30 states that if a term of a Finance Document is or becomes illegal, invalid or unenforceable in any jurisdiction, that will not affect: (a) the legality, validity or enforceability in that jurisdiction of any other term of the Finance Documents; or (b) the legality, validity or enforceability in other jurisdictions of that or any other term of the Finance Documents. CLAUSE 31 states that each Finance Document may be executed in any number of counterparts. This has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document. CLAUSE 32 details (i) the procedure relating to the communication; and (ii) the contact details of the parties to the Facility Agreement. CLAUSE 33 states that any notice or any other documents provided, in connection with: (i) the Account Pledge, must be in Italian; and (ii) the FILA Pledge and any other Finance Document, must be in English (and in particular, any documents provided, in connection with the FILA Pledge and any other Finance Document, with the sole exception of the notices, can be (unless the Facility Agent otherwise agrees) in Italian accompanied by a certified English translation). CLAUSE 34 regulates the enforcement of any of the Finance Documents. THIS AGREEMENT is made on 16 December, 2004 BETWEEN: (1) F.I.L.A. - FABBRICA ITALIANA LAPIS ED AFFINI S.P.A. (the COMPANY or the BORROWER); (2) THE FINANCIAL INSTITUTIONS listed in Schedule 1 (Original Parties) as original lender (the ORIGINAL LENDER); (3) BANCA INTESA S.P.A., MILAN BRANCH as arranger and as facility agent (in this capacity, respectively, the ARRANGER and the FACILITY AGENT); and (4) BANCA INTESA S.P.A., NEW YORK BRANCH as security agent (in this capacity, the SECURITY AGENT). IT IS AGREED as follows: 1. INTERPRETATION 1.1 DEFINITIONS In this Agreement: ACCOUNT PLEDGE means the pledge over the FILA Account in the form and substance satisfactory to the Arranger, entered into by the Company at the date of this Agreement in favour of the Facility Agent. ACQUISITION means the acquisition by US NewCo of 100% of the share capital of Target pursuant to the Tender Offer and the Merger. ACQUISITION DOCUMENTS means each of the Merger Agreement, the Contribution Agreement, the Subscription Agreement, the Tender Offer statement and all exhibits thereto. ADMINISTRATIVE PARTY means the Arranger or the Facility Agent or the Security Agent. AFFILIATE means a Subsidiary or a Holding Company of a person or any other Subsidiary of that Holding Company. AVAILABILITY PERIOD means the period: (a) with respect to the Tranche A, from and including the Closing Date to and including the date of the Acquisition; and (b) with respect to the Tranche B, from and including the Completion Date to and including the date falling two months after the date of the Acquisition. BREAK COSTS means the amount (if any) which a Lender is entitled to receive under Clause 23.3 (Break Costs) as compensation if any part of a Loan or overdue amount is repaid or prepaid otherwise than the last day of a Term applicable to it. BUSINESS DAY means a day (other than a Saturday or a Sunday) on which banks are open for general business in London and Milan and: 1 (a) if on that day a payment in a currency other than euro is to be made, the principal financial centre of the country of that currency; or (b) if on that day a payment in euro is to be made, which is also a TARGET Day. CLOSING DATE means the date on which this Agreement is signed and all of the Conditions Precedent documents listed in Schedule 2 shall have been delivered to the Facility Agent COMMITMENT means: (a) for the Original Lender, the amount set opposite its name in Schedule 1 (Original Parties) and designated TRANCHE A OR TRANCHE B and the amount of any other Commitment so designated which it acquires; and (b) for any other Lender, the amount of any other Commitment so designated which it acquires, to the extent not cancelled, transferred or reduced under this Agreement. COMPLETION DATE means the date on which US NewCo acquires no less than 66 and 2/3 percent of the share capital of Target by means of the Tender Offer. CONTRIBUTION AGREEMENT means the contribution agreement dated December 15, 2004, among the Company, California Cedar Products Company, Martin Coudeu Y Compania Ltda, and Martin Coudeu Falabella. DISCLOSURE LETTER means the disclosure letter to the Merger Agreement included in Schedule 2 (Condition Precedent Documents), Part IV, n 8. DEFAULT means: (a) an Event of Default; or (b) an event which would be (with the expiry of a grace period, the giving of notice or the making of any determination under the Finance Documents or any combination of them) an Event of Default. EMPLOYEE PLAN means any "employee benefit plan" as defined in Section 3(3) of ERISA. ERISA means, at any date, the United States Employee Retirement Income Security Act of 1974 (or any successor legislation thereto) as amended from time to time, and the regulations promulgated and rulings issued thereunder, all as the same may be in effect at such date. ERISA AFFILIATE with respect to any US Group Company, any person that for the purposes of Title IV of ERISA is from time to time a member of the controlled group of any US Group Company, or under common control with any US Group Company within the meaning of Section 414 of the U.S. Code. ERISA EVENT means within the past six years: (i) any reportable event, as defined in Section 4043 of ERISA, with respect to an Employee Plan, as to which PBGC has not by regulation waived the requirement of Section 4043 (a) of ERISA that it be notified of such event; (ii) the filing of a notice of intent to terminate any Employee Plan, if such termination would require material additional contributions in order to be considered a standard termination within the 2 meaning of Section 4041 (b) of ERISA, the filing under Section 4041 (c) of ERISA of a notice of intent to terminate any Employee Plan or the termination of any Employee Plan under Section 4041 (c) of ERISA; (iii) the institution of proceedings under Section 4042 of ERISA by the PBGC for the termination of, or the appointment of a trustee to administer, any Employee Plan; (iv) the failure to make a required contribution to any Employee Plan that would result in the imposition of an encumbrance under Section 412 of the Code or Section 302 of ERISA or the filing of any request for a minimum funding waiver under Section 412 of the Code with respect to any Employee Plan or to its knowledge a Multiemployer Plan; (v) an engagement in a non-exempt prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA that would have a Material Adverse Effect; (vi) the complete or partial withdrawal of any US Group Company or any ERISA Affiliate from a Multiemployer Plan; and (vii) the Company or an ERISA Affiliate incurring any liability under Title TV of ERISA with respect to any Employee Plan (other than premiums due and not delinquent under Section 4007 of ERISA) that would have a Material Adverse Effect. EURIBOR means for a Term of any Loan or overdue amount in euro: (a) the applicable Screen Rate; or (b) if no Screen Rate is available for that Term of that Loan or overdue amount, the arithmetic mean (rounded upward to four decimal places) of the rates as supplied to the Facility Agent at its request quoted by the Reference Banks to leading banks in the European interbank market, as of 11.00 a.m. (Milan time) on the Rate Fixing Day for the offering of deposits in euro for a period comparable to that Term. EURO means the single currency of the Participating Member States. EVENT OF DEFAULT means an event specified as such in Clause 18 (Default). FACILITY means: (a) when designated TRANCHE A the term loan facility referred to in Clause 2.1 (Tranche A); (b) when designated TRANCHE B the term loan facility referred to in Clause 2.2 (Tranche B); and (c) without any such designation, the Tranche A or the Tranche B as the context so requires. FACILITY OFFICE means the office(s) notified by a Lender to the Facility Agent: (a) on or before the date it becomes a Lender; or (b) by not less than five Business Days' notice, as the office(s) through which it will perform its obligations under this Agreement. FEE LETTER means the fee letter entered into by the Company and the Arranger on the date of this Agreement. 3 FILA ACCOUNT means account number 2707/7000001458 of the Company established at Banca Intesa S.p.A., Filiale di Pero (Milano), Via Sempione 80, 20016 Pero (Milano), that will be subject to the Account Pledge. FILA PLEDGE means the Stock Pledge Agreement substantially in the form of Schedule 8 hereto, to be entered into by the Company promptly upon the completion of the Merger, in respect of its shares of New Target in favour of the Security Agent for the benefit of the Finance parties. FINAL EXPIRATION DATE means the date the Tender Offer expires, which shall in no event be later than 75 (seventyfive) days after the date the Merger Agreement is signed. FINAL MATURITY DATE means the date falling nine months after the date of this Agreement. FINANCE DOCUMENT means: (a) this Agreement; (b) a Security Document; (c) the Fee Letter; (d) a Transfer Certificate; or (e) any other document designated as such by the Facility Agent and the Company FINANCE PARTY means a Lender or an Administrative Party. FINANCIAL INDEBTEDNESS means any indebtedness for or in respect of: (a) moneys borrowed; (b) any acceptance credit (including any dematerialised equivalent); (c) any bond, note, debenture, loan stock or other similar instrument; (d) any redeemable preference share; (e) any agreement treated as a finance or capital lease in accordance with generally accepted accounting principles in the jurisdiction of incorporation of the Company; (f) receivables sold or discounted (otherwise than on a non-recourse basis); (g) the acquisition cost of any asset to the extent payable after its acquisition or possession by the party liable where the deferred payment is beyond 120 days; (h) any derivative transaction protecting against or benefiting from fluctuations in any rate or price (and, except for non-payment of an amount, the then mark to market value of the derivative transaction will be used to calculate its amount); (i) any other transaction (including any forward sale or purchase agreement) which has the commercial effect of a borrowing; 4 (j) any counter-indemnity obligation in respect of any guarantee, indemnity, bond, letter of credit or any other instrument issued by a bank or financial institution; or (k) any guarantee, indemnity or similar assurance against financial loss of any person in respect of any item referred to in the above paragraphs. GROUP means the Company and its Subsidiaries. HOLDING COMPANY of any other person, means a company in respect of which that other person is a Subsidiary. IBOR means LIBOR or EURIBOR INCREASED COST means: (a) an additional or increased cost; (b) a reduction in the rate of return from a Facility or on its overall capital; or (c) a reduction of an amount due and payable under any Finance Document, which is incurred or suffered by a Finance Party or any of its Affiliates but only to the extent attributable to that Finance Party having entered into any Finance Document or funding or performing its obligations under any Finance Document. INTELLECTUAL PROPERTY RIGHTS means: (a) any know-how, patent, trade mark, service mark, design, business name, domain name, topographical or similar right; (b) any copyright, data base or other intellectual property right; or (c) any interest (including by way of licence) in the above, in each case whether registered or not, and including any related application. IRS means the United States Internal Revenue Service or any successor thereto. LENDER means: (a) an Original Lender listed in Schedule 1 (The Original Parties); or (b) any person which becomes a Lender in respect of the Facility after the date of this Agreement, LIBOR means for a Term of any Loan or overdue amount in US$: (a) the applicable Screen Rate; or (b) if no Screen Rate is available for the relevant currency or Term of that Loan or overdue amount, the arithmetic mean (rounded upward to four decimal places) of the rates, as supplied to the Facility Agent at its request, quoted by the Reference Banks to leading banks in the London interbank market, 5 as of 11.00 am on the Rate Fixing Day for the offering of deposits in the currency of that Loan or overdue amount for a period comparable to that Term. LOAN means, unless otherwise stated in this Agreement, the principal amount of each borrowing under this Agreement or the principal amount outstanding of that borrowing, and when designated TRANCHE A OR TRANCHE B a Loan under the Facility so designated. MAJORITY LENDERS means, at any time, Lenders: (a) whose share in the outstanding Loans and whose undrawn Commitments then aggregate 66 2/3 per cent, or more of the aggregate of all the outstanding Loans and the undrawn Loan Commitments of all the Lenders; (b) if there is no Loan then outstanding, whose undrawn Commitments then aggregate 66 2/3 per cent, or more of the Total Commitments; or (c) if there is no Loan then outstanding and the Total Commitments have been reduced to zero, whose Commitments aggregated 66 2/3 per cent, or more of the Total Commitments immediately before the reduction. MANDATORY COST means the percentage rate per annum calculated by the Facility Agent under Schedule 4 (Calculation of the Mandatory Cost) MARGIN means: (a) with respect to Tranche A, 1.3 per cent, per annum; and (b) with respect to Tranche B: (i) 1.75 per cent, per annum, where the aggregate of all Loans are up to and including US$ 10 million; and (ii) 2.00 per cent, per annum, where the aggregate of all Loans are greater than US$ 10 million and up to and including US $ 20 million. MATERIAL ADVERSE EFFECT means a material adverse effect on: (a) the business, prospects or financial condition of any member of the Group or the Group as a whole; (b) the ability of the Company to perform its obligations under any Finance Document; (c) the validity or enforceability of any Finance Document; or (d) any right or remedy of a Finance Party in respect of a Finance Document. MERGER means the reverse merger of US NewCo into Target to be effected as soon as legally possible after the completion of the Tender Offer under the Delaware General Corporation Law. MERGER AGREEMENT means the merger agreement, among the Company, US Newco and Target describing the terms and conditions upon which the reverse merger of US NewCo into Target will be effected, to be executed no later than 23rd December, 2004. 6 MERGER DATE means the day on which the certificate of merger is filed with the Secretary of State of Delaware to effect the Merger. MULTIEMPLOYER PLAN means a multiemployer plan (as defined in Section (3)(37) of ERISA) contributed to for any employees of a US Group Company or any ERISA Affiliate. NEW TARGET means the company resulting from the Merger. ORIGINAL FINANCIAL STATEMENTS means the audited consolidated financial statements of the Company for the year ended 31st December, 2003. PAYING AGENT means the professional paying agent that will be appointed on behalf of all the tendering Target shareholders. PARTICIPATING MEMBER STATE means a member state of the European Communities that adopts or has adopted the euro as its lawful currency under the legislation of the European Community for Economic Monetary Union. PARTY means a party to this Agreement. PBGC means the U.S. Pension Benefit Guaranty Corporation, or any entity succeeding to all or any of its functions under ERISA. PRO RATA SHARE means:: (a) for the purpose of determining a Lender's share in a utilisation of the Facility, the proportion which the Commitment bears to the Total Commitments; and (b) for any other purpose on a particular date: (i) the proportion which a Lender's share of the Loans (if any) bears to all the Loans; (ii) if there is no Loan outstanding on that date, the proportion which its Commitment bears to the Total Commitments on that date; or (iii) if the Total Commitments have been cancelled, the proportion which its Commitments bore to the Total Commitments immediately before being cancelled. RATE FIXING DAY means: (a) the second Business Day before the first day of a Term for a Loan denominated in any currency other than euro; or (b) the second TARGET Day before the first day of a Term for a Loan denominated in euro, or such other day as the Facility Agent determines is generally treated as the rate fixing day by market practice in the relevant interbank market. REFERENCE BANKS means, in relation to LIBOR, the principal offices in London of Banca Intesa S.p.A, UniCredito Italiano S.p.A. and SanpaololMI S.p.A. and, in relation to 7 EURIBOR, the principal offices in Milan of Banca Intesa S.p.A., UniCredito Italiano S.p.A. and SanpaoloIMI S.p.A. and any other bank or financial institution appointed as such by the Facility Agent under this Agreement. REPEATING REPRESENTATIONS means the representations which are deemed to be repeated under Clause 15 22 (Times for making representations). REQUEST means a request for a Loan, substantially in the form of Schedule 3 (Form of Request). SCREEN RATE means: (a) for LIBOR, the British Bankers Association Interest Settlement Rate; and (b) for EURIBOR, the percentage rate per annum determined by the Banking Federation of the European Union, for the relevant currency and Term displayed on the appropriate page of the Telerate screen selected by the Facility Agent. If the relevant page is replaced or the service ceases to be available, the Facility Agent (after consultation with the Company and the Lenders) may specify another page or service displaying the appropriate rate. SECURITY DOCUMENT means: (a) the FILA Pledge; (b) the Account Pledge; and (c) any other document evidencing or creating security over any asset of the Company to secure any obligation of the Company to a Finance Party under the Finance Documents. SECURITY INTEREST means any mortgage, pledge, lien, charge, assignment, hypothecation or security interest or any other agreement or arrangement having a similar effect. SUBSIDIARY means an entity of which a person has direct or indirect control or owns directly or indirectly more than 50 per cent, of the voting capital or similar right of ownership and CONTROL for this purpose means the power to direct the management and the policies of the entity whether through the ownership of voting capital, by contract or otherwise. SUBSCRIPTION AGREEMENT means the subscription agreement between the Company and US NewCo dated December 15, 2004, pursuant to which: (a) the Company will purchase no. 5,961 shares which will represent all of the issued and outstanding common stock of US NewCo, and (b) US NewCo acknowledges and agrees that (i) the Company will deposit the consideration for its purchase of the US NewCo common stock into the FILA Account, subject to the Account Pledge and (ii) that the funds deposited into the FILA Account will be released directly to the Paying Agent on the date required to pay the tendering shareholders of the Target and complete the Acquisition. 8 TARGET mean Dixon Ticonderoga Company, a company incorporated under the laws of Delaware, with registered office at 195 International Parkway, Heathrow, Florida, United States of America, listed in the American Stock Exchange of New York. TARGET DAY means a day on which the Trans-European Automated Real-time Gross Settlement Express Transfer payment system is open for the settlement of payments in euro. TAX means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any related penalty or interest). TAX DEDUCTION means a deduction or withholding for or on account of Tax from a payment under a Finance Document. TAX PAYMENT means a payment made by the Company to a Finance Party in any way relating to a Tax Deduction or under any indemnity given by the Company in respect of Tax under any Finance Document. TENDER OFFER means the public (non-hostile) tender offer by US NewCo for the shares in Target that will expire not later than 75 (seventyfive) days from the date of execution of the Merger Agreement. TERM means each period determined under this Agreement by reference to which interest on a Loan or an overdue amount is calculated. TOTAL COMMITMENTS means the aggregate of the Commitments of all the Lenders, or when designated TRANCHE A or TRANCHE B the aggregate of the Commitments of all Lenders bearing that designation. TRANSFER CERTIFICATE means a certificate, substantially in the form of Schedule 5 (Form of Transfer Certificate), with such amendments as the Facility Agent may approve or reasonably require or any other form agreed between the Facility Agent and the Company. UNFUNDED PENSION LIABILITY means the excess of an Employee Plan's benefit liabilities under Section 4001 (a)(16) of ERISA, over the current value of that plan's assets, determined in accordance with the assumptions used for funding the Employee Plan pursuant to Section 412 of the Code for the applicable plan year. US GROUP COMPANY means any member of the Group incorporated in any State of the United States of America. US NEWCO means Pencil Acquisition Corp., a company incorporated under the laws of Delaware, United States of America. US NEWCO SHARE PURCHASE means the purchase by the Company of no. 5.961 shares which will represent all of the issued and outstanding common shares of US NewCo by means of the Subscription Agreement in accordance with the terms thereof. UTILISATION DATE means each date on which a Facility is utilised. 1.2 CONSTRUCTION (a) In this Agreement, unless the contrary intention appears, a reference to: 9 (i) an AMENDMENT includes a supplement, novation, restatement or re-enactment and AMENDED will be construed accordingly; (ii) ASSETS includes present and future properties, revenues and rights of every description; (iii) an AUTHORISATION includes an authorisation, consent, approval, resolution, licence, exemption, filing, registration or notarisation; (iv) an obligation to CONSULT means to inform and discuss, but shall under no circumstances mean that any decision to be made following consultation is subject to approval or agreement; (v) DISPOSAL means a sale, transfer, grant, lease or other disposal, whether voluntary or involuntary, and DISPOSE will be construed accordingly; (vi) INDEBTEDNESS includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money; (vii) KNOW YOUR CUSTOMER REQUIREMENTS are the identification checks that a Finance Party requests in order to meet its obligations under any applicable law or regulation to identify a person who is (or is to become) its customer; (viii) a PERSON includes any individual, company, corporation, unincorporated association or body (including a partnership, trust, joint venture or consortium), government, state, agency, organisation or other entity whether or not having separate legal personality; (ix) a REGULATION includes any regulation, rule, official directive, request or guideline (whether or not having the force of law but, if not having the force of law, being of a type with which any person to which it applies is accustomed to comply) of any governmental, inter-governmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation; (x) a CURRENCY is a reference to the lawful currency for the time being of the relevant country; "US$" and "USD" denote lawful currency of the United States of America; "EUR", "(EURO)" and "EURO" means the single currency unit of the Participating Member States. (xi) a Default being OUTSTANDING means that it has not been remedied or waived; (xii) a provision of law is a reference to that provision as extended, applied, amended or re-enacted and includes any subordinate legislation; (xiii) a Clause, a Subclause or a Schedule is a reference to a clause or subclause of, or a schedule to, this Agreement; (xiv) a Party or any other person includes its successors in title, permitted assigns and permitted transferees; (xv) a Finance Document or another document is a reference to that Finance Document or other document as amended; and 10 (xvi) a time of day is a reference to London time. (b) Unless the contrary intention appears, a reference to a MONTH or MONTHS is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month or the calendar month in which it is to end, except that: (i) if the numerically corresponding day is not a Business Day, the period will end on the next Business Day in that month (if there is one) or the preceding Business Day (if there is not); (ii) if there is no numerically corresponding day in that month, that period will end on the last Business Day in that month; and (iii) notwithstanding sub-paragraph (i) above, a period which commences on the last Business Day of a month will end on the last Business Day in the next month or the calendar month in which it is to end, as appropriate. (c) Unless expressly provided to the contrary in a Finance Document, a person who is not a party to a Finance Document may not enforce any of its terms under the Contracts (Rights of Third Parties) Act 1999 and, notwithstanding any term of any Finance Document, no consent of any third party is required for any variation (including any release or compromise of any liability) or termination of any Finance Document. (d) Unless the contrary intention appears: (i) a reference to a Party will not include that Party if it has ceased to be a Party under this Agreement; (ii) a word or expression used in any other Finance Document or in any notice given in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement; and (iii) any obligation of the Company under the Finance Documents which is not a payment obligation remains in force for so long as any payment obligation of the Company is or may be outstanding under the Finance Documents. (e) The headings in this Agreement do not affect its interpretation. 2. FACILITIES 2.1 TRANCHE A Subject to the terms of this Agreement, the Lenders make available to the Company a facility in an aggregate amount equal to the Tranche A Total Commitments. 2.2 TRANCHE B Subject to the terms of this Agreement, the Lenders make available to the Company a facility in an aggregate amount equal to the Tranche B Total Commitments. 2.3 NATURE OF A FINANCE PARTY'S RIGHTS AND OBLIGATIONS Unless all the Finance Parties agree otherwise: 11 (a) the obligations of a Finance Party under the Finance Documents are several; (b) failure by a Finance Party to perform its obligations does not affect the obligations of any other Party under the Finance Documents; (c) no Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents; (d) the rights of a Finance Party under the Finance Documents are separate and independent rights; (e) a Finance Party may, except as otherwise stated in the Finance Documents, separately enforce those rights; and (f) a debt arising under the Finance Documents to a Finance Party is a separate and independent debt. 3. PURPOSE 3.1 TRANCHE A The Tranche A may only be used by the Company: (a) as to the first Loan, for the US NewCo Share Purchase, and (b) as to the second Loan, for the costs related to the US NewCo Share Purchase. 3.2 TRANCHE B The Tranche B may only be used by the Company for intercompany loans in favour of Target or New Target made for: (a) extinguishing the outstanding financial indebtedness of Target or New Target in the amounts set forth in Schedule 9 which, by its terms, will become due and payable as a result of the Acquisition; (b) any other costs, directly and indirectly, related to the Acquisition to be borne by Target or New Target. 3.3 NO OBLIGATION TO MONITOR No Finance Party is bound to monitor or verify the utilisation of a Facility. 4. CONDITIONS PRECEDENT 4.1 CONDITIONS PRECEDENT DOCUMENTS A Request under each Facility may not be given by the Company until the Closing Date has occurred and the Facility Agent has notified the Company that it has received all of the documents and evidence set out in Schedule 2 (Conditions precedent documents) in form and substance reasonably satisfactory to the Facility Agent. The Facility Agent must give this notification to the Company promptly upon being so satisfied. 12 4.2 FURTHER CONDITIONS PRECEDENT (a) A Request under the Tranche B may not be given by the Company until (i) a Request in respect to the Tranche A has been already given and (ii) the Facility Agent has notified the Borrower that it has received evidence that the Tranche B arrangement and underwriting fees due and payable by the Company under this Agreement have been paid at Completion Date. (b) The obligations of each Lender to participate in any Loan are subject to the further conditions precedent that on both the date of the Request and the Utilisation Date for that Loan: (i) the Repeating Representations are correct in all respects; and (ii) no Default or no Event of Default is outstanding or would result from the Loan. 4.3 MAXIMUM NUMBER (a) Two Requests are permitted under the Tranche A. (b) Unless the Facility Agent agrees, a Request in respect to the Tranche B may not be given if, as a result, there would be more than five Loans outstanding. 5. UTILISATION 5.1 GIVING OF REQUESTS (a) The Company may borrow a Loan by giving to the Facility Agent a duly completed Request (b) Unless the Facility Agent otherwise agrees, the latest time for receipt by the Facility Agent of a duly completed Request is 11.00 a.m. one Business Day before the Rate Fixing Day for the proposed borrowing. (c) Each Request is irrevocable 5.2 COMPLETION OF REQUESTS A Request for a Loan will not be regarded as having been duly completed unless: (a) it identifies the Company; (b) it identifies the Tranche the Loan applies to; (c) the Utilisation Date is a Business Day falling within the Availability Period; (d) the amount of the Loan requested is: (i) in respect to the Tranche B, a minimum of US$ 4,000,000.00 and an integral multiple of US$ 1,000,000.00; (ii) in respect to the first Loan of the Tranche A, an equivalent amount in euro equal to US$ 23,100,000.00; (iii) the maximum undrawn amount available under this Agreement for Loans under the relevant Facility on the proposed Utilisation Date; or 13 (iv) such other amount as the Facility Agent may agree; and (e) the proposed Term comply with this Agreement. Only one Loan may be requested in a Request. 5.3 ADVANCE OF LOAN (a) The Facility Agent must promptly notify each Lender of the details of the requested Loan and the amount of its share in that Loan. (b) The amount of each Lender's share of the Loan will be its Pro Rata Share on the proposed Utilisation Date. (c) No Lender is obliged to participate in a Loan if as a result: (i) its share in the Loans under a Facility would exceed its Commitment for that Facility; or (ii) the Loans would exceed the Total Commitments. (d) If the conditions set out in this Agreement have been met, each Lender must make its share in the Loan available to the Facility Agent for the Company on the Utilisation Date (e) The Company irrevocably instructs the Facility Agent to effect the delivery of the first Loan in respect to Tranche A by crediting the entire proceeds of such Loan to the FILA Account. 6. REPAYMENT The Company must repay the Loans made to it in full on the Final Maturity Date. 7. PREPAYMENT AND CANCELLATION 7.1 MANDATORY PREPAYMENT - ILLEGALITY (a) A Lender must notify the Company promptly if it becomes aware that it is unlawful in any jurisdiction for that Lender to perform any of its obligations under a Finance Document or to fund or maintain its share in any Loan. (b) After notification under paragraph (a) above: (i) the Company must repay or prepay the share of that Lender in each Loan made to it on the date specified in paragraph (c) below; and (ii) the Commitments of that Lender will be immediately cancelled. (c) The date for repayment or prepayment of a Lender's share in a Loan will be: (i) the last day of the current Term of that Loan; or (ii) if earlier, the date specified by the Lender in the notification under paragraph (a) above and which must not be earlier than the last day of any applicable grace period allowed by law. 14 7.2 MANDATORY PREPAYMENT - CHANGE OF CONTROL (a) For the purposes of this Clause: (i) a CHANGE OF CONTROL occurs if any person or group of persons gains control of the Company; and (ii) CONTROL shall be construed in accordance with the first and second paragraphs of Article 2359 of the Italian Civil Code and Article 93 of Legislative Decree No. 58 of 24 February 1998 (as subsequently amended or supplemented). (b) The Company must promptly notify the Facility Agent if it becomes aware of any change of control. (c) After a change of control, if the Majority Lenders so require, the Facility Agent must, by notice to the Company: (i) cancel the Total Commitments; and (ii) declare all outstanding Loans, together with accrued interest and all other amounts accrued under the Finance Documents, to be immediately due and payable. Any such notice will take effect in accordance with its terms. 7.3 MANDATORY PREPAYMENT - FILA ACCOUNT If less than 66 and 2/3 per cent, of the share capital of the Target has not been tendered into the Tender Offer by the Final Expiration Date, the Company irrevocably and unconditionally authorises the Facility Agent to use any amount in the FILA Account to repay all outstanding obligations under the Tranche A. 7.4 VOLUNTARY PREPAYMENT (a) The Company may, by giving not less than ten Business Days' prior notice to the relevant Facility Agent, prepay on the last day of its current Term in whole or in part. (b) A prepayment of part of a Loan must be in a minimum amount: (i) in respect to Tranche A, of (euro) 5,000,000.00 and an integral multiple of (euro) 1,000,000.00; and (ii) in respect to the Tranche B, of US$ 5,000,000.00 and an integral multiple of US$ 1,000,000.00. 7.5 AUTOMATIC CANCELLATION The Commitments of each Lender will be automatically cancelled at the close of business on the last day of the Availability Period to the extent undrawn at that date. 7.6 VOLUNTARY CANCELLATION (a) The Company may, by giving not less than ten Business Days' prior notice to the relevant Facility Agent, cancel the unutilised amount of the Total Commitments in whole or in part. 15 (b) Partial cancellation of the Total Commitments of each Facility must be in a minimum of US$ 5,000,000.00 and an integral multiple of US$ 1,000,000.00. (c) Any cancellation in part will be applied against the relevant Commitment of each Lender pro rata. 7.7 INVOLUNTARY PREPAYMENT AND CANCELLATION (a) If the Company is, or will be, required to pay to a Lender: (i) a Tax Payment; (ii) an Increased Cost; or (iii) any amount under Schedule 4 (Calculation of the Mandatory Cost), the Company may, while the requirement continues, give notice to the Facility Agent requesting prepayment and cancellation in respect of that Lender. (b) After notification under paragraph (a) above: (i) the Company must repay or prepay that Lender's share in each Loan made to it on the date specified in paragraph (c) below; and (ii) the Commitments of that Lender will be immediately cancelled. (c) The date for repayment or prepayment of a Lender's share in a Loan will be: (i) the last day of the current Term for that Loan; or (ii) if earlier, the date specified by the Company in its notification. 7.8 PARTIAL PREPAYMENT OF LOANS No amount of a Loan prepaid under this Agreement may subsequently be re-borrowed. 7.9 MISCELLANEOUS PROVISIONS (a) Any notice of prepayment and/or cancellation under this Agreement is irrevocable and must specify the relevant date(s) and the affected Loans and Commitments. The Facility Agent must notify the Lenders promptly of receipt of any such notice. (b) All prepayments under this Agreement must be made with accrued interest on the amount prepaid. No premium or penalty is payable in respect of any prepayment except for Break Costs. (c) The Majority Lenders may agree a shorter notice period for a voluntary prepayment or a voluntary cancellation. (d) No prepayment or cancellation is allowed except in accordance with the express terms of this Agreement. 16 (e) No amount of the Total Commitments cancelled under this Agreement may subsequently be reinstated. 8. INTEREST 8.1 CALCULATION OF INTEREST The rate of interest on each Loan for each Term is the percentage rate per annum equal to the aggregate of the applicable: (a) Margin; (b) in relation to any Loan in euro, EURIBOR or, in relation to any Loan in US$, LIBOR; and (c) Mandatory Cost, if any 8.2 PAYMENT OF INTEREST Except where it is provided to the contrary in this Agreement, the Company must pay accrued interest on each Loan made to it on the last day of each Term and also, if the Term is longer than three months, on the dates falling at three-monthly intervals after the first day of that Term. 8.3 INTEREST ON OVERDUE AMOUNTS (a) If the Company fails to pay any amount payable by it under the Finance Documents, it must immediately on demand by the Facility Agent pay interest on the overdue amount from its due date up to the date of actual payment, both before, on and after judgment. (b) Interest on an overdue amount is payable at a rate determined by the Facility Agent to be two per cent, per annum above the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted a Loan in the currency of the overdue amount. For this purpose, the Facility Agent may (acting reasonably): (i) select successive Terms of any duration of up to three months; and (ii) determine the appropriate Rate Fixing Day for that Term. (c) Notwithstanding paragraph (b) above, if the overdue amount is a principal amount of a Loan and becomes due and payable before the last day of its current Term, then: (i) the first Term for that overdue amount will be the unexpired portion of that Term; and (ii) the rate of interest on the overdue amount for that first Term will be one per cent, per annum above the rate then payable on that Loan. After the expiry of the first Term for that overdue amount, the rate on the overdue amount will be calculated in accordance with paragraph (b) above. (d) Interest (if unpaid) on an overdue amount will not be compounded with that overdue amount at the end of each of its Terms but will remain at all times immediately due and payable. 17 8.4 NOTIFICATION OF RATES OF INTEREST The Facility Agent must promptly notify each relevant Party of the determination of a rate of interest under this Agreement. 8.5 INTEREST CAP For the avoidance of doubt, notwithstanding any other provision hereof, if at any time the interest rate relating to the Facility stated to be payable under this Agreement would cause a breach of Italian usury law, then the rate of interest payable under this Agreement shall be capped at the maximum amount permitted to be payable under Italian usury law. 9. TERMS 9.1 SELECTION (a) Each Loan has successive Terms. (b) The Company must select the first Term for a Loan in the relevant Request and each subsequent Term in an irrevocable notice received by the Facility Agent not later than 11.00 a.m. one Business Day before the Rate Fixing Day for that Term. Each Term for a Loan will start on its Utilisation Date or on the expiry of its preceding Term. (c) If the Company fails to select a Term for an outstanding Loan under paragraph (b) above, that Term will, subject to the other provisions of this Clause, be three months. (d) Subject to the following provisions of this Clause, each Term for a Loan will be three months or any other period (not exceeding three months) agreed by the Company and the Facility Agent. 9.2 CONSOLIDATION If the Company so requests, a Term for a Loan will end on the same day as the current Term for any other Loan borrowed by the Company under the same Facility. On the last day of those Terms, those Loans will be consolidated and treated as one Loan. 9.3 NO OVERRUNNING THE FINAL MATURITY DATE If a Term would otherwise overrun the Final Maturity Date, it will be shortened so that it ends on the Final Maturity Date. 9.4 OTHER ADJUSTMENTS A Facility Agent and the Company may enter into such other arrangements as they may agree for the adjustment of Terms and the consolidation and/or splitting of Loans. 9.5 NOTIFICATION The Facility Agent must notify each relevant Party of the duration of each Term promptly after ascertaining its duration. 18 10. MARKET DISRUPTION 10.1 FAILURE OF A REFERENCE BANK TO SUPPLY A RATE If IBOR is to be calculated by reference to the Reference Banks but a Reference Bank does not supply a rate by 12.00 noon (Milan or London time depending on IBOR being EURIBOR or LIBOR, respectively) on a Rate Fixing Day, the applicable IBOR will, subject as provided below, be calculated on the basis of the rates of the remaining Reference Banks. 10.2 MARKET DISRUPTION (a) In this Clause, each of the following events is a MARKET DISRUPTION EVENT: (i) IBOR is to be calculated by reference to the Reference Banks but no, or only one, Reference Bank supplies a rate by 12.00 noon (Milan or London time depending on IBOR being EURIBOR or LIBOR, respectively) on the Rate Fixing Day; or (ii) the Facility Agent receives by close of business on the Rate Fixing Day notification from Lenders whose shares in the relevant Loan exceed 30 per cent, of that Loan that the cost to them of obtaining matching deposits in the relevant interbank market is in excess of the IBOR for the relevant Term. (b) The Facility Agent must promptly notify the Company and the Lenders of a market disruption event. (c) After notification under paragraph (b) above, the rate of interest on each Lender's share in the affected Loan for the relevant Term will be the aggregate of the applicable: (i) Margin; (ii) rate notified to the Facility Agent by that Lender as soon as practicable, and in any event before interest is due to be paid in respect of that Term, to be that which expresses as a percentage rate per annum the cost to that Lender of funding its share in that Loan from whatever source it may reasonably select; and (iii) Mandatory Cost. 10.3 ALTERNATIVE BASIS OF INTEREST OR FUNDING (a) If a market disruption event occurs and the Facility Agent or the Company so requires, the Company and the Facility Agent must enter into negotiations for a period of not more than 30 days with a view to agreeing an alternative basis for determining the rate of interest and/or funding for the affected Loan. (b) Any alternative basis agreed will be, with the prior consent of all the Lenders, binding on all the Parties. 11. TAXES 11.1 GENERAL In this Clause TAX CREDIT means a credit against any Tax or any relief or remission for Tax (or its repayment). 19 11.2 TAX GROSS-UP (a) The Company must make all payments to be made by it under the Finance Documents without any Tax Deduction, unless a Tax Deduction is required by law. (b) If the Company or a Lender is aware that the Company must make a Tax Deduction (or that there is a change in the rate or the basis of a Tax Deduction), it must promptly notify the Facility Agent. The Facility Agent must then promptly notify the affected Parties. (c) If a Tax Deduction is required by law to be made by the Company or the Facility Agent, the amount of the payment due from the Company will be increased to an amount which (after making the Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required. (d) If the Company is required to make a Tax Deduction, the Company must make the minimum Tax Deduction allowed by law and must make any payment required in connection with that Tax Deduction within the time allowed by law. (e) Within 30 days of making either a Tax Deduction or a payment required in connection with a Tax Deduction, the Company making that Tax Deduction must deliver to the Facility Agent for the relevant Finance Party evidence satisfactory to that Finance Party (acting reasonably) that the Tax Deduction has been made or (as applicable) the appropriate payment has been paid to the relevant taxing authority. 11.3 TAX INDEMNITY (a) Except as provided below, the Company must indemnify a Finance Party against any loss or liability which that Finance Party acting reasonably determines will be or has been suffered (directly or indirectly) by that Finance Party for or on account of Tax in relation to a payment received or receivable (or any payment deemed to be received or receivable) under a Finance Document. (b) Paragraph (a) above does not apply to any Tax assessed on a Finance Party under the laws of the jurisdiction in which: (i) that Finance Party is incorporated or, if different, the jurisdiction (or jurisdictions) in which that Finance Party has a Facility Office and is treated as resident for tax purposes; or (ii) that Finance Party's Facility Office is located in respect of amounts received or receivable in that jurisdiction, if that Tax is imposed on or calculated by reference to the net income received or receivable by that Finance Party. However, any payment deemed to be received or receivable, including any amount treated as income but not actually received by the Finance Party, such as a Tax Deduction, will not be treated as net income received or receivable for this purpose. (c) A Finance Party making, or intending to make, a claim under paragraph (a) above must promptly notify the Company of the event which will give, or has given, rise to the claim. 20 11.4 TAX CREDIT If the Company makes a Tax Payment and the relevant Finance Party (in its absolute discretion) determines that: (a) a Tax Credit is attributable to that Tax Payment; and (b) it has used and retained that Tax Credit, the Finance Party must pay an amount to the Company which that Finance Party determines (in its absolute discretion) will leave it (after that payment) in the same after-tax position as it would have been if the Tax Payment had not been required to be made by the Company. 11.5 STAMP TAXES The Company must pay and indemnify each Finance Party against any stamp duty, stamp duty land tax, registration or other similar Tax payable in connection with the entry into, performance or enforcement of any Finance Document, except for any such Tax payable in connection with the entry into a Transfer Certificate. 11.6 VALUE ADDED TAXES (a) Any amount payable under a Finance Document by the Company is exclusive of any value added tax or any other Tax of a similar nature which might be chargeable in connection with that amount. If any such Tax is chargeable, the Company must pay to the Finance Party (in addition to and at the same time as paying that amount) an amount equal to the amount of that Tax. (b) The obligation of the Company under paragraph (a) will be reduced to the extent that the Finance Party determines (acting reasonably) that they are entitled to repayment or a credit in respect of the Tax. 12. INCREASED COSTS 12.1 INCREASED COSTS Except as provided below in this Clause, the Company must pay to a Finance Party the amount of any Increased Cost incurred by that Finance Party or any of its Affiliates as a result of: (a) the introduction of, or any change in, or any change in the interpretation, administration or application of, any law or regulation; or (b) compliance with any law or regulation made after the date of this Agreement. 12.2 EXCEPTIONS The Company need not make any payment for an Increased Cost to the extent that the Increased Cost is: (a) compensated for under another Clause or would have been but for an exception to that Clause; or 21 (b) attributable to a Finance Party or its Affiliate wilfully failing to comply with any law or regulation. 12.3 CLAIMS (a) A Finance Party intending to make a claim for an Increased Cost must notify the Facility Agent of the circumstances giving rise to and the amount of the claim, following which the Facility Agent will promptly notify the relevant Company. (b) Each Finance Party must, as soon as practicable after a demand by the Facility Agent, provide a certificate confirming the amount of its Increased Cost. 1.3. MITIGATION 13.1 MITIGATION (a) Each Finance Party must, in consultation with the Company, take all reasonable steps to mitigate any circumstances which arise and which result or would result in: (i) any Tax Payment or Increased Cost being payable to that Finance Party; (ii) that Finance Party being able to exercise any right of prepayment and/or cancellation under this Agreement by reason of any illegality; or (iii) that Finance Party incurring any cost of complying with the minimum reserve requirements of the European Central Bank, including transferring its rights and obligations under the Finance Documents to an Affiliate or changing its Facility Office. (b) Paragraph (a) above does not in any way limit the obligations of the Company under the Finance Documents. (c) The Company must indemnify each Finance Party for all costs and expenses reasonably incurred by that Finance Party as a result of any step taken by it under this Subclause. (d) A Finance Party is not obliged to take any step under this Subclause if, in the opinion of that Finance Party (acting reasonably), to do so might be prejudicial to it 13.2 CONDUCT OF BUSINESS BY A FINANCE PARTY No term of this Agreement will: (a) interfere with the right of any Finance Party to arrange its affairs (Tax or otherwise) in whatever manner it thinks fit; (b) oblige any Finance Party to investigate or claim any credit, relief, remission or repayment available to it in respect of Tax or the extent, order and manner of any claim; or (c) oblige any Finance Party to disclose any information relating to its affairs (Tax or otherwise) or any computation in respect of Tax. 22 14. PAYMENTS 14.1 PLACE Unless a Finance Document specifies that payments under it are to be made in another manner, all payments by the Company under the Finance Documents must be made to the Facility Agent to its account at such office or bank in the Republic of Italy as it may notify to the Company for this purpose by not less than five Business Days' prior notice. 14.2 FUNDS Payments under the Finance Documents to the Facility Agent must be made for value on the due date at such times and in such funds as the Facility Agent may specify to the Party concerned as being customary at the time for the settlement of transactions in the relevant currency in the place for payment. 14.3 DISTRIBUTION (a) Each payment received by the Facility Agent under the Finance Documents for another Party must, except as provided below, be made available by the Facility Agent to that Party by payment (as soon as practicable after receipt) to its account with such office or bank as it may notify to the Facility Agent for this purpose by not less than five Business Days' prior notice. (b) The Facility Agent may apply any amount received by it for the Company in or towards payment (as soon as practicable after receipt) of any amount due from the Company under the Finance Documents or in or towards the purchase of any amount of any currency to be so applied. (c) Where a sum is paid to the Facility Agent under this Agreement for another Party, the Facility Agent is not obliged to pay that sum to that Party until it has established that it has actually received it. However, the Facility Agent may assume that the sum has been paid to it, and, in reliance on that assumption, make available to that Party a corresponding amount. If it transpires that the sum has not been received by the Facility Agent, that Party must immediately on demand by the Facility Agent refund any corresponding amount made available to it together with interest on that amount from the date of payment to the date of receipt by the Facility Agent at a rate calculated by the Facility Agent to reflect its cost of funds. 14.4 CURRENCY (a) Unless a Finance Document specifies that payments under it are to be made in a different manner, the currency of each amount payable under the Finance Documents is determined under this Clause. (b) Interest is payable in the currency in which the relevant amount in respect of which it is payable is denominated. (c) A repayment or prepayment of any principal amount is payable in the currency in which that principal amount is denominated on its due date. (d) Amounts payable in respect of Taxes, fees, costs and expenses are payable in the currency in which they are incurred. 23 (e) Each other amount payable under the Finance Documents is payable in euro 14.5 NO SET-OFF OR COUNTERCLAIM All payments made by the Company under the Finance Documents must be made without set-off or counterclaim. 14.6 BUSINESS DAYS (a) If a payment under the Finance Documents is due on a day which is not a Business Day, the due date for that payment will instead be the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not) or whatever day the Facility Agent determines is market practice. (b) During any extension of the due date for payment of any principal under this Agreement interest is payable on that principal at the rate payable on the original due date. 14.7 PARTIAL PAYMENTS (a) If any Administrative Party receives a payment insufficient to discharge all the amounts then due and payable by the Company under the Finance Documents, the Administrative Party must apply that payment towards the obligations of the Company under the Finance Documents in the following order: (i) FIRST, in or towards payment pro rata of any unpaid fees, costs and expenses of the Administrative Parties under the Finance Documents; (ii) SECONDLY, in or towards payment pro rata of any accrued interest or fee due but unpaid under this Agreement; (iii) THIRDLY, in or towards payment pro rata of any principal amount due but unpaid under this Agreement; and (iv) FOURTHLY, in or towards payment pro rata of any other sum due but unpaid under the Finance Documents. (b) Each Facility Agent must, if so directed by the relevant Majority Lenders, vary the order set out in sub-paragraphs (a)(ii) to (iv) above. (c) This Subclause will override any appropriation made by the Company. 14.8 TIMING OF PAYMENTS If a Finance Document does not provide for when a particular payment is due, that payment will be due within three Business Days of demand by the relevant Finance Party. 15. REPRESENTATIONS 15.1 REPRESENTATIONS The representations set out in this Clause are made to each Finance Party by the Company also with respect to its Subsidiaries Representations referred to Target and its Subsidiaries are subject to the exceptions contained in the Disclosure Letter. 24 15.2 STATUS (a) It is (i) a limited liability company with respect to the Company, or (ii) a corporation, with respect to US NewCo and Target, each of which is duly incorporated and validly existing under the laws of its jurisdiction of incorporation, (b) It and each of its Subsidiaries has the power to own its assets and carry on its business as it is being and will be conducted. 15.3 POWERS AND AUTHORITY It has the power to enter into and perform, and has taken all necessary action to authorise the entry into and performance of, the Finance Documents to which it is or will be a party and the transactions contemplated by those Finance Documents. 15.4 LEGAL VALIDITY (a) Subject to any general principles of law limiting its obligations and referred to in any legal opinion required under this Agreement, each Finance Document to which it is a party is its legally binding, valid and enforceable obligation (b) Each Finance Document to which it is a party is in the proper form for its enforcement in the jurisdiction of its incorporation. 15.5 NON-CONFLICT The entry into and performance by it of, and the transactions contemplated by, the Finance Documents do not conflict with: (a) any law or regulation applicable to it; (b) its or any of its Subsidiaries' constitutional documents; or (c) any document which is binding upon it or any of its Subsidiaries or any of its or its Subsidiaries' assets. 15.6 NO DEFAULT (a) No Default is outstanding or will result from the execution of, or the performance of any transaction contemplated by, any Finance Document; and (b) No other event is outstanding which constitutes a default under any document which is binding on it or any of its Subsidiaries or any of its or its Subsidiaries' assets to an extent or in a manner which has or is reasonably likely to have a Material Adverse Effect. 15.7 AUTHORISATIONS All authorisations required by it in connection with the entry into, performance, validity and enforceability of, and the transactions contemplated by, the Finance Documents have been obtained or effected (as appropriate) and are in full force and effect. 25 15.8 FINANCIAL STATEMENTS Its audited financial statements most recently delivered to the Facility Agent (which, in the case of the Company at the date of this Agreement, are the Original Financial Statements): (a) have been prepared in accordance with accounting principles and practices generally accepted in its jurisdiction of incorporation, consistently applied; and (b) fairly represent its financial condition (consolidated, if applicable) as at the date to which they were drawn up, except, in each case, as disclosed to the contrary in those financial statements 15.9 NO MATERIAL ADVERSE CHANGE In the case of the Company only, as at the date of this Agreement there has been no material adverse change in the consolidated financial condition of the Company since the date to which the Original Financial Statements were drawn up 15.10 LITIGATION No litigation, arbitration or administrative proceedings are current or, to its knowledge, pending or threatened, which have or, if adversely determined, are reasonably likely to have a Material Adverse Effect. 15.11 REPRESENTATIONS AND WARRANTIES ON THE ACQUISITION DOCUMENTS (a) To the best of its knowledge, as at the date of the Closing, no representation or warranty given by any party in the Acquisition Documents is untrue or misleading in any material respect. (b) Each Acquisition Document is in full force and effect. (c) The Acquisition Documents contain all the material terms of the Acquisition, the Merger and the transactions contemplated thereby. 15.12 US NEWCO (a) Except as may arise under the Acquisition Documents, before the commencement of the Tender Offer, US NewCo has not traded or incurred any material liabilities or commitments (actual or contingent, present or future). (b) The Company after the purchase of the shares of US NewCo is the legal and beneficial owner of all of the shares in US NewCo. 15.13 SECURITY INTERESTS No Security Interest exists over the whole or any part of the assets of any member of the Group except for those permitted under Clause 17.5 (Negative pledge). 15.14 TAXES ON PAYMENTS (a) It is not overdue in the filing of any Tax returns or filings relating to any material amount of Tax and it is not overdue in the payment of any material amount of, or in respect of, Tax. 26 (b) No claims or investigations by any Tax authority are being or are reasonably likely to be made or conducted against it which are reasonably likely to result in a liability of or claim against any member of the Group to pay any material amount of, or in respect of, Tax. (c) For Tax purposes, it is resident only in the jurisdiction of its incorporation. 15.15 STAMP DUTIES As at the date of this Agreement, no stamp or registration duty or similar Tax or charge is payable in its jurisdiction of incorporation in respect of any Finance Document. 15.16 INTELLECTUAL PROPERTY RIGHTS It is not aware of any adverse circumstance relating to validity, subsistence or use of any of the Group's Intellectual Property Rights which could reasonably be expected to have a Material Adverse Effect. 15.17 COMPLIANCE WITH U.S. REGULATIONS (a) In this Subclause: ANTI-TERRORISM LAW means each of: (i) Executive Order No- 13224 of September 23, 2001 - Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten To Commit, or Support Terrorism (the EXECUTIVE ORDER); (ii) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (commonly known as the USA Patriot Act); (iii) the Money Laundering Control Act of 1986, Public Law 99-570; and (iv) any similar law enacted in the United States of America subsequent to the date of this Agreement. HOLDING COMPANY has the meaning given to it in the United States Public Utility Holding Company Act of 1935. INVESTMENT COMPANY has the meaning given to it in the United States Investment Company Act of 1940. PUBLIC UTILITY has the meaning given to it in the United States Federal Power Act of 1920. RESTRICTED PARTY means any person listed: (i) in the Annex to the Executive Order; (ii) on the "Specially Designated Nationals and Blocked Persons" list maintained by the Office of Foreign Assets Control of the United States Department of the Treasury; or (iii) in any successor list to either of the foregoing. 27 (b) It is not: (i) a holding company or subject to regulation under the United States Public Utility Holding Company Act of 1935; (ii) a public utility or subject to regulation under the United States Federal Power Act of 1920; (iii) required to be registered as an investment company or subject to regulation under the United States Investment Company Act of 1940; or (iv) subject to regulation under any United States Federal or State law or regulation that limits its ability to incur or guarantee indebtedness. (c) To the best of its knowledge, neither it nor any of its Affiliates: (i) is, or is controlled by, a Restricted Party; (ii) has received funds or other property from a Restricted Party; or (iii) is in breach of or is the subject of any action or investigation under any Anti-Terrorism Law. (d) It and each of its Affiliates have taken reasonable measures to ensure. compliance with the Anti-Terrorism Laws. (e) It is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System of the United States), or extending credit for the purpose of purchasing or carrying margin stock and except for the proceeds of the Loans under Tranche A that will be invested in US NewCo to enable it to consummate the Acquisition, no Loans under this Agreement will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock (f) The Target is not directly engaged in the United States in any of the following activities: (i) insurance underwriting pursuant to section 4(k)(4)(B) of the Bank Holding Company Act; (ii) securities underwriting dealing or market making pursuant to section 4(k)(4)(E) of the Bank Holding Company Act; (iii) merchant banking activities pursuant to section 4(k)(4)(H) of the Bank Holding Company Act (but only to the extent that the proceeds of the transaction are used for the purposes of funding the Target's merchant banking acticities); (iv) insurance company investment activities pursuant to section 4(k)(4)(I) of the Bank Holding Company Act; or (v) any other activity designated by the Board of Governors of the United States Federal Reserve. 28 (g) Neither the making of any Loan in respect to the Facility nor the application of the proceeds or repayment thereof by the Company, nor the consummation of the other transactions contemplated by the Finance Documents, will violate any provision of any such Act or any rule, regulation or order of the Securities and Exchange Commission of the United States thereunder. 15.18 ERISA AND MULTIEMPLOYER PLANS (a) Each Employee Plan is in compliance in form and operation with ERISA and the Code and all other applicable laws and regulations save where any failure to comply would not reasonably be expected to have a Material Adverse Effect. (b) Each Employee Plan which is intended to be qualified under Section 401 (a) of the Code has been determined by the IRS to be so qualified. (c) There exists no Unfunded Pension Liability with respect to any Employee Plan, except as would not have a Material Adverse Effect. (d) Neither the US Group Company nor any ERISA Affiliate has incurred or is reasonably expected to incur a complete or partial withdrawal from any Multiempioyer Plan to the extent such incurrence, individually or in the aggregate, would have or would be reasonably likely to have a Material Adverse Effect. (e) Each US Group Company and any ERISA Affiliate has made all material contributions to or under each such Employee Pian required by law within the applicable time limits prescribed thereby, the terms of such Employee Plan, or any contract or agreement requiring contributions to an Employee Plan save where any failure to comply would not reasonably be expected to have a Material Adverse Effect. (f) Neither any US Group Company nor any ERISA Affiliate has incurred or reasonably expects to incur any liability to the PBGC. 15.19 IMMUNITY (a) The execution by it of each Finance Document constitutes, and the exercise by it of its rights and performance of its obligations under each Finance Document will constitute, private and commercial acts performed for private and commercial purposes; and (b) it will not be entitled to claim immunity from suit, execution, attachment or other legal process in any proceedings taken in its jurisdiction of incorporation in relation to any Finance Document. 15.20 JURISDICTION/GOVERNING LAW (a) Its: (i) irrevocable submission under this Agreement to the non-exclusive jurisdiction of the courts of England; (ii) agreement that this Agreement is governed by English law; and (iii) agreement not to claim any immunity to which it or its assets may be entitled, 29 are legal, valid and binding under the laws of its jurisdiction of incorporation; and (b) any judgment obtained in England will be recognised and be enforceable by the courts of its jurisdiction of incorporation. 15.21 TIMES FOR MAKING REPRESENTATIONS (a) The representations set out in this Clause are made by the Company on the date of this Agreement, (b) Unless a representation is expressed to be given at a specific date, each representation is deemed to be repeated by the Company on the date of each Request and the first day of each Term, (c) When a representation is repeated, it is applied to the circumstances existing at the time of repetition. 16. INFORMATION COVENANTS 16.1 FINANCIAL STATEMENTS (a) The Company must supply to the Facility Agent in sufficient copies for all the Lenders: (i) its audited consolidated financial statements for each of its financial years; and (ii) its audited financial statements for each of its financial years; and (iii) its interim financial statements for the first half-year of each of its financial years, (b) All financial statements must be supplied as soon as they are available and: (i) in the case of the Company's audited consolidated financial statements, within 180 days; (ii) in the case of the Company's audited financial statements, within 180 days; and (iii) in the case of the Company's interim financial statements, within 90 days, of the end of the relevant financial period. 16.2 FORM OF FINANCIAL STATEMENTS (a) The Company must ensure that each set of financial statements supplied under this Agreement gives (if audited) a true and fair view of, or (if unaudited) fairly represents, the financial condition (consolidated or otherwise) of the relevant person as at the date to which those financial statements were drawn up, (b) The Company must notify the Facility Agent of any change to the manner in which its audited consolidated financial statements are prepared, (c) If requested by the Facility Agent, the Company must supply to the Facility Agent: (i) a full description of any change notified under paragraph (b) above; and 30 (ii) sufficient information to enable the Finance Parties to make a proper comparison between the financial position shown by the set of financial statements prepared on the changed basis and its most recent audited consolidated financial statements delivered to the Facility Agent under this Agreement (d) If requested by the Facility Agent, the Company must enter into discussions for a period of not more than 30 days with a view to agreeing any amendments required to be made to this Agreement to place the Company and the Lenders in the same position as they would have been in if the change had not happened. Any agreement between the Company and the Facility Agent will be, with the prior consent of the Majority Lenders, binding on all the Parties. (e) If no agreement is reached under paragraph (d) above on the required amendments to this Agreement, the Company must ensure that its auditors certify those amendments; the certificate of the auditors will be, in the absence of manifest error, binding on all the Parties. 16.3 INFORMATION - MISCELLANEOUS The Company must supply to the Facility Agent in paper and in electronic form if the Facility Agent so requests: (a) copies of all documents despatched by the Company to its shareholders (or any class of them) or its creditors generally or any class of them at the same time as they are despatched; (b) promptly upon becoming aware of them, details of any litigation, arbitration or administrative proceedings which are current, threatened or pending and which have or might, if adversely determined, have a Material Adverse Effect; (c) promptly on request, details of the progress of the Closing or the Tender Offer of the merger; and (d) promptly on request, such further information regarding the financial condition and operations of the Group as any Finance Party through the Facility Agent may reasonably request. 16.4 NOTIFICATION OF DEFAULT (a) Unless the Facility Agent have already been so notified, the Company must notify the Facility Agent of any Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence. (b) Promptly on request by a Facility Agent, the Company must supply to the relevant Facility Agent a certificate, signed by two of its authorised signatories on its behalf, certifying that no Default is outstanding or, if a Default is outstanding, specifying the Default and the steps, if any, being taken to remedy it, 16.5 YEAR END The Company must not change its financial year end. 31 16.6 USE OF WEBSITES (a) Except as provided below, the Company may deliver any information under this Agreement to a Lender by posting it on to an electronic website if: (i) the Facility Agent and the Lender agree; (ii) the Company and the Facility Agent designate an electronic website for this purpose; (iii) the Company notifies the Facility Agent of the address of and password for the website; and (iv) the information posted is in a format agreed between the Company and the Facility Agent. The Facility Agent must supply each relevant Lender with the address of and password for the website. (b) Notwithstanding the above, the Company must supply to the Facility Agent in paper form a copy of any information posted on the website together with sufficient copies for: (i) any Lender not agreeing to receive information via the website; and (ii) within ten Business Days of request any other Lender, if that Lender so requests. (c) the Company must promptly upon becoming aware of its occurrence, notify the Facility Agent if: (i) the website cannot be accessed; (ii) the website or any information on the website is infected by any electronic virus or similar software; (iii) the password for the website is changed; or (iv) any information to be supplied under this Agreement is posted on the website or amended after being posted. If the circumstances in sub-paragraphs (i) or (ii) above occur, the Companys must supply any information required under this Agreement in paper form until the Facility Agent is satisfied that the circumstances giving rise to the notification are no longer continuing. 16.7 "KNOW YOUR CUSTOMER" REQUIREMENTS The Company must promptly on the request of any Finance Party supply to that Finance Party any documentation or other evidence which is reasonably requested by that Finance Party (whether for itself, on behalf of any Finance Party or any prospective new Lender) to enable a Finance Party or prospective new Lender to carry out and be satisfied with the results of all applicable "know your customer" requirements. 16.8 ERISA The Company will promptly upon becoming aware of it notify the Facility Agent of: 32 (i) any ERISA Event; (ii) the termination of or withdrawal (other than (A) a standard termination pursuant to Section 4041(b) of ERISA in connection with which no material contributions are required in contemplation of or following the proposed date of such termination and (B) a withdrawal in connection with which no material contributions are required) from, or any circumstances reasonably likely to result in the termination of or withdrawal from, any Employee Plan subject to Title IV of ERISA; and (iii) a claim or other communication alleging material non-compliance with any law or regulation relating to any Employee Plan. 17. GENERAL COVENANTS 17.1 GENERAL The Company agrees to be bound by the covenants set out in this Clause relating to it and, where the covenant is expressed to apply to each member of the Group, the Company must ensure that each of its Subsidiaries performs that covenant. 17.2 AUTHORISATIONS The Company must promptly obtain, maintain and comply with the terms of any authorisation required under any law or regulation to enable it to perform its obligations under, or for the validity or enforceability of, any Finance Document. 17.3 COMPLIANCE WITH LAWS Each member of the Group must comply in all respects with all laws to which it is subject where failure to do so has or is reasonably likely to have a Material Adverse Effect. 17.4 PARI PASSU RANKING The Company must ensure that its payment obligations under the Finance Documents rank at least pari passu with all its other present and future unsecured payment obligations, except for obligations mandatorily preferred by law applying to companies generally. 17.5 NEGATIVE PLEDGE (a) Except as provided below, no member of the Group may create or allow to exist any Security Interest on any of its assets. (b) Paragraph (a) does not apply to: (i) the shares of US NewCo and Target; (ii) any Security Interest constituted by the Security Documents; (iii) any Security Interest listed in Schedule 6 (Existing Security) except to the extent the principal amount secured by that Security Interest exceeds the amount stated in that Schedule and, with respect to Target and its Subsidiaries, any Security Interest listed in the Disclosure Letter; 33 (iv) any lien arising by operation of law and in the ordinary course of trading; (v) any Security Interest entered into pursuant to a Finance Document; and (vi) any Security Interest securing indebtedness the amount of which (when aggregated with the amount of any other indebtedness which has the benefit of a Security Interest not allowed under the preceding sub-paragraphs) does not exceed euro 2,000,000.00 or its equivalent at any time (c) No member of the Group may: (i) sell, transfer or otherwise dispose of any of its assets on terms where it is or may be leased to or re-acquired or acquired by a member of the Group or any of its related entities; (ii) enter into any arrangement under which money or the benefit of a bank or other account may be applied, set-off or made subject to a combination of accounts; or (iii) enter into any other preferential arrangement having a similar effect, in circumstances where the transaction is entered into primarily as a method of raising Financial Indebtedness or of financing the acquisition of an asset. 17.6 DISPOSALS (a) Except as provided below, no member of the Group may, either in a single transaction or in a series of transactions and whether related or not, dispose of all or any part of its assets. (b) Paragraph (a) does not apply to any disposal: (i) of assets of any member of the Group made in the ordinary course of trading; (ii) of assets in exchange for other assets comparable or superior as to type, value and quality; (iii) of the shares of US NewCo and Target; or (iv) where the disposal (when aggregated with any other disposal not allowed under the preceding sub-paragraphs) does not exceed euro 2,000,000.00 or its equivalent in any financial year of the Company. (c) of assets from a Group member to another Group member 17.7 FINANZIAMENTI DESTINATI / PATRIMONI SEPARATI The Company will not and will procure that no member of the Group shall enter into any transaction which could be qualified as a finanziamento destinato or patrimoni separati. 17.8 FINANCIAL INDEBTEDNESS (a) Except as provided below, no member of the Group may incur any Financial Indebtedness. (b) Paragraph (a) does not apply to: 34 (i) any Financial Indebtedness incurred under the Finance Documents; (ii) any Financial Indebtedness owed by a member of the Group to another member of the Group; (iii) any derivative transaction protecting against or benefiting from fluctuations in any rate or price entered into in the ordinary course of business; or (iv) Financial Indebtedness (when aggregated with the Financial Indebtedness incurred under the Finance Documents of sub-paragraph (i)) does not exceed euro 55,000,000.00 or its equivalent at any time. 17.9 CHANGE OF BUSINESS The Company must ensure that no substantial change is made to the general nature of the business of the Company or the Group from that carried on at the date of this Agreement. 17.10 MERGERS The company may not enter into any amalgamation, demerger, merger or reconstruction otherwise than under an intra-Group re-organisation on a solvent basis. The Company shall ensure that neither of US Newco and Target do not enter into any amalgamation, demerger, merger or reconstruction other than the Merger. 17.11 ACQUISITIONS (a) Except as provided below, no member of the Group may make any acquisition or investment. (b) Paragraph (a) does not apply to: (i) acquisitions or investments made in the ordinary course of trade; or (ii) the US NewCo Share Purchase; or (iii) the Acquisition; or (iv) acquisitions where the consideration (when aggregated with the consideration of any other acquisition not allowed under the preceding sub-paragraphs) does not exceed euro 2,000,000.00 or its equivalent in any financial year of the Company. 17.12 INCREASE OF SHARE CAPITAL OF NEW TARGET (a) The Company shall ensure that New Target does not increase its share capital other than the increase of its share capital for a maximum amount $11.8 million that will be, respectively, subscribed by Martin Coudeu y Compania Ltda, a company incorporated under the laws of Chile, with registered office at Avenida Manuel Antonio Matta 1801, Quilicura, Santiago, Chile, (COUDEAU) for a maximum amount of $3.3 million; by California Cedar Products Company, a company incorporated under the laws of the State of California, with registered office at 400 Fresno Avenue, Stockton, California, United States of America, (CALCEDAR) for a maximum amount of $5.3 million; and directly by the Company for a maximum amount of $3.2 million. 35 (b) The increase of the share capital referred to in paragraph (a) will be subscribed through a contribution in kind of the social portion in Compania de Lapices y Afines Chile Ltda, a company incorporated under the laws of Chile, with registered office at Avenida Manuel Antonio Matta 1801, Quilicura, Santiago, Chile (CLAC) owned by Coudeu, CalCedar and the Company, respectively, it being specified that the Company shall retain a 1% direct social portion in CLAC. Coudeu will subscribe the share capital of New Target also with a contribution in kind represented by a credit of US$ 2,000,000.00 vis-a-vis CLAC (c) After the increase of the share capital expressly permitted under this Clause, the share capital of New Target will be subdivided among its shareholders as follows: (i) No. 6.785 shares representing 75.4 per cent, approximately of the issued share capital of New Target will be owned directly by the Company; (ii) No. 849 shares representing 9.4 per cent, approximately of the issued share capital of New Target will be owned by Coudeu; (iii) No 1.365 shares representing 15.2 per cent, approximately of the issued share capital of New Target will be owned by CalCedar. (d) The Company shall not own at any time a percentage of the entire share capital of New Target lower than 75.38 per cent. 17.13 ENVIRONMENTAL MATTERS (a) In this Subclause: ENVIRONMENTAL APPROVAL means any approval, permit, license, registration, certificate, variance, filing, permission or authorisation required by or pursuant to any Environmental Law. ENVIRONMENTAL CLAIM means any claim by any government authority or person in connection with: (i) any actual or alleged breach of, or liability arising under or relating to, an Environmental Law or Environmental Approval; (ii) any accident, fire, explosion or other event of any type involving an emission or substance which is capable of causing harm to any living organism or the environment; or (iii) any presence, release or threatened release of, or exposure to, any Hazardous Substance at any location. ENVIRONMENTAL LAW means any law, statute, directive, rule, regulation, code, ordinance, order, decree, judgment, injunction, notice or binding agreement issued, promulgated or entered into by any governmental authority in existence now or in the future relating in any way to: (i) the protection of health and safety; (ii) the environment; 36 (iii) preservation or reclamation of natural resources; or (iv) the presence, management, release or threatened release of, or exposure to, Harzardous Substances. HAZARDOUS SUBSTANCE means any (A) petroleum products and byproducts, asbestos or asbestos-containing materials, urea foramaldehyde insulation, polychlorinated biphenyls, radon gas, chlorofluorocarbons and all other ozone-depleting substances and (B) any chemical, material, substance, waste pollutant or contaminant that is capable of causing harm to any living organism or the environment or prohibited, limited or regulated by or pursuant to any Environmental Law. Except for any matters that could reasonably be expected to have a Material Adverse Effect or result in any liability for any Finance Party, (i) each member of the Group is and has been in compliance with all applicable Environmental Laws, (ii) each member of the Group possesses, and is and has been in compliance with, all Environmental Approvals necessary or advisable for the conduct its operations, (iii) no member of the Group has received notice of any Environmental Claim, and no Environmental Claims are pending or, the knowledge of any member of the Group, threatened, against or affecting any member of the Group, and (iv) no member of the Group knows of any basis for any Environmental Claim being asserted against or affecting any member of the Group. (b) The Company shall, and shall cause each of its Subsidiaries, to comply with all applicable Environmental Laws. (c) The Company shall promptly upon becoming aware notify the Facility Agent of: (i) any Environmental Claim current, or to its knowledge, pending or threatened; or (ii) any circumstances reasonably likely to result in an Environmental Claim, which has or, if substantiated, is reasonably likely to either have a Material Adverse Effect or result in any liability for a Finance Party. 17.14 INSURANCE Each member of the Group must insure its business and assets with insurance companies to such an extent and against such risks as companies engaged in a similar business normally insure. 17.15 THIRD PARTY GUARANTEES (a) Except as provided in paragraph (b) below, no member of the Group may incur or allow to be outstanding any guarantee by such member of the Group or any of its Subsidiaries in respect of any person. (b) Paragraph (a) does not apply to third party guarantees by any member of the Target Group in respect of performance bonds, retention bonds, advanced payment bonds and bid bonds issued in respect of activities carried out in the ordinary course of its trade. 37 17.16 DISTRIBUTIONS The Company may not pay any dividend or distribute any share premium reserve or any other reserves to its shareholders or their Affiliates other than payment of dividends or distribution of share premium reserves to its shareholders up to a maximum amount of 1.1875 per cent, of its yearly net turnover in respect to the finance year ending 31st December 2004. 17.17 LOANS OUT (a) Except as provided in paragraph (b) below, no member of the Group may be the creditor in respect of any Financial Indebtedness. (b) Paragraph (a) does not apply to any intercompany loan: (i) made available by the Company for the purposes of Clause 3.2 (Tranche B); and (ii) between the members of the Group carried out in the ordinary course of their trade provided that: (A) such loans are subordinated to the Facility; and (B) the documentation for such loans provides that no creditor of any such loan shall have the right to receive payments until all amounts outstanding under the Finance Documents have been repaid in full. 17.18 TAXES (a) Each member of the Group must pay all Taxes due and payable (or, where payments of Tax must be made by reference to estimated amounts, such estimated Tax (calculated in good faith) as due and payable for the relevant period) by it prior to the accrual of any fine or penalty for late payment, unless (and only to the extent that): (i) payment of those Taxes is being contested in good faith; (ii) adequate reserves are being maintained for those Taxes and the costs required to contest them; and (iii) failure to pay those Taxes does not have a Material Adverse Effect, (b) No member of the Group may change its residence for Tax purposes. 17.19 SECURITY (a) On the Closing Date, the Company shall execute and deliver the Account Pledge. (b) On and as of the Merger Date, the Company shall: (i) execute and deliver to the Facility Agent the FILA Pledge, together with the share certificates and executed undated stock transfer forms; (ii) deliver to the Facility Agent evidence that the agent of the Company under the FILA Pledge for service of process in United States of America has accepted its appointment; and 38 (iii) procure the delivery to the Facility Agent of a legal opinion of Allen & Overy, legal advisers in New York of the Arranger, addressed to the Finance Parties, in respect of the FILA Pledge. 17.20 US NEWCO The Company shall procure that US NewCo does not engage in any business or activity other than the Tender Offer and the Acquisition. 17.21 TENDER OFFER The Company shall procure that US NewCo commences the Tender Offer no later than January 10, 2005, and completes the Acquisition no later than March 31, 2005, 17.22 TENDER OFFER DOCUMENTS The Company shall procure that all documents, instruments and certificates distributed to any holder of shares of the Target or any regulatory authority in connection with the Tender Offer and the Merger shall comply with the requirements of the United States Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder. 17.23 MERGER The Company shall procure that NewCo and Target complete the Merger as soon as legally possible, and in any event no later than March 31, 2005. 17.24 NEW TARGET The Company shall procure that New Target shall not engage directly in any of the following activities: (a) insurance underwriting pursuant to section 4(k)(4)(b) of the Bank Holding Company Act; (b) securities underwriting, dealing or market making pursuant to section 4(k)(4)(E) of the Bank Holding Company Act; (c) merchant banking activities pursuant to section 4(k)(4)(H) of the Bank Holding Company Act (but only to the extent that the proceeds of the transaction are used for the purpose of funding New Target's merchant banking activities); (d) insurance company investment activities pursuant to section 4(k)(4)(I) of the Bank Holding Company Act; pr (e) any other activity designated by the Board of Governors of the Federal Reserve. 17.25 ACQUISITION DOCUMENTS The Company shall procure that there is promptly paid all amounts payable by US NewCo under the Acquisition Documents as and when the same become due and any amounts payable for the enforcement of rights under the Acquisition Documents. 39 18. DEFAULT 18.1 EVENTS OF DEFAULT Each of the events set out in this Clause is an Event of Default. 18.2 NON-PAYMENT The Company does not pay on the due date any amount payable by it under the Finance Documents in the manner required under the Finance Documents, unless the non-payment: (a) is caused by technical or administrative error; and (b) is remedied within three Business Days of the due date. 18.3 SECURITY, ACQUISITION AND MERGER The Company does not comply with the terms of any of Clause 17.12, 17.20, 17.21, 17.22, 17.23, 17.24 or 17.25. 18.4 BREACH OF OTHER OBLIGATIONS (a) The Company does not comply with any other term of Clause 17 (General Covenants); or (b) the Company does not comply with any other term of the Finance Documents not already referred to in this Clause, unless the non-compliance: (i) is capable of remedy; and (ii) is remedied within fourteen days of the earlier of the Facility Agent giving notice and the Company becoming aware of the non-compliance. 18.5 MISREPRESENTATION A representation made or repeated by the Company in any Finance Document or in any document delivered by or on behalf of the Company under any Finance Document is incorrect in any material respect when made or deemed to be repeated, unless the circumstances giving rise to the misrepresentation: (a) are capable of remedy; and (b) are remedied within fourteen days of the earlier of the Facility Agent giving notice and the Company becoming aware of the misrepresentation. 18.6 CROSS-DEFAULT Any of the following occurs in respect of a member of the Group: (a) any of its Financial Indebtedness is not paid when due (after the expiry of any originally applicable grace period); 40 (b) any of its Financial Indebtedness: (i) becomes prematurely due and payable; (ii) is placed on demand; or (iii) is capable of being declared by a creditor to be prematurely due and payable or being placed on demand, in each case, as a result of an event of default (howsoever described); or (c) any commitment for its Financial Indebtedness is cancelled or suspended as a result of an event of default (howsoever described), unless the aggregate amount of Financial Indebtedness falling within all or any of paragraphs (a)-(c) above is less than euro 500,000 or its equivalent. 18.7 INSOLVENCY Any of the following occurs in respect of a member of the Group: (a) it is, or is deemed for the purposes of any law to be, unable to pay its debts as they fall due or insolvent; (b) it admits its inability to pay its debts as they fall due; (c) it suspends making payments on any of its debts or announces an intention to do so; (d) by reason of actual or anticipated financial difficulties, it begins negotiations with any creditor for the rescheduling of any of its indebtedness; or (e) a moratorium is declared in respect of any of its indebtedness. If a moratorium occurs in respect of any member of the Group, the ending of the moratorium will not remedy any Event of Default caused by the moratorium. 18.8 INSOLVENCY PROCEEDINGS Except as provided below, any of the following occurs in respect of a member of the Group: (a) any step is taken with a view to a moratorium or a composition, assignment or similar arrangement with any of its creditors; (b) a meeting of its shareholders, directors or other officers is convened for the purpose of considering any resolution for, to petition for or to file documents with a court or any registrar for, its winding-up, administration or dissolution or seeking relief under any applicable bankruptcy, insolvency, company or similar law other than where the relevant member of the Group can demonstrate that such claims are frivolous or vexatious, have being contested in good faith and with due diligence and which in any event are discharged within sixty days of their commencement; (c) any person presents a petition, or files documents with a court or any registrar, for its winding-up, administration or dissolution; 41 (d) an order for its winding-up, administration or dissolution is made; (e) any liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or similar officer is appointed in respect of it or any of its assets; (f) its shareholders, directors or other officers request the appointment of, or give notice of their intention to appoint, a liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or similar officer; or (g) any other analogous step or procedure is taken in any jurisdiction. 18.9 CREDITORS' PROCESS Any attachment, sequestration, distress, execution or analogous event affects any asset(s) of a member of the Group, having an aggregate value of at least euro 500,000.00, and is not discharged within sixty days. 18.10 CESSATION OF BUSINESS A member of the Group ceases, or threatens to cease, to carry on business except as a result of any disposal allowed under this Agreement. 18.11 EFFECTIVENESS OF FINANCE DOCUMENTS (a) It is or becomes unlawful for the Company to perform any of its obligations under the Finance Documents. (b) Any Finance Document is not effective in accordance with its terms or is alleged by the Company to be ineffective in accordance with its terms for any reason. (c) The Company repudiates a Finance Document or evidences an intention to repudiate or rescind a Finance Document. 18.12 PROCEEDINGS There shall occur any litigation, arbitration, administrative, governmental, regulatory or other investigations, proceedings or enquiry instigated against any member of the Group (other than claims which the relevant member of the Group can demonstrate are frivolous or vexatious, have being contested in good faith and with due diligence and which in any event are discharged within sixty days of their commencement) in circumstances where the potential liability in the event of a determination adverse to any member of the Group would be greater than euro 750,000.00. 18.13 MATERIAL ADVERSE CHANGE Any event or series of events occurs which, in the opinion of the Majority Lenders, has or is reasonably likely to have a Material Adverse Effect. 42 18.14 ERISA (a) Any event or condition that presents a material risk that the Company or any ERISA Affiliate may incur a material liability to an Employee Plan or to the IRS or to the PBGC. (b) An "accumulated funding deficiency" (as that term is defined in Section 412 of the Code, whether or not waived, by reason of the failure of the Company or ERISA Affiliate to make a contribution to an Employee Plan 18.15 UNITED STATES BANKRUPTCY LAWS (a) In this Subclause, U.S. BANKRUPTCY LAW means the United States Bankruptcy Code 1978 or any other United States Federal or State bankruptcy, insolvency or similar law. (b) Any of the following occurs in respect of any US Group Company: (i) it makes a general assignment for the benefit of creditors; (ii) it commences a voluntary case or proceeding under any U.S. Bankruptcy Law; or (iii) an involuntary case under any U.S. Bankruptcy Law is commenced against it and is not controverted within 30 days or is not dismissed or stayed within 90 days after commencement of the case. (c) If an Event of Default described in this Subclause 18.15 (United States Bankruptcy Laws) occurs, the Total Commitments will, if not already cancelled under this Agreement, be immediately and automatically cancelled and all amounts outstanding under the Finance Documents will be immediately and automatically due and payable. 18.16 ACCELERATION If any other Event of Default is outstanding, the Facility Agent may, and must if so instructed by the Majority Lenders, by notice to the Company: (a) declare that an Event of Default has occurred; and/or (b) cancel all or any part of the Total Commitments; and/or (c) declare that all or part of any amounts outstanding under the Finance Documents are: (i) immediately due and payable; and/or (ii) payable on demand by the Facility Agent acting on the instructions of the Majority Lenders. Any notice given under this Subclause will take effect in accordance with its terms. 19. SECURITY 19.1 SECURITY DOCUMENTS (a) The payment obligations of the Company under this Agreement related to Tranche A shall be secured by the Account Pledge. 43 (b) The payment obligations of the Company under this Agreement related to both Facilities shall be secured by the FILA Pledge. 19.2 SECURITY AGENT AS HOLDER OF SECURITY Unless expressly provided to the contrary, the Security Agent holds any security created by the FILA Pledge on behalf of the Finance Parties. 19.3 RESPONSIBILITY The Security Agent is not liable or responsible to any other Finance Party for: (a) any failure in perfecting or protecting the security created by the FILA Pledge; (b) any other action taken or not taken by it in connection with the FILA Pledge, unless directly caused by its gross negligence or wilful misconduct. 19.4 TITLE The Security Agent may accept, without enquiry, the title (if any) the Company may have to any asset over which security is intended to be created by the FILA Pledge. 19.5 POSSESSION OF DOCUMENTS The Security Agent is not obliged to hold in its own possession the FILA Pledge, title deed or other document in connection with any asset over which security is intended to be created by the FILA Pledge. Without prejudice to the above, the Security Agent may allow any bank providing safe custody services or any professional adviser to the Security Agent to retain any of those documents in its possession. 19.6 INVESTMENTS Except as otherwise provided in the FILA Pledge, all moneys received by the Security Agent under the FILA Pledge may be invested in the name of, or under the control of, the Security Agent in any investments selected by the Security Agent. Additionally, those moneys may be placed on deposit in the name of, or under the control of, the Security Agent at any bank or institution (including itself) and upon such terms as it may think fit. 19.7 APPROVAL Each Finance Party confirms its approval of the FILA Pledge. 20. THE ADMINISTRATIVE PARTIES 20.1 APPOINTMENT AND DUTIES OF THE FACILITY AGENT (a) Each Finance Party (other than the Facility Agent) irrevocably appoints the Facility Agent to act as its agent under the Finance Documents. (b) Each Finance Party irrevocably authorises the Facility Agent to: 44 (i) perform the duties and to exercise the rights, powers and discretions that are specifically given to it under the Finance Documents, together with any other incidental rights, powers and discretions; and (ii) execute each Finance Document expressed to be executed by the Facility Agent. (c) The Facility Agent has only those duties which are expressly specified in the Finance Documents. Those duties are solely of a mechanical and administrative nature. 20.2 ROLE OF THE ARRANGER Except as specifically provided in the Finance Documents, the Arranger has no obligations of any kind to any other Party in connection with any Finance Document. 20.3 NO FIDUCIARY DUTIES Except as specifically provided in a Finance Document, nothing in the Finance Documents makes an Administrative Party a trustee or fiduciary for any other Party or any other person. No Administrative Party need hold in trust any moneys paid to it for a Party or be liable to account for interest on those moneys. 20.4 INDIVIDUAL POSITION OF AN ADMINISTRATIVE PARTY (a) If it is also a Lender, each Administrative Party has the same rights and powers under the Finance Documents as any other Lender and may exercise those rights and powers as though it were not an Administrative Party. (b) Each Administrative Party may: (i) carry on any business with the Company or its related entities (including acting as an agent or a trustee for any other financing); and (ii) retain any profits or remuneration it receives under the Finance Documents or in relation to any other business it carries on with the Company or its related entities. 20.5 RELIANCE The Facility Agent may: (a) rely on any notice or document believed by it to be genuine and correct and to have been signed by, or' with the authority of, the proper person; (b) rely on any statement made by any person regarding any matters which may reasonably be assumed to be within his knowledge or within his power to verify; (c) engage, pay for and rely on professional advisers selected by it (including those representing a Party other than the Facility Agent); and (d) act under the Finance Documents through its personnel and agents 45 20.6 MAJORITY LENDERS' INSTRUCTIONS (a) The Facility Agent is fully protected if it acts on the instructions of the Majority Lenders in the exercise of any right, power or discretion or any matter not expressly provided for in the Finance Documents. Any such instructions given by the Majority Lenders will be binding on all the Lenders. In the absence of instructions, the Facility Agent may act as it considers to be in the best interests of all the Lenders. (b) The Facility Agent may assume that unless it has received notice to the contrary, any right, power, authority or discretion vested in any Party or the Majority Lenders has not been exercised. (c) The Facility Agent is not authorized to act on behalf of a Lender (without first obtaining that Lender's consent) in any legal or arbitration proceedings in connection with any Finance Document. (d) The Facility Agent may require the receipt of security satisfactory to it, whether by way of payment in advance or otherwise, against any liability or loss which it may incur in complying with the instructions of the Majority Lenders. 20.7 RESPONSIBILITY (a) No Administrative Party is responsible for the adequacy, accuracy or completeness of any statement or information (whether written or oral) made in or supplied in connection with any Finance Document. (b) No Administrative Party is responsible for the legality, validity, effectiveness, adequacy, completeness or enforceability of any Finance Document or any other document. (c) Without affecting the responsibility of the Company for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms that it: (i) has made, and will continue to make, its own independent appraisal of all risks arising under or in connection with the Finance Documents (including the financial condition and affairs of the Company and its related entities and the nature and extent of any recourse against any Party or its assets); and (ii) has not relied exclusively on any information provided to it by any Administrative Party in connection with any Finance Document. 20.8 EXCLUSION OF LIABILITY (a) The Facility Agent is not liable or responsible to any other Finance Party for any action taken or not taken by it in connection with any Finance Document, unless directly caused by its gross negligence or wilful misconduct. (b) No Party (other than the Facility Agent) may take any proceedings against any officer, employee or agent of the Facility Agent in respect of any claim it might have against the Facility Agent or in respect of any act or omission of any kind by that officer, employee or agent in connection with any Finance Document. Any officer, employee or agent of the Facility Agent may rely on this Subclause and enforce its terms under the Contracts (Rights of Third Parties) Act 1999. 46 (c) The Facility Agent is not liable for any delay (or any related consequences) in crediting an account with an amount required under the Finance Documents to be paid by the Facility Agent if the Facility Agent has taken all necessary steps as soon as reasonably practicable to comply with the regulations or operating procedures of any recognized clearing or settlement system used by the Facility Agent for that purpose. (d) (i) Nothing in this Agreement will oblige any Administrative Party to satisfy any know your customer requirement in relation to the identity of any person on behalf of any Finance Party. (ii) Each Finance Party confirms to each Administrative Party that it is solely responsible for any know your customer requirements it is required to carry out and that it may not rely on any statement in relation to those requirements made by any other person. 20.9 DEFAULT (a) The Facility Agent is not obliged to monitor or enquire whether a Default has occurred. The Facility Agent is not deemed to have knowledge of the occurrence of a Default. (b) If the Facility Agent: (i) receives notice from a Party referring to this Agreement, describing a Default and stating that the event is a Default; or (ii) is aware of the non-payment of any principal, interest or fee payable to a Finance Party (other than the Facility Agent or the Arranger) under this Agreement, it must promptly notify the other Finance Parties. 20.10 INFORMATION (a) The Facility Agent must promptly forward to the person concerned the original or a copy of any document which is delivered to the Facility Agent by a Party for that person. (b) Except where a Finance Document specifically provides otherwise, the Facility Agent is not obliged to review or check the adequacy, accuracy or completeness of any document it forwards to another Party. (c) Except as provided above, the Facility Agent has no duty: (i) either initially or on a continuing basis to provide any Lender with any credit or other information concerning the risks arising under or in connection with the Finance Documents (including any information relating to the financial condition or affairs of the Company or its related entities or the nature or extent of recourse against any Party or its assets) whether coming into its possession before, on or after the date of this Agreement; or (ii) unless specifically requested to do so by a Lender in accordance with a Finance Document, to request any certificate or other document from the Company. (d) In acting as the Facility Agent, the agency division of the Facility Agent is treated as a separate entity from its other divisions and departments. Any information acquired by the Facility Agent which, in its opinion, is acquired by it otherwise than in its capacity as the 47 Facility Agent may be treated as confidential by the Facility Agent and will not be treated as information possessed by the Facility Agent in its capacity as such. (e) The Facility Agent is not obliged to disclose to any person any confidential information supplied to it by or on behalf of a member of the Group solely for the purpose of evaluating whether any waiver or amendment is required in respect of any term of the Finance Documents. (f) The Company irrevocably authorises the Facility Agent to disclose to the other Finance Parties any information which, in its opinion, is received by it in its capacity as the Facility Agent. 20.11 INDEMNITIES (a) Without limiting the liability of the Company under the Finance Documents, each Lender must indemnify the Facility Agent for that Lender's Pro Rata Share of any loss or liability incurred by the Facility Agent in acting as the Facility Agent, except to the extent that the loss or liability is caused by the Facility Agent's gross negligence or willful misconduct. (b) The Facility Agent may deduct from any amount received by it for a Lender any amount due to the Facility Agent from that Lender under a Finance Document but unpaid. 20.12 COMPLIANCE Each Administrative Party may refrain from doing anything (including disclosing any information) which might, in its opinion, constitute a breach of any law or regulation or be otherwise actionable at the suit of any person, and may do anything which, in its opinion, is necessary or desirable to comply with any law or regulation. 20.13 RESIGNATION OF THE FACILITY AGENT (a) The Facility Agent may resign and appoint any of its Affiliates as successor Facility Agent by giving notice to the other Finance Parties and the Company. (b) Alternatively, the Facility Agent may resign by giving notice to the Finance Parties and the Company, in which case the Majority Lenders ma. appoint a successor Facility Agent. (c) If no successor Facility Agent has been appointed under paragraph (b) above within 30 days after notice of resignation was given, the Facility Agent may appoint a successor Facility Agent. (d) The person(s) appointing a successor Facility Agent must, if practicable, consult with the Company prior to the appointment. (e) The resignation of the Facility Agent and the appointment of any successor Facility Agent will both become effective only when the successor Facility Agent notifies all the Parties that it accepts its appointment. On giving the notification, the successor Facility Agent will succeed to the position of the Facility Agent and the term FACILITY AGENT will mean the successor Facility Agent. (f) The retiring Facility Agent must, at its own cost, make available to the successor Facility Agent such documents and records and provide such assistance as the successor Facility Agent may reasonably request for the purposes of performing its functions as the Facility Agent under the Finance Documents. 48 (g) Upon its resignation becoming effective, this Clause will continue to benefit the retiring Facility Agent in respect of any action taken or not taken by it in connection with the Finance Documents while it was the Facility Agent, and, subject to paragraph (f) above, it will have no further obligations under any Finance Document. (h) The Majority Lenders may, by notice to the Facility Agent, require it to resign under paragraph (b) above. 20.14 RELATIONSHIP WITH LENDERS (a) The Facility Agent may treat each Lender as a Lender, entitled to payments under this Agreement and as acting through its Facility Office(s) until it has received not less than five Business Days' prior notice from that Lender to the contrary. (b) The Facility Agent may at any time, and must if requested to do so by the Majority Lenders, convene a meeting of the Lenders. (c) The Facility Agent must keep a register of all the Parties and supply any other Party with a copy of the register on request. The register will include each Lender's Facility Office(s) and contact details for the purposes of this Agreement. 20.15 FACILITY AGENT'S MANAGEMENT TIME If the Facility Agent requires, any amount payable to the Facility Agent by any Party under any indemnity or in respect of any costs or expenses incurred by the Facility Agent under the Finance Documents after the date of this Agreement may include the cost of using its management time or other resources and will be calculated on the basis of such reasonable daily or hourly rates as the Facility Agent may notify to the relevant Party. This is in addition to any amount in respect of fees or expenses paid or payable to the Facility Agent under any other term of the Finance Documents. 20.16 NOTICE PERIOD Where this Agreement specifies a minimum period of notice to be given to the Facility Agent, the Facility Agent may, at its discretion, accept a shorter notice period. 21. EVIDENCE AND CALCULATIONS 21.1 ACCOUNTS Accounts maintained by a Finance Party in connection with this Agreement are prima facie evidence of the matters to which they relate for the purpose of any litigation or arbitration proceedings. 21.2 CERTIFICATES AND DETERMINATIONS Any certification or determination by a Finance Party of a rate or amount under the Finance Documents will be, in the absence of manifest error, conclusive evidence of the matters to which it relates. 49 21.3 CALCULATIONS Any interest or fee accruing under this Agreement accrues from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 or 365 days or otherwise, depending on what the Facility Agent determines is market practice. 22. FEES 22.1 ARRANGEMENT FEE The Company must pay to the Arranger for its own account an arrangement and underwriting fee in relation to Tranche A and Tranche B in the amount and in the manner agreed in the Fee Letter. 22.2 TRANCHE A COMMITMENT FEE (a) The Company must pay a commitment fee computed at the rate of 0.875 per cent, per annum on the undrawn and uncancelled amount of each Lender's Tranche A Commitment. (b) Accrued commitment fee is payable quarterly in arrear from and including the date of this Agreement. Accrued commitment fee is also payable to the Facility Agent for a Lender on the date its Tranche A Commitment is cancelled in full. 22.3 TRANCHE B COMMITMENT FEE (a) The Company must pay a commitment fee computed at the rate of 0.875 per cent, per annum on the undrawn and uncancelled amount of each Lender's Tranche B Commitment. (b) Accrued commitment fee is payable quarterly in arrear from and including 31st March, 2005. Accrued commitment fee is also payable to the Facility Agent for a Lender on the date its Tranche B Commitment is cancelled in full. 23. INDEMNITIES AND BREAK COSTS 23.1 CURRENCY INDEMNITY (a) The Company must, as an independent obligation, indemnify each Finance Party against any loss or liability which that Finance Party incurs as a consequence of: (i) that Finance Party receiving an amount in respect of the Company's liability under the Finance Documents; or (ii) that liability being converted into a claim, proof, judgment or order, in a currency other than the currency in which the amount is expressed to be payable under the relevant Finance Document. (b) Unless otherwise required by law, the Company waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency other than that in which it is expressed to be payable. 50 23.2 OTHER INDEMNITIES (a) The Company must indemnify, defend and hold harmless each Finance Party against any loss, liability, obligation, damage, claim, Environmental Claim, fine, penalty, fee, expense or cost (including administrative oversight costs, natural resource damages, remediation costs, attorney and consultant fees and expenses) which that Finance Party incurs as a consequence of: (i) the occurrence of any Event of Default; (ii) any failure by the Company to pay any amount due under a Finance Document on its due date, including any resulting from any distribution or redistribution of any amount among the Lenders under this Agreement; (iii) (other than by reason of negligence or default by that Finance Party) a Loan not being made after a Request has been delivered for that Loan; (iv) a Loan (or part of a Loan) not being prepaid in accordance with this Agreement; or (v) any Environmental Claim. The Companys' liability in each case includes any loss or expense on account of funds borrowed, contracted for or utilised to fund any amount payable under any Finance Document or any Loan, (b) The Company must indemnify, defend and hold harmless the Facility Agent against any loss or liability incurred by the Facility Agent as a result of: (i) investigating any event which the Facility Agent reasonably believes to be a Default; or (ii) acting or relying on any notice which the Facility Agent reasonably believes to be genuine, correct and appropriately authorised. 23.3 BREAK COSTS (a) The Company must pay to each Lender its Break Costs. (b) Break Costs are the amount (if any) determined by the relevant Lender by which: (i) the interest which that Lender would have received for the period from the date of receipt of any part of its share in a Loan or an overdue amount to the last day of the applicable Term for that Loan or overdue amount if the principal or overdue amount received had been paid on the last day of that Term; exceeds (ii) the amount which that Lender would be able to obtain by placing an amount equal to the amount received by it on deposit with a leading bank in the appropriate interbank market for a period starting on the Business Day following receipt and ending on the last day of the applicable Term. (c) Each Lender must supply to the Facility Agent for the Company details of the amount of any Break Costs claimed by it under this Subclause. 51 24. EXPENSES 24.1 INITIAL COSTS The Company must pay to each Administrative Party the amount of all costs and expenses (including legal fees as agreed in a separated letter and notarial fees) incurred by it in connection with the negotiation, preparation, printing, execution and syndication of the Finance Documents. 24.2 SUBSEQUENT COSTS The Company must pay to the Facility Agent the amount of all costs and expenses (including legal and notarial fees) incurred by it in connection with: (a) the negotiation, preparation, printing and execution of any Finance Document (other than a Transfer Certificate) executed after the date of this Agreement; and (b) any amendment, waiver or consent requested by or on behalf of the Company or specifically allowed by this Agreement. 24.3 ENFORCEMENT COSTS The Company must pay to each Finance Party the amount of all costs and expenses (including legal and notarial fees) incurred by it in connection with the enforcement of, or the preservation of any rights under, any Finance Document. 25. AMENDMENTS AND WAIVERS 25.1 PROCEDURE (a) Except as provided in this Clause, any term of the Finance Documents may be amended or waived with the agreement of the Company and the Majority Lenders. The Facility Agent may effect, on behalf of any Finance Party, an amendment or waiver allowed under this Clause. (b) The Facility Agent must promptly notify the other Parties of any amendment or waiver effected by it under paragraph (a) above. Any such amendment or waiver is binding on all the Parties. 25.2 EXCEPTIONS (a) An amendment or waiver which relates to: (i) the definition of MAJORITY LENDERS in Clause 1.1 (Definitions); (ii) an extension of the date of payment of any amount to a Lender under the Finance Documents; (iii) a reduction in the Margin or a reduction in the amount of any payment of principal, interest, fee or other amount payable to a Lender under the Finance Documents; (iv) an increase in, or an extension of, a Commitment or the Total Commitments; 52 (v) a release of the Company other than in accordance with the terms of this Agreement; (vi) a term of a Finance Document which expressly requires the consent of each Lender; (vii) the right of a Lender to assign or transfer its rights or obligations under the Finance Documents; or (viii) this Clause, may only be made with the consent of all the Lenders. (b) An amendment or waiver which relates to the rights or obligations of an Administrative Party may only be made with the consent of that Administrative Party. 25.3 CHANGE OF CURRENCY If a change in any currency of a country occurs (including where there is more than one currency or currency unit recognised at the same time as the lawful currency of a country), the Finance Documents will be amended to the extent the Facility Agent (acting reasonably and after consultation with the Company) determines is necessary to reflect the change. 25.4 WAIVERS AND REMEDIES CUMULATIVE The rights of each Finance Party under the Finance Documents: (a) may be exercised as often as necessary; (b) are cumulative and not exclusive of its rights under the general law; and (c) may be waived only in writing and specifically. Delay in exercising or non-exercise of any right is not a waiver of that right. 26. CHANGES TO THE PARTIES 26.1 ASSIGNMENTS AND TRANSFERS BY THE BORROWER The Company may assign or transfer any of its rights and obligations under the Finance Documents without the prior consent of all the Lenders. 26.2 ASSIGNMENTS AND TRANSFERS BY LENDERS (a) A Lender (the EXISTING LENDER) may, subject to the following provisions of this Subclause, at any time assign or transfer (including by way of novation) any of its rights and obligations under this Agreement to any other bank or financial institution or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets (the NEW LENDER). (b) The Facility Agent is not obliged to execute a Transfer Certificate until it has completed all know your customer requirements to its satisfaction. The Facility Agent must promptly notify the Existing Lender and the New Lender if there are any such requirements. (c) A transfer of obligations will be effective only if either: 53 (i) the obligations are novated in accordance with the following provisions of this Clause; or (ii) the New Lender confirms to the Facility Agent and the Company in form and substance satisfactory to the Facility Agent that it is bound by the terms of this Agreement as a Lender. On the transfer becoming effective in this manner the Existing Lender will be released from its obligations under this Agreement to the extent that they are transferred to the New Lender. (d) Any reference in this Agreement to a Lender includes a New Lender but excludes a Lender if no amount is or may be owed to or by it under this Agreement. 26.3 PROCEDURE FOR TRANSFER BY WAY OF NOVATIONS (a) In this Subclause: TRANSFER DATE means, for a Transfer Certificate, the later of: (i) the proposed Transfer Date specified in that Transfer Certificate; and (ii) the date on which the Facility Agent executes that Transfer Certificate. (b) A novation is effected if: (i) the Existing Lender and the New Lender deliver to the Facility Agent a duly completed Transfer Certificate; and (ii) the Facility Agent executes it. The Facility Agent must execute as soon as reasonably practicable a Transfer Certificate delivered to it and which appears on its face to be in order. (c) Each Party (other than the Existing Lender and the New Lender) irrevocably authorises the Facility Agent to execute any duly completed Transfer Certificate on its behalf. (d) On the Transfer Date: (i) the New Lender will assume the rights and obligations of the Existing Lender expressed to be the subject of the novation in the Transfer Certificate in substitution for the Existing Lender; and (ii) the Existing Lender will be released from those obligations and cease to have those rights. (e) The Facility Agent must, as soon as reasonably practicable after it has executed a Transfer Certificate, send to the Company a copy of that Transfer Certificate. 26.4 LIMITATION OF RESPONSIBILITY OF EXISTING LENDER (a) Unless expressly agreed to the contrary, an Existing Lender is not responsible to a New Lender for the legality, validity, adequacy, accuracy, completeness or performance of: (i) any Finance Document or any other document; or 54 (ii) any statement or information (whether written or oral) made in or supplied in connection with any Finance Document, and any representations or warranties implied by law are excluded. (b) Each New Lender confirms to the Existing Lender and the other Finance Parties that it: (i) has made, and will continue to make, its own independent appraisal of all risks arising under or in connection with the Finance Documents (including the financial condition and affairs of the Company and its related entities and the nature and extent of any recourse against any Party or its assets) in connection with its participation in this Agreement; and (ii) has not relied exclusively on any information supplied to it by the Existing Lender in connection with any Finance Document. (c) Nothing in any Finance Document requires an Existing Lender to: (i) accept a re-transfer from a New Lender of any of the rights and obligations assigned or transferred under this Clause; or (ii) support any losses incurred by the New Lender by reason of the non-performance by the Company of its obligations under any Finance Document or otherwise. 26.5 COSTS RESULTING FROM CHANGE OF LENDER OR FACILITY OFFICE If: (a) a Lender assigns or transfers any of its rights and obligations under the Finance Documents or changes its Facility Office; and (b) as a result of circumstances existing at the date the assignment, transfer or change occurs, the Company would be obliged to pay a Tax Payment or an Increased Cost, then, unless the assignment, transfer or change is made by a Lender to mitigate any circumstance giving rise to the Tax Payment, Increased Cost or a right to be prepaid and/or cancelled by reason of illegality, the Company need only pay that Tax Payment or Increased Cost to the same extent that it would have been obliged to if no assignment, transfer or change had occurred. 26.6 CHANGES TO THE REFERENCE BANKS If a Reference Bank (or, if a Reference Bank is not a Lender, the Lender of which it is an Affiliate) ceases to be a Lender, the Facility Agent must (in consultation with the Company) appoint another Lender or an Affiliate of a Lender to replace that Reference Bank. 26.7 AFFILIATES OF LENDERS (a) Each Lender may fulfill its obligations in respect of any Loan through an Affiliate if: (i) the relevant Affiliate is specified in this Agreement as a Lender or becomes a Lender by means of a Transfer Certificate in accordance with this Agreement; and 55 (ii) the Loans in which that Affiliate will participate are specified in this Agreement or in a notice given by that Lender to the Facility Agent and the Company. In this event, the Lender and the Affiliate will participate in Loans in the manner provided for in sub-paragraph (ii) above. (b) If paragraph (a) above applies, the Lender and its Affiliate will be treated as having a single Commitment and a single vote, but, for all other purposes, will be treated as separate Lenders. 27. DISCLOSURE OF INFORMATION (a) Each Finance Party must keep confidential any information supplied to it by or on behalf of the Company in connection with the Finance Documents. However, a Finance Party is entitled to disclose information: (i) which is publicly available, other than as a result of a breach by that Finance Party of this Clause; (ii) in connection with any legal or arbitration proceedings; (iii) if required to do so under any law or regulation; (iv) to a governmental, banking, taxation or other regulatory authority; (v) to its professional advisers; (vi) to the extent allowed under paragraph (b) below; (vii) to the Company; or (viii) with the agreement of the Company. (b) A Finance Patty may disclose to an Affiliate or any person with whom it may enter, or has entered into, any kind of transfer, participation or other agreement in relation to this Agreement (a PARTICIPANT): (i) a copy of any Finance Document; and (ii) any information which that Finance Party has acquired under or in connection with any Finance Document. However, before a participant may receive any confidential information, it must agree with the relevant Finance Party to keep that information confidential on the terms of paragraph (a) above. (c) This Clause supersedes any previous confidentiality undertaking given by a Finance Party in connection with this Agreement prior to it becoming a Party. 28. SET-OFF A Finance Party may set off any matured obligation owed to it by the Company under the Finance Documents (to the extent beneficially owned by that Finance Party) against any obligation (whether or not matured) owed by that Finance Party to the Company, regardless 56 of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off. 29. PRO RATA SHARING 29.1 REDISTRIBUTION If any amount owing by the Company under this Agreement to a Lender (the RECOVERING LENDER) is discharged by payment, set-off or any other manner other than through the Facility Agent under this Agreement (A RECOVERY), then: (a) the recovering Lender must, within three Business Days, supply details of the recovery to the Facility Agent; (b) the Facility Agent must calculate whether the recovery is in excess of the amount which the recovering Lender would have received if the recovery had been received and distributed by the Facility Agent under this Agreement; and (c) the recovering Lender must pay to the Facility Agent an amount equal to the excess (the REDISTRIBUTION). 29.2 EFFECT OF REDISTRIBUTION (a) The Facility Agent must treat a redistribution as if it were a payment by the Company under this Agreement and distribute it among the Lenders, other than the recovering Lender, accordingly. (b) When the Facility Agent makes a distribution under paragraph (a) above, the recovering Lender will be subrogated to the rights of the Finance Parties which have shared in that redistribution. (c) If and to the extent that the recovering Lender is not able to rely on any rights of subrogation under paragraph (b) above, the Company will owe the recovering Lender a debt which is equal to the redistribution, immediately payable and of the type originally discharged. (d) If: (i) a recovering Lender must subsequently return a recovery, or an amount measured by reference to a recovery, to the Company; and (ii) the recovering Lender has paid a redistribution in relation to that recovery, each Finance Party must reimburse the recovering Lender all or the appropriate portion of the redistribution paid to that Finance Party, together with interest for the period while it held the redistribution. In this event, the subrogation in paragraph (b) above will operate in reverse to the extent of the reimbursement. 29.3 EXCEPTIONS Notwithstanding any other term of this Clause, a recovering Lender need not pay a redistribution to the extent that: 57 (a) it would not, after the payment, have a valid claim against the Company in the amount of the redistribution; or (b) it would be sharing with another Finance Party any amount which the recovering Lender has received or recovered as a result of legal or arbitration proceedings, where: (i) the recovering Lender notified the Facility Agent of those proceedings; and (ii) the other Finance Party had an opportunity to participate in those proceedings but did not do so or did not take separate legal or arbitration proceedings as soon as reasonably practicable after receiving notice of them. 30. SEVERABILITY If a term of a Finance Document is or becomes illegal, invalid or unenforceable in any jurisdiction, that will not affect: (a) the legality, validity or enforceability in that jurisdiction of any other term of the Finance Documents; or (b) the legality, validity or enforceability in other jurisdictions of that or any other term of the Finance Documents. 31. COUNTERPARTS Each Finance Document may be executed in any number of counterparts. This has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document. 32. NOTICES 32.1 IN WRITING (a) Any communication in connection with a Finance Document must be in writing and, unless otherwise stated, may be given: (i) in person, by post, fax, e-mail or any other electronic communication approved by the Facility Agent; or (ii) if between the Facility Agent and a Lender and the Facility Agent and the Lender agree, by e-mail or other electronic communication. (b) For the purpose of the Finance Documents, an electronic communication will be treated as being in writing. (c) Unless it is agreed to the contrary, any consent or agreement required under a Finance Document must be given in writing. 32.2 CONTACT DETAILS (a) Except as provided below, the contact details of each Party for all communications in connection with the Finance Documents are those notified by that Party for this purpose to the Facility Agent on or before the date it becomes a Party. 58 (b) The contact details of the Company for this purpose are: Address: Via Pozzone, 5 Milano Fax number: 0039 02 3538546 E-mail: massimo.candela@fila.it Attention: Mr. Massimo Candela/Director (c) The contact details of the Facility Agent and the Arranger for this purpose are: Address: Centro Corporate Milano Provincia Ovest via Puecher, 51 20081 Abbiategrasso (Milano) Fax number: 02/9466474 E-mail: silvano.daturi@bancaintesa.it; marco belletta@bancaintesa.it Attention: Mr, Silvano Daturi and Mr. Marco Belletta (d) The contact details of the Security Agent for this purpose are: Address: 1 William Street, New York, New York 1004 Fax number: 001/2128099780 E-mail: giancarlo.baiocchi@bancaintesa.it Attention: Mr. Giancarlo Baiocchi (e) Any Party may change its contact details by giving five Business Days' notice to the Facility Agent or (in the case of the Facility Agent) to the other Parties. (f) Where a Party nominates a particular department or officer to receive a communication, a communication will not be effective if it fails to specify that department or officer. 32.3 EFFECTIVENESS (a) Except as provided below, any communication in connection with a Finance Document will be deemed to be given as follows: (i) if delivered in person, at the time of delivery; (ii) if posted, five days after being deposited in the post, postage prepaid, in a correctly addressed envelope; (iii) if by fax, when received in legible form; and (iv) if by e-mail or any other electronic communication, when received in legible form. (b) A communication given under paragraph (a) above but received on a non-working day or after business hours in the place of receipt will only be deemed to be given on the next working day in that place. 59 (c) A communication to the Facility Agent will only be effective on actual receipt by it. 33. LANGUAGE (a) Any notice given in connection with: (i) the Account Pledge, must be in Italian; (ii) the FILA Pledge and any other Finance Document (the OTHER FINANCE DOCUMENT), must be in English. (b) Any other document provided in connection with: (i) the Account Pledge, must be in Italian; (ii) the FILA Pledge and any Other Finance Document, must be in English or (unless the Facility Agent otherwise agrees) in Italian accompanied by a certified English translation. In this case, the English translation prevails unless the document is a statutory or other official document. 34. GOVERNING LAW This Agreement is governed by English law. 35. ENFORCEMENT 35.1 JURISDICTION (a) The Milan court has non-exclusive jurisdiction to settle any dispute in connection with the Account Pledge. (b) Any New York State court or Federal court sitting in the City of New York has non-exclusive jurisdiction to settle any dispute in connection with the FILA Pledge. (c) The English courts has non-exclusive jurisdiction to settle any dispute in connection with any other Finance Document (the OTHER FINANCE DOCUMENT). (d) The English courts and any New York State court or Federal court sitting in the City of New York are the most appropriate and convenient courts to settle any such dispute and the Company waives objection to those courts on the grounds of inconvenient forum or otherwise in relation to proceedings in connection with, respectively, any Other Finance Document or the FILA Pledge. The Company agrees that a judgment or order of the English courts or any New York State court or Federal court sitting in the City of New York in connection with, respectively, any Other Finance Document or the FILA Pledge, is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction. (e) This Clause 35.1 (Jurisdiction) is for the benefit of the Finance Parties only. To the extent allowed by law, a Finance Party may take: (i) proceedings in any other court, different from the Milan court, the New York State courts or Federal courts sitting in the City of New York or the English courts; and (ii) concurrent proceedings in any number of jurisdictions. 60 35.2 SERVICE OF PROCESS (a) The Company irrevocably appoints F.I.L.A. UK Ltd, 5/6 Colonial Business P, Colonial Way, Watford, Herts WD24 4PR, UK - England as its agent under the Other Finance Documents for service of process in any proceedings before the English courts. (b) If any person appointed as process agent is unable for any reason to act as agent for service of process, the Company must immediately appoint another agent on terms acceptable to the Facility Agent. Failing this, the Facility Agent may appoint another agent for this purpose. (c) The Company agrees that failure by a process agent to notify it of any process will not invalidate the relevant proceedings. (d) This Clause does not affect any other method of service allowed by law. 35.3 WAIVER OF IMMUNITY The Company irrevocably and unconditionally: (a) agrees not to claim any immunity from proceedings brought by a Finance Party against it in relation to a Finance Document and to ensure that no such claim is made on its behalf; (b) consents generally to the giving of any relief or the issue of any process in connection with those proceedings; and (c) waives all rights of immunity in respect of it or its assets. 35.4 WAIVER OF TRIAL BY JURY EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION IN CONNECTION WITH ANY FINANCE DOCUMENT OR ANY TRANSACTION CONTEMPLATED BY ANY FINANCE DOCUMENT. THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO TRIAL BY COURT. This Agreement has been entered into on the date stated at the beginning of this Agreement. 35.5 COMPLETE AGREEMENT The Finance Documents contain the complete agreement between the Parties on the matters to which they relate and supersede all prior commitments, agreements and understandings, whether written or oral, on those matters. 61 SIGNATORIES COMPANY F.I.L A., - FABBRICA ITALIANA LAPIS ED AFFINI S.P.A. By: /s/ Candela --------------------------- (CANDELA) ARRANGER BANCA INTESA S.P.A., Milan Branch By: /s/ Leandro Roberto /s/ Ambrasi --------------------------- ----------------------------------- (LEANDRO ROBERTO) (AMBRASI) ORIGINAL LENDER BANCA INTESA S.P.A., Milan Branch By: /s/ Leandro Roberto /s/ Ambrasi --------------------------- ----------------------------------- (LEANDRO ROBERTO) FACILITY AGENT BANCA INTESA S.P.A., Milan Branch By: /s/ Leandro Roberto /s/ Ambrasi --------------------------- ----------------------------------- (LEANDRO ROBERTO) SECURITY AGENT BANCA INTESA S.P.A., New York Branch By: /s/ Leandro Roberto /s/ Ambrasi --------------------------- ----------------------------------- (LEANDRO ROBERTO) EX-99.D.1 10 y04189exv99wdw1.txt AGREEMENT AND PLAN OF MERGER EXHIBIT (d)(1) EXECUTION COPY AGREEMENT AND PLAN OF MERGER BY AND AMONG FILA - FARBBICA ITAILIANA LAPIS ED AFFINI S.P.A., PENCIL ACQUISITION CORP AND DIXON TICONDEROGA COMPANY DATED AS OF DECEMBER 16, 2004 EXECUTION COPY AGREEMENT AND PLAN OF MERGER This Agreement and Plan of Merger, dated as of December 16, 2004 (this "AGREEMENT"), is by and among Fila - Fabbrica Italiana Lapis Ed Affini S.p.A., an Italian corporation (the "PARENT"), Pencil Acquisition Corp, a newly formed Delaware corporation and wholly-owned subsidiary of the Parent (the "Merger Sub"), and Dixon Ticonderoga Company, a Delaware corporation (the "COMPANY"). RECITALS WHEREAS, the respective boards of directors of the Parent, Merger Sub and the Company have each determined that it is in the best interests of their respective corporations and stockholders to approve the acquisition of the Company by the Parent upon the terms and subject to the conditions set forth herein; WHEREAS, in furtherance thereof, this Agreement provides for Merger Sub to commence a cash tender offer (the "OFFER") to acquire all of the issued and outstanding shares of common stock, par value S1.00 per share, of the Company (the "COMPANY COMMON STOCK") for $7.00 per share in cash (such price, or any such higher price per share as may be paid in the Offer, referred to herein as the "OFFER PRICE"); WHEREAS, the respective boards of directors of the Parent, Merger Sub, and the Company have each approved, and have each declared advisable the merger of Merger Sub with and into the Company, following consummation of the Offer, upon the terms and subject to the conditions set forth in this Agreement, whereby each issued and outstanding share of Company Common Stock, other than shares owned by the Parent, the Parent's Affiliates (including Merger Sub), the Company or the Company's Subsidiaries, and other than Dissenting Shares (as defined below), will be converted into the right to receive the Merger Consideration (as defined below); WHEREAS, the respective boards of directors of the Parent, Merger Sub, and the Company have each determined that the Offer and the Merger (as defined below) are consistent with, and in furtherance of, their respective business strategies and goals; WHEREAS, simultaneously with the execution of this Agreement Merger Sub and certain of the Company's stockholders have entered into a stock purchase agreement (the "STOCK PURCHASE AGREEMENT"); and WHEREAS, the board of directors of the Company has determined that this Agreement and the consideration to be paid for each share of Company Common Stock in the Offer and the Merger are fair to the Company's stockholders and has recommended that the stockholders accept the Offer, tender their shares of Company Common Stock pursuant thereto, and vote in favor of the Merger and the adoption of the Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements in this Agreement, the parties, intending to be legally bound, agree as follows: 2 EXECUTION COPY ARTICLE I THE OFFER AND THE MERGER 1.1 THE OFFER. (a) Provided that this Agreement shall not have been terminated in accordance with Section 6.1 of this Agreement and none of the events set forth in Annex I shall have occurred and be continuing, then as promptly as reasonably practicable following the execution of this Agreement (but in no event later than fifteen (15) Business Days following the date hereof), Merger Sub shall, and Parent shall cause Merger Sub to, commence (within the meaning of Rule 14d-2 under the Exchange Act) the Offer to purchase for cash all the shares of Company Common Stock at the Offer Price; provided, however, that Merger Sub shall not commence the Offer prior to the tenth Business Day following the date hereof without the prior written consent of the Company. The obligations of Merger Sub to, and of Parent to cause Merger Sub to, accept for payment, and pay for, shares of Company Common Stock validly tendered pursuant to the Offer on or prior to the final expiration of The Offer and not withdrawn shall be subject only to (i) there being validly tendered and not withdrawn prior to the final expiration of the Offer that number of shares of Company Common Stock which, together with the shares of Company Common Stock then beneficially owned by the Parent or Merger Sub (including, without limitation, the shares of Company Common Stock to be sold to Merger Sub pursuant to the Stock Purchase Agreement), represents at least 66-2/3% of the outstanding shares of Company Common Stock (the "MINIMUM CONDITION") and (ii) the other conditions set forth in Annex I hereto. Subject to the terms of the Offer and this Agreement, and the prior satisfaction or waiver by Parent or Merger Sub of the Minimum Condition and the other conditions set forth in Annex I hereto as of any expiration date of the Offer, Merger Sub shall, in accordance with the terms of the Offer, promptly after the expiration of the Offer, consummate the Offer and accept for payment and pay for, and Parent shall cause Merger Sub to accept for payment and pay for, all shares of Company Common Stock validly tendered and not withdrawn pursuant to the Offer (subject to the applicable provisions of Rule 14d-l 1 under the Exchange Act, to the extent applicable). The Offer shall be made by means of an offer to purchase (the "OFFER TO PURCHASE") containing the terms set forth in this Agreement and having only the Minimum Condition and the other conditions set forth in Annex I hereto. Each of Parent and Merger Sub agrees that the Offer to Purchase will provide a statement in all appropriate places therein to the effect that Merger Sub's obligation to purchase shares of Company Common Stock pursuant to the Offer is not conditioned on any financing arrangements or subject to any financing condition. Unless extended in accordance with this Section 1.1(a), the Offer shall provide for an initial expiration date of twenty (20) Business Days following the commencement of the Offer (the "INITIAL EXPIRATION DATE"). Parent and Merger Sub shall have the right to extend the Offer for one ten Business Day period for any reason in their sole discretion. The latest time and date at which the Offer, as may be extended beyond the Initial Expiration Date as permitted or required by this Section 1.1(a), shall expire shall not be later than the Outside Date (except as may otherwise be required by rule, regulation, interpretation, or position of the SEC or its staff) and is herein referred to as the "EXPIRATION DATE." Merger Sub expressly reserves the right to waive or modify the terms of the Offer, except that, without the prior written consent of the Company (such consent to be authorized by the board of directors of the Company or a duly authorized committee thereof), neither Parent nor Merger Sub shall (i) amend or waive satisfaction of the Minimum Condition, (ii) decrease the Offer Price, (iii) change the form of consideration payable in the Offer, (iv) decrease the number of shares of Company Common Stock sought in the Offer, (v) impose additional conditions to the Offer, (vi) amend any of the 3 EXECUTION COPY conditions set forth in Annex I in any manner adverse to the holders of the shares of Company Common Stock, (vii) amend any other term of the Offer in a manner that is adverse to the holders of the shares of Company Common Stock, or (viii) extend the Offer except as expressly permitted or required by this Section 1.1(a). Each of Patent and Merger Sub agree that they shall not terminate or withdraw the Offer unless, at the Initial Expiration Date, the Minimum Condition shall not have been satisfied or the other conditions to the Offer described in Annex I shall not have been satisfied or earlier waived. Notwithstanding the foregoing: (1)without limiting the right of Parent and Merger Sub to extend the Offer as permitted by this Section 1.1(a), provided that this Agreement shall not have been terminated in accordance with Section 6.1 hereof, at the request of the Company, Merger Sub will, and Parent will cause Merger Sub to, extend the Offer for one or more periods of ten (10) Business Days each, but in no event beyond the Outside Date, if the conditions set forth in Annex I hereto are not satisfied or, to the extent permitted by this Agreement, waived at or prior to the time the Offer otherwise would expire, except to the extent any such conditions that have not been waived are incapable of being satisfied. (2) Parent and Merger Sub may (but shall not be obligated to), without the consent of the Company, provided that this Agreement shall not have been terminated in accordance with Section 6.1 hereof, extend the Offer (A) beyond the Initial Expiration Date from time to time, for such period or periods of time, no later than the Outside Date, as Parent or Merger Sub reasonably believes are necessary to cause the conditions to be satisfied if, at or prior to the time the Offer otherwise would expire, any conditions to the Offer shall not have been satisfied or, to the extent permitted by this Agreement, waived; (B) for any period required by any rule, regulation, interpretation, or position of the SEC or the staff thereof applicable to the Offer; and (C) beyond the latest Expiration Date that would otherwise be permitted by this Section 1.1 (a) on up to two occasions for periods of ten (10) Business Days each, but in no event beyond the Outside Date, if, on such Expiration Date, all of the conditions to the Merger Sub's obligation to accept for payment and pay for shares of Company Common Stock validly tendered pursuant to the Offer are satisfied or, to the extent permitted by this Agreement, waived, but the number of shares of Company Common Stock validly tendered (and not withdrawn) pursuant to the Offer, together with the Company Common Stock then beneficially owned by Parent and Merger Sub (including, without limitation, the shares of Company Common Stock to be sold to Merger Sub pursuant to the Stock Purchase Agreement), represents less than ninety percent (90%) of the outstanding shares of Company Common Stock; provided, however, that Merger Sub's decision to extend the Offer in the case of this clause (C) shall constitute a waiver of the conditions set forth in clauses (b) and (d) of Section (ii) of Annex I and of its right to terminate the Agreement under Section 6.1 (f) of the Agreement (except, in the case of Section 6.1(f), any failure by the Company to perform a covenant or agreement), but, in each case, such 4 EXECUTION COPY waiver shall apply only to the extent that any Material Adverse Effect or any breach of representation or Warranty giving rise to the failure of such condition or to such termination right resulted from events that occurred after the time of such extension. In the event the Minimum Condition is satisfied and Merger Sub purchases the shares of Company Common Stock tendered pursuant to the Offer, Merger Sub may, in its sole discretion, provide a subsequent offering period in accordance with Rule 14d-11 promulgated under the Exchange Act (a "SUBSEQUENT OFFERING PERIOD"). In addition, Merger Sub may increase the Offer Price (but not change any other condition to the Offer) and extend the Offer to the extent required by law in connection with such increase, in each case in its sole discretion and without the consent of the Company. (b) As soon as practicable on the date the Offer is commenced, Parent and Merger Sub shall file with the SEC A Tender Offer Statement on Schedule TO with respect to the Offer (together with all amendments and supplements thereto and including the exhibits thereto, the "SCHEDULE TO"). The Schedule TO will comply as to form in all material respects with the provisions of all applicable federal securities Laws and will contain or incorporate by reference the summary term sheet required thereby and, as exhibits, the Offer to Purchase, forms of the related letters of transmittal, and summary advertisement, and all other ancillary Offer documents (which documents, together with any amendments and supplements thereto, and any other SEC schedule or form which is filed in connection with the Offer and related transactions, are referred to collectively herein as the "OFFER DOCUMENTS"). Parent and Merger Sub further agree to take all steps necessary to cause the Offer Documents to be filed with the SEC and to be disseminated to the holders of the Company Common Stock, together with the Schedule 14D-9, in each case, as and to the extent required by applicable federal securities Laws The Company shall provide Parent and Merger Sub with any information regarding the Company or its Subsidiaries that may be required by applicable Law or reasonably requested by Parent or Merger Sub in order to effectuate the preparation and filing of the Offer Documents. Parent and Merger Sub agree promptly to correct the Schedule TO or the Offer Documents if and to the extent that any information shall have become false or misleading in any material respect or as otherwise required by Law (and the Company, with respect to written information supplied by it specifically for use in the Schedule TO or the Offer Documents, shall promptly notify Parent of any required corrections of such information and shall cooperate with Parent and Merger Sub with respect to correcting such information). Parent and Merger Sub further agree to take all steps necessary to cause the Schedule TO, as so corrected, to be filed with the SEC and the Offer Documents, as so corrected, to be disseminated to the holders of the Company Common Stock as required by applicable federal securities Laws. Parent and Merger Sub shall consult with the Company and its counsel with respect to the Offer Documents and shall afford the Company and its counsel a reasonable opportunity to review and comment on the Offer Documents and all documents required to be furnished by Parent or Merger Sub under Rules 14d-2(b) and 14a-12 of the Exchange Act before they are transmitted to or filed with the SEC or disseminated to the Company's stockholders, and Parent and Merger Sub shall consider any such comments in good faith. In addition, Parent and Merger Sub agree to provide in writing to the Company and its counsel any comments or communications, written or oral, that Parent, Merger Sub or their counsel may receive from time to time from the SEC or its staff with respect to the Offer Documents promptly after Parent's or Merger Sub's, as the case may be, receipt of such comments. Prior to responding to any such comments, Parent and Merger Sub shall consult with 5 EXECUTION COPY the Company and its counsel and provide them with a reasonable opportunity to review and participate in any response to any such comments. Parent and Merger Sub shall consider in good faith any suggestions from the Company or its counsel with respect to such comments or response. Parent and Merger Sub shall provide the Company and its counsel with copies of all correspondence between the Parent, Merger Sub, their counsel, or their representatives, on the one hand, and the SEC or its staff, on the other hand. (c) Parent shall provide or cause to be provided to Merger Sub on a timely basis all of the funds necessary to purchase all of the shares of Company Common Stock that Merger Sub becomes obligated to purchase pursuant to the Offer. Prior to the time the Offer expires, the Parent shall appoint a bank or trust company in the United States reasonably acceptable to the Company to act as the paying agent hereunder (the "PAYING AGENT") to receive in trust the funds to which stockholders of the Company shall become entitled upon validly tendering and not withdrawing prior to the final expiration of the Offer their shares pursuant to the Offer. At or prior to the time the Offer expires, Parent shall cause to be deposited with the Paying Agent the aggregate amount necessary for payment in full of all consideration that holders of Company Common Stock are entitled to receive pursuant to the Offer. (d) If this Agreement has been terminated pursuant to Section 6.1 of this Agreement, Merger Sub shall, and the Parent shall cause Merger Sub to, promptly terminate the Offer without accepting any of the shares of Company Common Stock for payment. 1.2 COMPANY ACTIONS. (a) Simultaneously with the filing of the Offer Documents with the SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (together with all amendments, supplements, and exhibits thereto, the "SCHEDULE 14D-9"). The Schedule 14D-9 will comply as to form in all material respects with the provisions of all applicable federal securities Laws. The Schedule 14D-9 shall, subject to the provisions of Section 4.3(e) of this Agreement, contain the recommendation of the Company's board of directors that the stockholders of the Company accept the Offer, tender their shares of Company Common Stock to Merger Sub pursuant to the Offer, and approve and adopt this Agreement and the Merger (the "COMPANY RECOMMENDATION"). The Parent and Merger Sub shall provide the Company with any information regarding Parent, Merger Sub, or their Affiliates that may be required by applicable Law or reasonably requested by the Company in order to effectuate the preparation and filing of the Schedule 14D-9. The Company agrees to cause the Schedule 14D-9 to be filed with the SEC and disseminated to the holders of shares of Company Common Stock, together with the Offer Documents, in each case as and to the extent required by applicable federal securities Laws. The Company, on the one hand, and Parent and Merger Sub, on the other hand, agree promptly to correct any information provided by it for use in the Schedule 14D-9 if it shall have become false or misleading in any material respect or as otherwise required by Law. The Company further agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to the holders of the Company Common Stock as required by applicable federal securities Laws. The Company shall consult with Parent, Merger Sub, and their counsel with respect to the Schedule 14D-9 and shall afford Parent, Merger Sub, and their counsel a reasonable opportunity to review and comment on the Schedule 14D-9 before it is filed with the SEC. The Company shall consider any such comments in good faith. In addition, the Company agrees to provide in writing to Parent, Merger Sub and their counsel any comments or communications, written or oral, that the 6 EXECUTION COPY Company or its counsel may receive from time to time from the SEC or its staff with respect to the Schedule 14D-9 promptly after the Company's receipt of such comments. Prior to responding to any such comments, the Company shall consult with Parent, Merger Sub and their counsel and provide them with a reasonable opportunity to review and participate in any response to such comments. The Company shall consider in good faith any suggestions from Parent, Merger Sub or their counsel with respect to such comments or response. The Company shall provide the Parent, Merger Sub, and their counsel with copies of all correspondence between the Company, its counsel, or its representatives, on the one hand, and the SEC or its staff, on the other hand. (b) In connection with the Offer, the Company will as promptly as practicable furnish or cause to be furnished to Merger Sub any available listing or electronic file containing the names and addresses of the record holders of shares of Company Common Stock as of a recent date, together with copies of security position listings, and shall promptly furnish or cause to be furnished to Merger Sub such information and assistance (including, but not limited to, updated lists of holders of shares of Company Common Stock and updated listings of security positions) as Merger Sub may reasonably request for purposes of communicating the Offer to the Company's stockholders. Except for such steps as are reasonably necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer, the Parent and Merger Sub shall hold in confidence the information contained in any such listings and files, shall use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, shall, upon request, deliver to the Company all copies of such information then in their possession or in the possession of their agents or representatives. Parent and Merger Sub shall take such, action as is necessary to disseminate the Offer Documents and Company Recommendation to holders of the Company Common Stock. (c) Promptly upon the payment by Merger Sub for shares of Company Common Stock pursuant to the Offer and the Stock Purchase Agreement and from time to time thereafter, Merger Sub shall be entitled to designate such number of directors of the Board of Directors of the Company (the "BOARD"), rounded to the closest whole number, as is equal to the product of the number of directors on the Board, after giving effect to such representation, and the percentage of the outstanding Shares owned by Merger Sub, and the Company, upon request of Merger Sub, subject to applicable law and the Company's Certificate of Incorporation, shall promptly, at the Company's election, either increase the size of the Board or secure the resignation of such number of directors as is necessary to enable Merger Sub's designees to be elected or appointed to the Board and shall use its reasonable best efforts to cause Merger Sub's designees to be so elected or appointed. (d) The Company's obligations to appoint designees to the Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. The Company shall promptly take all actions required pursuant to Section 14 (f) and Rule 14f-1 and shall include in the Schedule 14D-9 such information with respect to the Company and its officers and directors as is required under Section 14 (f) and Rule 14f-1 so long as Parent and Merger Sub have provided the Company on a timely basis all information required to be provided pursuant to the last sentence of this subsection (d). Parent and Merger Sub will provide the Company with all necessary assistance, in order to fulfill the Company's obligations under this Section 1.2(d), and will supply to the Company in writing and be solely responsible for any information with respect 7 EXECUTION COPY to either of them and their nominees, officers, directors and affiliates required by Section 14 (f) and Rule 14f-l (e) Anything in this Section 1.2 to the contrary notwithstanding, if Merger Sub's designees are elected or appointed to the Company's Board, then until the Effective Time, the Company's Board shall have at least two directors, or such greater number as may be required by the rules of the American Stock Exchange, who are Independent Directors. For purposes of this Agreement, the term "Independent Director" shall mean a member of the Company's Board (i) who (except as otherwise provided in this subsection (e)) was a member thereof on the date hereof, (ii) who is not an Affiliate or Associate of Parent or Merger Sub, (iii) who is not an employee of the Company or any of its Subsidiaries, and (iv) who is otherwise considered an independent director within the meaning of the rules of the American Stock Exchange. If the number of Independent Directors shall be reduced below two, or such greater number as may be required by the rules of the American Stock Exchange, the remaining Independent Director(s) shall be entitled to designate persons to fill such vacancies who are not Affiliates or Associates of Parent or Merger Sub and who otherwise are considered independent directors within the meaning of the rules of the American Stock Exchange, and such persons shall be deemed to be Independent Directors for purposes of this Agreement. If there shall be no Independent Directors, then the other directors shall use commercially reasonable efforts to designate two persons, or such greater number as may be required by the rules of the American Stock Exchange, to fill such vacancies who are not Affiliates or Associates of Parent or Merger Sub and who otherwise are considered independent directors within the meaning of the rules of the American Stock Exchange, and such persons shall be deemed to be Independent Directors for purposes of this Agreement. Following the purchase by Merger Sub of shares of Company Common Stock pursuant to the Offer, and prior to the Effective Time, Parent and Merger Sub shall use their reasonable best efforts to ensure that at least two Independent Directors (or such greater number as may be required by the rules of the American Stock Exchange) serve as directors of the Company until the Effective Time and neither Parent nor Merger Sub will take any action to cause any Independent Director to be removed as a director of the Company except for cause. The Independent Directors shall form a committee that, during the period from the time shares of Company Common Stock are accepted for purchase pursuant to the Offer until the Effective Time, shall, to the extent permitted by the General Corporation Law of the State of Delaware (the "DGCL") and this Agreement, have the sole power and authority, by a majority vote of such Independent Directors, to cause the Company to (a) agree to amend this Agreement or to extend the time for the performance of any of the obligations or other acts of the Parent or Merger Sub under the Offer, the Merger or this Agreement, or (b) exercise or waive any of the Company's rights, benefits, or remedies under this Agreement except for the right to terminate the Agreement. In addition, during the period from the time shares of Company Common Stock are accepted for purchase pursuant to the Offer until the Effective Time, any (a) amendment to the Company's Certificate of Incorporation or Bylaws, (b) termination of this Agreement by the Company, (c) other action that could adversely affect the interests of the holders of shares of Company Common Stock (other than the Parent or Merger Sub), and (d) action specified in the immediately preceding sentence with respect to which the DGCL does not permit a committee of the Board to exercise sole power and authority, shall require, in addition to any other affirmative vote required under the DGCL or the Company's Certificate of Incorporation or Bylaws, the affirmative vote of not less than a majority of the entire Board, which majority shall include the concurrence of a majority of the Independent Directors, and neither Parent nor Merger Sub shall approve (either in its capacity as a stockholder or as a party to this Agreement, as applicable), 8 EXECUTION COPY and each shall use its reasonable best efforts to prevent the occurrence of, any such actions, unless such action shall have received the concurrence of a majority of the Independent Directors. 1.3 THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, Merger Sub shall be merged with and into the Company at the Effective Time (the "MERGER"). At the Effective Time the separate corporate existence of Merger Sub shall cease, the Company shall be the surviving corporation (sometimes referred to as the "SURVIVING CORPORATION") and shall succeed to and assume all the rights and obligations of Merger Sub in accordance with the DGCL. 1.4 CLOSING. The closing of the Merger (the "CLOSING") will take place at a time and on a date to be specified by the parties (the "CLOSING DATE"), which shall be no later than the second Business Day following the later of: (a) the expiration of the Offer (or the expiration of any Subsequent Offering Period if Merger Sub elects to provide such a Subsequent Offering Period) and (b) satisfaction or waiver of all of the conditions set forth in Article V (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), unless another time or date is agreed to by the parties. The Closing shall take place at the offices of Shapiro Forman Allen & Miller LLP at .380 Madison Avenue, New York, New York 10017, or such other location as agreed to by the parties. 1.5 EFFECTIVE TIME; FILING OF CERTIFICATE OF MERGER. Subject to the provisions of this Agreement, on the Closing Date, the parties shall cause the Merger to be consummated by filing a properly executed certificate of merger (the "CERTIFICATE OF MERGER") with the Secretary of State of the State of Delaware in accordance with the DGCL and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at the time of such filing of the Certificate of Merger with the Secretary of State of the State of Delaware, or at such later date or time as the Parent and the Company shall agree and specify in the Certificate of Merger (the "EFFECTIVE TIME"). 1.6 EFFECTS OF THE MERGER. (a) The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the DGCL. (b) At the Effective Time, (i) the certificate of incorporation of the Company shall be amended and restated to read in its entirety as set forth on Exhibit A hereto and (ii) the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation until thereafter amended in accordance with applicable law. (c) Immediately prior to the Effective Time, each of the directors of the Company shall resign such position. At the Effective Time, the directors and officers of Merger Sub immediately prior to the Effective Time shall become the initial directors and officers of the Surviving Corporation and shall hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation until his or her death, disability, resignation or removal or until his or her successor is duly elected and qualified, as the case may be. 9 EXECUTION COPY (d) If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that consistent with the terms Of this Agreement any deeds, bills of sale, assignments, assurances in Law or any other acts or things are necessary or desirable (i) to continue, vest, perfect or confirm, of record or otherwise, the Surviving Corporation's right, title or interest in, to or under any of the rights, properties, privileges, franchises or assets of either of the constituent corporations acquired or to be acquired by the Surviving Corporation by reason of, as a result of, or in connection with, the Merger, or (ii) otherwise to carry out the purposes of this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of either of such constituent corporations, all such deeds, bills of sale, assignments and assurances, and to take and do, in the name and on behalf of each of such constituent corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties, privileges, franchises or assets in the Surviving Corporation or otherwise to carry out the intent of this Agreement. 1.7 THE PROXY STATEMENT; SPECIAL MEETING; COMPANY RECOMMENDATION. (a) If, after consummation of the Offer, a meeting of the Company's stockholders is necessary to consummate the Merger and the Merger has not become effective without a meeting of stockholders pursuant to Section 1.8(a) hereof and has not been approved by the Stockholders' Written Consent pursuant to Section 1.8(b) hereof, then: (1) As promptly as practicable after the consummation of the Offer and if required by the Exchange Act, the Company shall prepare and cause to be filed with the SEC a preliminary Proxy Statement in connection with the Special Meeting (as defined below), and shall use reasonable efforts to have the Proxy Statement cleared by the SEC as soon as possible. As promptly as reasonably practicable after the Proxy Statement has been cleared by the SEC, the Company shall mail the definitive Proxy Statement to stockholders of the Company. Except as permitted by Section 4.3(e), the Proxy Statement shall contain the Company Recommendation. The Parent and Merger Sub shall provide the Company with any information regarding Parent, Merger Sub, or their Affiliates that may be required by applicable Law or reasonably requested by the Company in order to effectuate the preparation and filing of the Proxy Statement. The Company shall consult with the Parent and Merger Sub with respect to the Proxy Statement and shall afford the Parent and Merger Sub reasonable opportunity to review and comment thereon prior to its finalization. The Company shall consider any such comments in good faith. If, at any time prior to the Special Meeting, any event shall occur which is required to be set forth in an amendment or supplement to the Proxy Statement, the Company or the Parent, as the case may be, shall promptly notify the other of such event. In such case, the Company, with the cooperation of the Parent and Merger Sub, will promptly prepare and mail such amendment or supplement to its stockholders, and the Company shall consult with the Parent and Merger Sub with respect to such amendment or supplement and shall afford the Parent and Merger Sub reasonably opportunity to comment thereon prior to such mailing. The Company shall consider any such comments in good faith. (2) Except as otherwise permitted in this Agreement, the Company shall take all action reasonably necessary in accordance with the DGCL, its 10 EXECUTION COPY certificate of incorporation, and its bylaws to cause a special meeting of its stockholders to be duly called, noticed and convened to consider the adoption of this Agreement (including any postponement or adjournment thereof, the "SPECIAL MEETING"). Subject to applicable Law, the Special Meeting shall be held (on a date selected by the Company in consultation with the Parent) as promptly as reasonably practicable after the acceptance of payment and purchase of Company Common Stock by Merger Sub pursuant to the Offer and the definitive Proxy Statement has been mailed to the stockholders of the Company. Notwithstanding anything to the contrary contained in this Agreement, the Company may adjourn or postpone the Special Meeting (i) to ensure that any supplement or amendment to the Proxy Statement is provided to its stockholders in advance of a vote on this Agreement, or (ii) if as of the time for the Special Meeting as set forth in the Proxy Statement there are insufficient shares of Company Common Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such Special Meeting. (b) The Parent shall cause all shares of Company Common Stock beneficially owned by the Parent or any Affiliate of the Parent or over which Parent or any of its Affiliates exercise voting control to be voted in favor of the adoption of this Agreement at the Special Meeting. (c) As soon as practicable after the Special Meeting, the Company shall deliver to Parent a certificate of its corporate secretary setting forth the voting results from the Special Meeting. 1.8 MERGER WITHOUT MEETING OF STOCKHOLDERS. (a) Notwithstanding anything in Section 1.7 of this Agreement to the contrary, if Merger Sub shall have accepted for payment pursuant to the Offer such number of shares of Company Common Stock which, when aggregated with the shares of Company Common Stock otherwise beneficially owned by the Parent or its Affiliates (including, without limitation, shares of Company Common Stock sold to Merger Sub pursuant to the Stock Purchase Agreement), represents a number of shares sufficient to enable Merger Sub (if all such shares of Company Common Stock were owned by Merger Sub) to cause the Merger to become effective without a meeting of stockholders of the Company pursuant to Section 253 of the DGCL, then the parties will take all necessary and appropriate action to cause the Merger to become effective pursuant to Section 253 of the DGCL as soon as practicable after Merger Sub accepts for payment and pays for shares tendered in the Offer (including, without limitation, causing any shares of Company Common Stock beneficially owned by Parent or any of its Affiliates but not owned directly by Merger Sub to be transferred to Merger Sub). (b) Notwithstanding anything in Section 1.7 of this Agreement to the contrary, if Merger Sub shall have accepted for payment pursuant to the Offer such number of shares of Company Common Stock which, when aggregated with the shares of Company Common Stock otherwise beneficially owned by the Parent or its Affiliates or over which any of them exercises voting control (including, without limitation, shares of Company Common Stock sold to Merger Sub pursuant to the Stock Purchase Agreement), represents a number of shares equal to not less than 66-2/3% of the then outstanding shares of Company Common Stock but less than that number of shares sufficient to enable Merger Sub (if all such shares of Company Common Stock 11 EXECUTION COPY were owned by Merger Sub) to cause the Merger to become effective without a meeting of stockholders of the Company pursuant to Section 253 of the DGCL, Merger Sub shall, and Parent shall cause its Affiliates and any record holder of Company Common Stock over which Parent or any of its Affiliates exercises voting control to, execute and deliver to the Company, in accordance with Section 228 of the DGCL, a consent or consents in writing voting all shares of Company Common Stock beneficially owned by Parent and any of its Affiliates or over which Parent or any of its Affiliates exercises voting control in favor of the approval and adoption of this Agreement and the Merger (the "STOCKHOLDERS' WRITTEN CONSENT"), Simultaneously with the filing of the Company's Schedule 14D-9, the Company shall file with the SEC an information statement on Schedule 14C pursuant to Section 14(c) of the Exchange Act and the rules and regulations promulgated thereunder (the "SCHEDULE 14C INFORMATION STATEMENT"). The Company shall use all reasonable efforts to respond as promptly as practicable to any comments of the SEC or its staff with respect to the Schedule 14C Information Statement. The Company shall promptly notify the Parent upon the receipt of any comments from the SEC or its staff or any request from the SEC or its staff for amendments or supplements to the Schedule 14C Information Statement and shall provide the Parent with copies of all correspondence between the Company and its representatives, on the one hand, and the SEC and its staff, on the other hand. Notwithstanding the foregoing, prior to filing or mailing the Schedule 14C Information Statement (or any amendment or supplement thereto) or responding to any comments of the SEC or its staff with respect thereto, the Company (i) shall consult with Parent, Merger Sub, and their counsel and provide them with a reasonable opportunity to review and comment on such document or response and (ii) shall consider any such comments in good faith. Upon Parent's request, if the Offer is consummated but the number of shares of Company Common Stock accepted for payment in the Offer, together with the shares of Company Common Stock then beneficially owned by the Parent or its Affiliates (including, without limitation, shares of Company Common Stock sold to Merger Sub pursuant to the Stock Purchase Agreement) is less than 90% of the Company Common Stock then outstanding, the Company shall cause the Schedule 14C Information Statement to be mailed to the Company's stockholders as promptly as practicable following the Expiration Date and delivery by Merger Sub of the Stockholders' Written Consent. 1.9 CONVERSION OF STOCK. As of the Effective Time, by virtue of the Merger and without any action on the part of the Company, the Parent, Merger Sub or the stockholders thereof: (a) Each share of capital stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into one fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation. (b) Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time, other than shares to be canceled in accordance with Section l.9(c) and Dissenting Shares, shall be converted into the right to receive $7.00 in cash, payable to the holder thereof, without any interest thereon (the "MERGER CONSIDERATION"), as soon as reasonably practicable after the surrender of the certificate(s) representing such Company Common Stock as provided in Section 1.10. Notwithstanding the foregoing, if Parent or Merger Sub increases the Offer Price as permitted by Section l.l(a) of this Agreement, then the Merger Consideration shall be the same cash amount as the Offer Price paid to holders in connection with consummation of the Offer. At and after the Effective Time, all shares of 12 EXECUTION COPY Company Common Stock shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a share certificate which immediately prior to the Effective Time represented shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration to be issued in consideration therefor upon surrender of such certificate in accordance with Section 1.10, or in the case of holders of Dissenting Shares, such rights as are granted pursuant to Section 26.2 of the DGCL and this Agreement. (c) Each share of Company Common Stock that is held in the Company's treasury or owned or held by any Subsidiary of the Company, the Parent, or any Affiliate of Parent shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered or deliverable in exchange therefor. 1.10 EXCHANGE OF CERTIFICATES. (a) Prior to the Effective Time, the Parent shall appoint the Paying Agent and authorize the Paying Agent to receive in trust the funds to which stockholders of the Company shall become entitled upon surrender of the certificates in accordance with this Section 1.10. At or prior to the Effective Time, Parent shall cause to be deposited with the Paying Agent the aggregate amount necessary for payment in full of all consideration that holders of Company Common Stock and Eligible Options are entitled to receive pursuant to Section 1.9 and Section 1.13, respectively, to be held for the benefit of, and distribution to, such holders in accordance with this Agreement. The Paying Agent shall agree to hold such funds (the "PAYMENT FUND") for delivery as contemplated by this Section 1.10. The Payment Fund shall be invested as directed by Parent or the Surviving Corporation pending payment thereof by the Paying Agent to holders of Company Common Stock and Eligible Options. Earnings from such investments in excess of the aggregate Merger Consideration shall be the sole and exclusive property of the Surviving Corporation, and no part of such earnings shall accrue to the benefit of the holders of Company Common Stock or Eligible Options. If for any reason (including losses) the Payment Fund is inadequate to pay the cash amounts to which holders of shares of Company Common Stock and Eligible Options shall be entitled, Parent and the Surviving Corporation Shall in all events remain liable for the payment thereof and Parent shall take all steps necessary to enable and cause the Surviving Corporation to provide to the Paying Agent on a timely basis, as and When needed after the Effective Time, cash necessary to pay for the shares of Company Common Stock converted into the right to receive cash pursuant to Section 1.9 and to pay the cash amount due to holders of Eligible Options pursuant to Section 1.13. The Payment Fund shall not be used for any purpose except as expressly provided in this Agreement. (b) As soon as reasonably practicable after the Effective Time, but in no event later than ten (10) Business Days thereafter, the Paying Agent shall mail to each holder of record of a certificate that immediately prior to the Effective Time represented shares of Company Common Stock (other than Parent, any Affiliate of Parent, the Company, any Subsidiary of the Company and any holder of Dissenting Shares): (i) a letter of transmittal (a "LETTER OF TRANSMITTAL"), which Letter of Transmittal shall specify that delivery shall be effected, and risk of loss and title to each such certificate shall pass, only upon delivery of such certificates to the Paying Agent, and contain such other provisions as the Company and Parent may reasonably specify; and (ii) instructions for use in surrendering such certificates in exchange for Merger Consideration. Thereafter, upon surrender of a certificate representing Company Common Stock for cancellation to the Paying Agent, together with a Letter of Transmittal, duly executed, and 13 EXECUTION COPY such other documents as may reasonably be required by the Paying Agent, the holder of such certificate shall (subject to applicable abandoned property, escheat and similar Laws) receive in exchange therefor the amount of cash equal to the product of (x) the Merger Consideration and (y) the number of shares of Company Common Stock represented by such certificate, and the certificate so surrendered shall be canceled. If a transfer of ownership of shares of Company Common Stock has not been registered in the transfer records of the Company, payment may be made to a Person other than the Person in whose name the certificate so surrendered is registered if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such payment shall pay any transfer or other Taxes required by reason of the payment to a Person other than the registered holder of such certificate or establish to the satisfaction of the Parent that such Taxes have been paid or are not applicable. (c) All cash paid upon the surrender of certificates representing Company Common Stock in accordance with the terms of this Article I shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock theretofore represented by such certificates, subject, however, to the Surviving Corporation's obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time that may have been declared or made by the Company on such shares of Company Common Stock and that remain unpaid at the Effective Time. If, after the Effective Time, certificates representing Company Common Stock are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be canceled and exchanged as provided in this Article I, except as otherwise provided by Law. (d) None of the Parent, Merger Sub, the Company, the Surviving Corporation or the Paying Agent shall be liable to any Person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. No Person previously entitled to any amounts payable pursuant to this Article I shall have any claim to such amount to the extent such amount has escheated or become the property of, and paid to, any Governmental Entity. At any time following six months after the Effective Time, the Surviving Corporation shall be entitled to require that the Paying Agent deliver to it any funds (including any earnings received with respect thereto) that had been made available to the Paying Agent and that have not been disbursed to holders of certificates representing Company Common Stock or holders of Eligible Options, and thereafter such holders shall be entitled to look only to the Surviving Corporation (subject to abandoned property, escheat or other similar Laws) as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their certificates. (e) The Paying Agent shall be authorized to pay the Merger Consideration attributable to any Certificate(s) representing Company Common Stock that have been lost, stolen or destroyed upon receipt of evidence of ownership of the Company Common Stock represented thereby and of appropriate indemnification and/or bond in each case reasonably satisfactory to the Surviving Corporation. (f) The Parent, the Surviving Corporation, and the Paying Agent shall be entitled to deduct and withhold from amounts otherwise payable pursuant to this Agreement to any holder of certificates previously representing Company Common Stock or to any holder of Eligible Options such amounts as the Parent, the Surviving Corporation, or the Paying Agent, respectively, reasonably determines is required to be deducted and withheld with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "CODE"), or 14 EXECUTION COPY any provision of state, local or foreign Tax Law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of such certificates or of such Eligible Options in respect of which such deduction and withholding was made by the Parent, the Surviving Corporation, or the Paying Agent. 1.11 NO FURTHER RIGHTS OR TRANSFERS. Except for the surrender of the certificate(s) in exchange for the Merger Consideration or the perfection of appraisal rights with respect to the Dissenting Shares, at and after the Effective Time, each holder of shares of Company Common Stock issued and outstanding immediately prior to the Merger shall cease to have any rights as a stockholder of the Company, and no transfer of shares of Company Common Stock issued and outstanding immediately prior to the Merger shall thereafter be made on the stock transfer books of the Surviving Corporation. 1.12 DISSENTING SHARES. (a) Notwithstanding anything in this Agreement to the contrary and unless otherwise provided by applicable Law, shares of Company Common Stock that are owned by stockholders of the Company who have properly perfected their rights of appraisal in accordance with the provisions of Section 262 of the DGCL (the "DISSENTING SHARES") shall not be converted into the right to receive the Merger Consideration, unless and until such stockholders shall have failed to perfect or shall have effectively withdrawn or lost their rights of appraisal under applicable law, but, instead, the holders thereof shall be entitled only to such rights as are granted pursuant to Section 262 of the DGCL. If any such holder shall have failed to perfect or shall have effectively withdrawn or lost such right of appraisal, each share of Company Common Stock held by such stockholder shall thereupon be deemed to have been converted into the right to receive and become exchangeable for, as of the Effective Time, the Merger Consideration, as provided in Section 1.9(b). (b) The Company shall notify the Parent of any written demands for appraisal with respect to any shares of Company Common Stock received by the Company in accordance with Section 262 of the DGCL, and any withdrawals of such written demands, and any other instruments served in connection with such written demands pursuant to the DGCL. The Company shall give Parent the opportunity to participate in all negotiations and proceedings with respect to such demands for appraisal under the DGCL consistent with the obligations of the Company thereunder, and shall keep Parent reasonably informed with respect to such negotiations or proceedings. The Company shall not, except with the prior written consent of the Parent, (x) voluntarily make any payment with respect to any such demand for appraisal, (y) offer to settle or settle any such demand for appraisal, or (z) waive any failure to timely deliver a written demand for appraisal in accordance with the DGCL. 1.13 STOCK OPTIONS AND PURCHASE PLAN. (a) As soon as practicable following the date of this Agreement, the Company shall take or cause to be taken such actions as are reasonably required to ensure that (i) each holder (each, an "OPTIONEE") of a Company Stock Option that has not previously expired or been exercised in full as of or prior to the Effective Time, whether vested or unvested (each such option, an "ELIGIBLE OPTION"), shall have the right to irrevocably elect, no later than immediately prior to the consummation of the Merger, to surrender following the consummation of the Merger any Eligible Option then held by the Optionee in exchange for the right to receive a cash 15 EXECUTION COPY payment equal to (x) the excess, if any, of (A) the Merger Consideration over (B) the exercise price per share of Company Common Stock subject to such Eligible Option, multiplied by (y) the number of shares of Company Common Stock then issuable pursuant to the unexercised portion of such Eligible Option, payable not later than five days after the Effective Time, (ii) each Optionee shall have the right to purchase, effective no later than immediately prior to the consummation of the Merger, subject to the consummation of the Merger and in accordance with the terms of the relevant plan or document, all or any part of the shares of Company Common Stock subject to any Eligible Option held by the Optionee (that has not been surrendered pursuant to (i) above), and each share of Company Common Stock so purchased shall be converted, as of the Effective Time, into the right to receive the Merger Consideration, all in accordance with Section 1.10 hereof, and (iii) each Eligible Option (with respect to which an Optionee has not exercised one of the rights set forth in subsection (i) or (ii) of this Section l-13(a)) shall following the Merger confer upon the Optionee only the right to receive upon exercise in accordance with the terms of the relevant plan or document (including payment of the aggregate exercise price), for each share of Company Common Stock that otherwise would be issuable pursuant to the unexercised portion of such Eligible Option, the Merger Consideration. (b) Prior to the Effective Time, the Company shall lake or cause to be taken such actions as are required to cause (i) the Company Stock Plans to terminate as of the Effective Time, (ii) the provisions in any other Company Benefit Plan providing for the issuance, transfer or grant of any shares of capital stock of the Company or any interest in respect of any capital stock of the Company to be terminated as of the Effective Time, and (iii) the exemption set forth in Rule 16b-3(e) under the Exchange Act to be applicable to the disposition of the Company Common Stock and Company Stock Options in or in connection with the Merger as contemplated by this Agreement by all persons who are officers or directors of the Company. 1.14 WITHHOLDING RIGHTS. The Surviving Corporation shall be entitled to deduct and withhold, or cause to be deducted and withheld, from the consideration payable pursuant to this Agreement to any holder of Company Common Stock or Eligible Options such amounts as are required to be deducted and withheld with respect to the making of such payment under the Code, or any other provision of applicable state, local or foreign Tax Law. To the extent that amounts are so deducted or withheld, such deducted and withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holders in respect of which such deduction and withholding was made. 16 EXECUTION COPY ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Parent and Merger Sub, subject to the exceptions disclosed in writing in the disclosure letter dated as of the date hereof delivered to the Parent by the Company pursuant to, and as an integral part of, this Agreement (the "COMPANY DISCLOSURE LETTER"), as follows: 2.1 ORGANIZATION, STANDING AND CORPORATE POWER. (a) Organization. Each of the Company and its Subsidiaries is a corporation or other entity duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is organized and is qualified to do business as a foreign corporation or similar entity and in good standing in the jurisdictions in which the ownership, leasing, or operation of property or the conduct of its business requires its qualification as a foreign corporation or similar entity, except where the failure so to qualify would not have a Material Adverse Effect on the Company. (b) Powers. Each of the Company and its Subsidiaries has the requisite corporate or other entity power and authority to carry on its business as it is now conducted. (c) Certificate of Incorporations and Bylaws. Prior to the date hereof, the Company has made available to the Parent complete and correct copies of its certificate of incorporation and bylaws, as currently in effect. 2.2 COMPANY RECOMMENDATION; RIGHTS AGREEMENT; TAKEOVER STATUTES. (a) Recommendation. The board of directors of the Company, at a meeting duly called and held, has (i) determined that each of the Offer, this Agreement, and the Merger contemplated hereby is advisable and in the best interests of the Company and its stockholders and is fair to the Company's stockholders and (ii) resolved to make the Company Recommendation to the Company's stockholders, and none of such determinations, approvals or resolutions has been amended, rescinded, or modified as of the date of this Agreement. (b) Rights Agreement. Subject to the accuracy of the representations and warranties contained in Sections 3.7 and 3.8 of this Agreement, the Company and the board of directors of the Company have taken all necessary action so that the approval, execution or consummation of the Offer, this Agreement, the Stock Purchase Agreement and the Merger do not and will not result in the ability of any Person to exercise any Right issued under the Rights Agreement and do not and will not cause the Rights to separate from the shares of Company Common Stock to which they are attached or to be triggered or to become exercisable. The Company and the board of directors of the Company have taken all actions necessary under the Rights Agreement so that neither the execution of this Agreement or any amendments thereto, nor the consummation of the Offer, the Stock Purchase Agreement or the Merger shall cause (i) Parent and/or Merger Sub or their respective Affiliates or Associates to become an Acquiring Person (as such terms are defined in the Rights Agreement) or (ii) a Distribution Date, a Stock Acquisition Date, or a Triggering Event (as such terms are defined in the Rights Agreement) to occur by reason of the approval, execution, or consummation of this Agreement, the Offer, or the Merger. 17 EXECUTION COPY (c) Takeover Law. Subject to the accuracy of the representations and warranties contained in Sections 3.7 and 3.8 of this Agreement, the board of directors of the Company has taken all actions required to be taken by it in order to render the restrictions on business combinations contained in Section 203 of the DGCL inapplicable to the Offer, this Agreement, the Stock Purchase Agreement and the Merger. No other state takeover, anti-takeover, moratorium, fair price, interested stockholder, business combination or similar statute or rule is applicable to the Offer, this Agreement, the Stock Purchase Agreement or the Merger other than those that may be made applicable solely by reason of Parent's or Merger Sub's (as opposed to the Company's or any of its Subsidiaries') participation in the Offer or the Merger. 2.3 SUBSIDIARIES. Section 2.3 of the Company Disclosure Letter sets forth a true and complete list of each of the Company's Subsidiaries and the manner in which the Company's ownership in such Subsidiary is held. Section 2.3 of the Company Disclosure Letter lists all subsidiaries and divisions (it being understood that a group of assets shall not be deemed to have been a "division" unless the Company considered it to be such) of the Company owned and divested by the Company since 1999 and the manner and to whom such subsidiary or division was divested. Except as noted in Section 2.3 of the Company Disclosure Letter, all of the outstanding shares of capital stock of, or other equity interests in, each Subsidiary of the Company have been validly issued, are fully paid and nonassessable and are owned directly or indirectly by the Company, free and clear of all pledges, claims, liens, charges, encumbrances, mortgages, security interests or adverse claims of any kind or nature whatsoever (collectively, "LIENS") and free of any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests, except restrictions arising under applicable securities laws. Other than the capital stock of, or other equity interests in, its Subsidiaries, and other than securities held by or through any Company Benefit Plan, the Company does not, directly or indirectly, beneficially own any securities or other beneficial ownership interests in any other entity. 2.4 CAPITALIZATION. (a) Capital Stock. The authorized capital stock of the Company consists of (i) 8,000,000 shares of common stock, par value $1.00 per share, and (ii) 100,000 shares of preferred stock, par value $1.00 per share, having such rights and preferences as the Company's board of directors may designate. As of the date hereof, 3,207,894 shares of the Company's common stock, par value $1.00 per share, are issued and outstanding; 502,415 shares of the Company's common stock, par value $1.00 per share, are held in treasury; and no shares of the Company's preferred stock, par value $1.00 per share, are outstanding. Section 2.4(a) of the Company Disclosure Letter sets forth all of the Company Stock Options and the number of shares of Company Common Stock that are issuable in respect of the Company Stock Options and the price at which each option is exercisable. (b) Issuance; Ownership. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable and not issued in violation of any preemptive rights. The Company is not a party to any voting agreement with respect to the voting of any such securities. Except for the Company Stock Options and Warrants, there are no options, warrants, conversion rights or other rights to subscribe for or purchase, or other contracts with respect to, any capital stock of the Company or its Subsidiaries and there are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Company or its Subsidiaries. 18 EXECUTION COPY (c) Voting Debt; Repurchase Obligations. As of the date hereof, (i) no bonds, debentures, notes or other Indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) are issued or outstanding, and (ii) there are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of capital stock of the Company. 2.5 AUTHORIZATION; ENFORCEABILITY. The execution and delivery by the Company of this Agreement and the performance of this Agreement and consummation of the Merger by the Company are within the corporate power and authority of the Company and have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of the Merger, to receipt of the Company Stockholder Approval. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by each of the Parent and Merger Sub, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws now or hereafter in effect generally affecting the rights of creditors and subject to general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). 2.6 NO VIOLATION OR CONFLICT. The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement and consummation of the Merger by the Company will not, except as disclosed in Section 2.6 of the Company's Disclosure Letter (i) result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation under or to the loss of a material benefit under or to the increase of obligations under any Material Contract of the Company or its Subsidiaries, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries, (ii) result in any violation of any provision of the certificate of incorporation or bylaws of the Company or the charter documents of its Subsidiaries, (iii) violate any Existing Permits of the Company or its Subsidiaries or any Law applicable to the Company or its Subsidiaries, other than, in the case of clauses (i) and (iii), any such violations, defaults, rights, losses or Liens that, individually and in the aggregate, would not (x) have a Material Adverse Effect on the Company, (y) reasonably be expected to significantly impair the ability of the Company to perform its obligations under this Agreement or (z) reasonably be expected to prevent or materially delay the consummation of the Merger. 2.7 GOVERNMENTAL APPROVALS. The execution and delivery of this Agreement by the Company do not, and the performance of this Agreement and consummation of the Merger by the Company will not, require any consent of, or filing with or notification to, any Governmental Entity, except (i) for applicable requirements, if any, of the Exchange Act, the Securities Act and state securities or "blue sky" Laws, (ii) for the filing of a certificate of merger as required by the DGCL and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (iii) where failure to obtain such Consents or make such filings or notifications would not (x) have a Material Adverse Effect on the Company, (y) reasonably be expected to significantly impair the ability of the Company to perform its obligations under this Agreement or (z) reasonably be expected to prevent or materially delay the consummation of the Merger, and (iv) as disclosed in Section 2.7 of the Company Disclosure Letter. 2.8 SEC DOCUMENTS. The Company has filed with the SEC all forms, reports, 19 EXECUTION COPY schedules, statements and other documents (including exhibits and all other information incorporated therein) required to be filed by it since September 30, 2002 (as such documents have been amended since the time of their filing, collectively, the "COMPANY SEC DOCUMENTS"). As of their respective dates or, if amended, as of the date of the last such amendment, the Company SEC Documents, including, without limitation, any financial statements or schedules included therein: (i) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) complied in all material respects with the applicable requirements of the Securities Act and the Exchange Act at the time of such filing. 2.9 FINANCIAL STATEMENTS. (a) The Company's financial statements contained in the Company SEC Documents comply in all respects with the applicable accounting requirements and the published rules and regulations of the SEC with respect thereto and have been prepared in accordance with the applicable generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be indicated therein). The Company's financial statements fairly present, in all material respects, the consolidated financial position of the Company and its Subsidiaries as of the date thereof and the consolidated results of their operations and cash flows for the periods indicated (subject, in the case of unaudited statements, to the absence of footnotes and year-end adjustments). (b) The unaudited balance sheet, results of operations and statement of cash flows of the Company for the year ended September 2004, fairly present, in all material respects, the consolidated financial position of the Company and its Subsidiaries as of the date thereof and the consolidated results of their operations and cash flows for the periods indicated (subject to the absence of footnotes and year-end adjustments). The standard cost information for the Company's products delivered to Parent prior to the execution of this Agreement were derived from the Company's accounting books and records maintained in the ordinary course of the Company's business, were prepared in accordance with the Company's past practice with respect to similar information and, on that basis, accurately reflect the cost to manufacture such products. (c) The Company and its Subsidiaries have no Liabilities having a value individually or in the aggregate in excess of $400,000, except, (i) to the extent reflected on the September 30, 2004 balance sheet (including the draft footnotes to the September 30, 2004 balance sheet delivered to Parent prior to the execution of this Agreement), (ii) Liabilities incurred in the normal and ordinary course of business of the Company since September 30, 2004, or (iii) Liabilities disclosed in Section 2.9(c) of the Company Disclosure Letter. For purposes of this Section 2.9(c), the term "Liabilities" means liabilities of any kind or nature, whether known or unknown, absolute or contingent, other than Liabilities otherwise disclosed in any other representation or warranty made in this Agreement or in any other section of the Company Disclosure Letter. 2.10 INFORMATION SUPPLIED; CONTENT OF SCHEDULE 14D-9 AND PROXY STATEMENT. (a) Information Supplied. None of the information supplied or to be supplied by the Company for inclusion or incorporation by reference in the Offer Documents will, on the date filed with the SEC, or on the date first published or sent to the Company's stockholders, or, if shares of Company Common Stock are accepted for purchase pursuant to the Offer, on the 20 EXECUTION COPY date that the Offer expires, or at the time of any amendment or supplement of the Offer Documents, in each case, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) Content of Schedule 14D-9 and Proxy Statement. The Schedule 14D-9, on the date it is filed with the SEC and, if shares of Company Common Stock are accepted for purchase pursuant to the Offer, on the date that the Offer expires, and at the time of any amendment or supplement of the Schedule 14D-9 will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent or Merger Sub. The Proxy Statement, on the date it is mailed to the stockholders of the Company, at the time of the Special Meeting, and at the time of any amendment or supplement thereof will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent or Merger Sub. The Schedule 14D-9 and the Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act. 2.11 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for changes set forth in Section 2.11 of the Company Disclosure Letter, since June 30, 2004, the Company and its Subsidiaries have conducted their businesses only in the ordinary course consistent with past practices, and since such date (i) there has not been any Material Adverse Change to the Company and (ii) no action or event listed in Section 4.1 has occurred. 2.12 LEGAL PROCEEDINGS. (a) Except as disclosed in Section 2.12(a) of the Company Disclosure Letter, (i) there are no suits, actions, proceedings, investigations, arbitrations or claims (collectively, "LEGAL PROCEEDINGS") pending or threatened in writing against or affecting the Company or any of its Subsidiaries that, individually or in the aggregate, would, if decided adversely to the Company, have a Material Adverse Effect on the Company; and (ii) there are no material judgments, settlements, decrees, injunctions, rules or orders of any Governmental Entity or arbitrator outstanding against the Company or any of its Subsidiaries that would, individually or in the aggregate, have a Material Adverse Effect on the Company. (b) The Company has delivered to Parent a complete list of all actions pending as of the date hereof and of which the Company has received notice, against the Company or any of its current or former Subsidiaries or divisions alleging injury from exposure to silica, asbestos or mixed dust, which list includes the name of the plaintiff, date of filing, and court in which each case is pending. To date, the Company's out of pocket expenditure with respect to the defense of all such claims has been less than $5,000, it being understood that such amount does not include (i) fees paid to the Company's registered agents in connection with service of process or (ii) fees and related expenses paid to Kleinbard, Bell & Brecker LLP. (c) The Company has made available to Parent all material information in the Company's possession concerning the corporate history of New Castle Refractories from the time of its acquisition in July 1963 by the Company until its disposition on July 31, 2003. 21 EXECUTION COPY 2.13 EXISTING PERMITS AND VIOLATIONS OF LAW. The Company and each of its Subsidiaries have all permits, licenses, variances, exemptions, orders, registrations and approvals of all Governmental Entities (the "EXISTING PERMITS") required by Law which are material for the conduct of the business of the Company and its Subsidiaries as currently conducted. The business of the Company and its Subsidiaries is being conducted in material compliance with applicable Law. No Governmental Entity has notified the Company or any of its Subsidiaries of its intention to conduct an investigation or review with respect to the Company or any of its Subsidiaries. 2.14 ENVIRONMENTAL. Except as set forth in Section 2.14 of the Company Disclosure Letter, (i) the Company and its Subsidiaries are in compliance in all material respects with all applicable Environmental Laws, (ii) the Company and its Subsidiaries have obtained, and are in compliance in all material respects with, all material permits, licenses, authorizations, registrations and other governmental consents required by applicable Environmental Laws, (iii) neither the Company nor any of its Subsidiaries has within the last five years received any written communication from a governmental authority or third party that alleges that the Company or any of its Subsidiaries is not in compliance with applicable Environmental Law, (iv) neither the Company nor any of its Subsidiaries has received any written communication from a governmental authority or third party that alleges that the Company or any of its current or former Subsidiaries is a potentially responsible party under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, or subject to corrective actions requirements under the Resource Conservation and Recovery Act, or other similar laws of any state or country, (v) neither the Company nor its Subsidiaries have received notice that any claims for personal injury or property damage relating to Hazardous Materials have been asserted against the Company or any of its Subsidiaries, (vi) neither the Company nor any of its Subsidiaries has assumed or otherwise agreed to be responsible for any liabilities arising under any Environmental Law, and (vii) the Company has provided to Parent and Merger Sub copies of all legal opinions, environmental reports and documents listed or referred to in Section 2.14 of the Company Disclosure Letter. The representations and warranties in this Section 2.14 are the Company's exclusive representations and warranties relating to environmental matters. 2.15 REAL ESTATE. All real property owned or leased by the Company or its Subsidiaries is listed in Section 2.15 of the Company Disclosure Letter (the "REAL ESTATE"). The Company has valid fee simple title to or valid leaseholder interests in (as the case may be) its Real Estate, free and clear of any Liens, and the Real Estate is not subject to any leases, tenancies, encumbrances or encroachments of any kind, excluding Permitted Liens, except as set forth in Section 2.15 of the Company Disclosure Letter. 2.16 TITLE TO TANGIBLE ASSETS. Each of the Company and its Subsidiaries has valid title to or leases each of the tangible assets used in the conduct of, and that are material to, the business of the Company and its Subsidiaries as presently conducted, free and clear of any Liens, except for Permitted Liens or Liens listed on Section 2.16 of the Company Disclosure Letter. 2.17 INTELLECTUAL PROPERTY. (a) The Company and its Subsidiaries have such ownership of or such rights by license or otherwise in all patents and patent applications, mask works, trademarks and service marks, trademark and service mark registrations and applications, trade names, logos, brands, titles, copyrights, subsidiary rights, copyright registrations and applications, trade secrets, 22 EXECUTION COPY names and likenesses, know-how, proprietary processes, compositions of matter, formulae, designs, computer software programs and other proprietary rights (collectively, the "INTELLECTUAL PROPERTY RIGHTS") as are necessary to conduct and permit the conduct of the business of the Company and its Subsidiaries as currently conducted, except where the failure to have such Intellectual Property Rights, individually or in the aggregate, would not have a Material Adverse Effect on the Company. (b) Section 2.17(b) of the Company Disclosure Letter sets forth a list of all (i) registered or applied for Intellectual Property Rights owned by the Company and (ii) material Intellectual Property Rights licensed or otherwise used by the Company in the conduct of its business. (c) The manufacture, advertising, sale, distribution, promotion, or offering of any products or services material to the Company now being manufactured, offered or sold by the Company did not and does not infringe the Intellectual Property Rights of others. Except as set forth on Section 2.17(c) of the Company Disclosure Letter, during the period from November 1, 2003 to the date of this Agreement, no third party has notified the Company or its Subsidiaries in writing of any claim that any activities of the Company infringe or constitute the unauthorized use of the Intellectual Property Rights of any third party. (d) Except as disclosed in Section 2.17(d) of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to or bound by any Contract (i) pursuant to which the Company or any of its Subsidiaries has assigned, transferred, licensed or granted to a third party any Intellectual Property Right on an exclusive basis or agreed to forego using or asserting rights to any Intellectual Property Rights or (ii) that contains any "most favored nation" pricing provision in favor of a third-party in connection with any Intellectual Property Right. (e) Except as disclosed in Section 2.17(e) of the Company Disclosure Letter, no third party is infringing on any material Intellectual Property Rights of the Company or its Subsidiaries. (f) The Company owns or has the right to use all software used in the conduct of its business. (g) To the Company's Knowledge, the Intellectual Property Rights of the Company and its Subsidiaries that are registered in any jurisdictions are not invalid or unenforceable, and those Intellectual Property Rights constituting trade secrets used in the conduct of the business of the Company and its Subsidiaries are non-public and have not been disclosed to third parties without commercially reasonable restrictions on further disclosure. 2.18 AGREEMENTS; DOCUMENTS; MINUTE BOOKS. (a) Material Contracts. Section 2.18(a) of the Company Disclosure Letter sets forth the following written Contracts to which the Company or any of its Subsidiaries is a party (the "MATERIAL CONTRACTS"): (i) any Contract (or group of related Contracts) not terminable upon notice within one hundred eighty (180) days (other than purchase contracts and orders for 23 EXECUTION COPY inventory in the ordinary course of business consistent with past practice) that (A) contemplates or involves the payment or delivery of cash or other consideration in an amount or having a value in excess of $100,000 in, the aggregate in any twelve month period, or (B) contemplates or involves the furnishing, performance, or receipt of services or the delivery of products or materials by or to the Company or any of its Subsidiaries having a value in excess of $100,000 in the aggregate in any twelve month period; (ii) any Contract under which the consequences of a default or termination would have a Material Adverse Effect on the Company; (iii) any Contract (or group of related Contracts) for the lease of personal property from or to third parties providing (A) for lease payments in excess of $50,000 per annum, or (B) for a term of more than one year; (iv) any Contract establishing a partnership or joint venture involving the Company or any of its Subsidiaries; (v) any Contract (or group of related Contracts) under which the Company or any of its Subsidiaries had a Lien imposed on any of their assets; (vi) any Contract for the sale of any asset of related group of assets of the Company or any of its Subsidiaries (other than sales in the ordinary course of business) having a sales value in excess of $100,000; (vii) any Contract by which The Company has agreed to indemnify and hold harmless any Person for any material liability or any liability that would be material to the Company if it became required to indemnify and hold harmless any such Person; (viii) any Contract allowing an employee to terminate his employment with the Company and receive payments from the Company upon a change in control; and (ix) any Contract with any consultant or independent contractor for professional services having a remaining term of at least one year and requiring payments of base salary or fee in excess of $75,000 per year or aggregate payments of base salary in excess of $100,000. Other than as set forth in Section 2.18(a) of the Company Disclosure Letter, the Company is not party to any Material Contract. None of the Company or any of its Subsidiaries is in violation of or in default under (nor does there exist any condition that with the passage of time or the giving of notice or both would cause such a violation of or default under) any Material Contract to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that have not and would not, individually or in the aggregate, result in a Material Adverse Effect on the Company. Each Material Contract is in full force and effect, and is a legal, valid and binding obligation of the Company or one of its Subsidiaries, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws now or hereafter in effect generally affecting the rights of creditors and subject to general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). Neither the 24 EXECUTION COPY Company nor any of its Subsidiaries is a party to any oral contract that, if reduced to written form, would be required to be listed in 2.18(a) of the Company Disclosure Letter under the terms of this Section 2.18(a). (b) Debt Instruments. Set forth in Section 2.18(b) of the Company Disclosure Letter is (i) a list of all loan or credit agreements, notes, bonds, mortgages, indentures and other agreements and instruments under which the Company or any of its Subsidiaries has incurred, assumed, or guaranteed any Indebtedness in excess of $200,000, and (ii) the respective principal amounts currently outstanding thereunder. (c) Guarantees. Except as set forth In Section 2.18(c) of the Company Disclosure Letter and other than guarantees by Subsidiaries of the Company of the Company's obligations or liabilities, none of the material obligations or liabilities of the Company or any of its Subsidiaries is guaranteed by any Person. The Company has not guaranteed the obligations of any Person other than any current Subsidiary. (d) Related Party Agreements. Except as disclosed in Section 2.18(d) of the Company Disclosure Letter, there are no outstanding loans or advances from the Company or any of its Subsidiaries currently owed by directors, officers, employees, or stockholders of the Company or any of its Subsidiaries, or by any Affiliate of any director or officer of the Company or any of its Subsidiaries, other than advances in the ordinary and usual course of business to officers and employees for reimbursable business expenses. The Company has possession of the stock certificates securing the loans made to the Company's directors, officers, and employees described in Section 2.18(d) of the Company Disclosure Letter. (e) Documents Provided. All documents listed or described in the Company Disclosure Letter have been previously furnished or made available to Parent or its representatives. All such documents furnished to Parent are correct and complete copies, and there are no amendments or modifications thereto, except as expressly noted in the Company Disclosure Letter. (f) Minute Books. The minute books of the Company and each of its Subsidiaries contain accurate records of all corporate actions taken by the directors and stockholders of the Company and each of its Subsidiaries since January 1, 2001. 2.19 INSURANCE. Section 2.19 of the Company Disclosure Letter sets forth a list of all current material policies or binders of fire, liability, product liability, workmen's compensation, vehicular, directors' and officers' and other insurance held by or on behalf of the Company or its Subsidiaries. Such policies and binders are in full force and effect, are reasonably adequate for the businesses engaged in by the Company or any of its Subsidiaries and are in conformity in all material respects with the requirements of all Material Contracts to which the Company or any of its Subsidiaries is a party and are valid and enforceable in accordance with their terms. Neither the Company nor any of its Subsidiaries is in default with respect to any provision contained in any such policy or binder nor has the Company or any of its Subsidiaries failed to give any notice or present any claim under any such policy or binder in due and timely fashion. Except as set forth in Section 2.19 of the Company Disclosure Letter, there are no outstanding unpaid claims under any such policy or binder. Neither the Company nor any of its Subsidiaries has received notice of cancellation or non-renewal of any such policy or binder. The Company has given proper notice to its insurer of all claims that individually or in the aggregate are material to 25 EXECUTION COPY the Company and its Subsidiaries. Except as disclosed in Section 2.19 of the Company Disclosure Letter, the Company has not received any notice from its insurers disclaiming coverage for any material claim of which it has provided notice to its insurers. 2.20 BENEFIT PLANS. (a) Company Benefit Plans. Section 2.20(a) of the Company Disclosure Letter contains a complete list of all "employee benefit plans" as defined in Section 3(3) of ERISA (the "COMPANY EMPLOYEE BENEFIT PLANS"), "employee pension benefit plans" as defined in Section 3(2) of ERISA (the "COMPANY EMPLOYEE PENSION PLANS"), and "employee welfare benefit plans" as defined in Section 3(1) of ERISA (together with the Company Employee Benefit Plans and the Company Pension Plans, the "COMPANY BENEFIT PLANS"), sponsored, maintained or contributed to, or required to be contributed to, by the Company. All Company Benefit Plans have been administered in compliance in all material respects with their terms and the applicable provisions of ERISA and the Code. With respect to each such Company Benefit Plan, (i) each Company Benefit Plan which is intended to be qualified within the meaning of Section 401(a) of the Code operates in all material respects in accordance with the requirements for such qualifications and is the subject of a favorable determination letter as to its qualification, and to the Company's Knowledge, nothing has occurred, whether by action or failure to act, that could reasonably be expected to cause the loss of such qualification; (ii) all contributions, premiums or other payments required under the terms of the Company Benefit Plans or Other Plans (as defined below) or under applicable Law have been made within the time required by Law and the terms of the Company Benefit Plans or Other Plans; (iii) there have been no "prohibited transactions" (as described in Section 4975 of the Code or in Part 4 of Subtitle B of Title I of ERISA) with respect to any Company Benefit Plan; and (iv) there are no inquiries, proceedings, claims or suits pending or, to the Company's Knowledge, threatened by any Governmental Entity or by any participant or beneficiary against any of the Company Benefit Plans, the assets of any of the trusts under such Company Benefit Plans or the Company Benefit Plan sponsor or the Company Benefit Plan administrator, or against any fiduciary of any of such Company Benefit Plans with respect to the design or operation of the Company Benefit Plans, other than routine claims for benefits. (b) Multiemployer Plans. Neither the Company nor any entity required to be aggregated with the Company under Section 414(b), (c), (m), or (o) of the Code ("ERISA AFFILIATE") contributes (or is obligated to contribute) to a "multiemployer plan" as such term is defined in ERISA Section 3(37) and, except as set forth in Section 2.20(b) of the Company Disclosure Letter, neither the Company nor any ERISA Affiliate has contributed or been obligated to contribute to such a plan during the six-year period ending on the Closing Date. (c) Unsatisfied Liabilities. There are no unsatisfied liabilities to participants, the IRS, the United States Department of Labor ("DOL"), the Pension Benefit Guaranty Corporation ("PBGC") or to any other Person that have been incurred as a result of the termination of any Company Benefit Plan maintained by the Company or any ERISA Affiliate since January 1, 2001. With respect to each Company Benefit Plan maintained by the Company or any ERISA Affiliate which is subject to the minimum funding requirements of Part 3 of Subtitle B of Title I of ERISA or subject to Section 412 of the Code, (i) there does not exist any "accumulated funding deficiency" within the meaning of Section 302 of ERISA or Section 412 of the Code, whether or not waived; (ii) no "reportable event," as defined in Section 4043(c) of 26 EXECUTION COPY ERISA for which notice has not been waived by the regulations issued under such Section has occurred; and (iii) all premiums to the PBGC have been timely paid in full. (d) Consummation of the Transactions. Except as disclosed in Section 2.20(d) of the Company Disclosure Letter, neither the execution of this Agreement nor the consummation of the Merger will, either alone or in combination with another event, (i) entitle any current or former employee, officer, director, consultant or agent of the Company to severance pay, unemployment compensation or any other payment, or (ii) accelerate the time of payment or vesting of, or increase the amount of, compensation or benefits due to any such individual. (e) Continuing Coverage. The Company and its ERISA Affiliates are in compliance in all material respects with respect to the "continuation coverage requirement" of "group health plans" as set forth in Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA (sometimes referred to as "COBRA") with respect to any Company Benefit Plan maintained by the Company or any ERISA Affiliate to which such continuation coverage requirements apply. The Company and its ERISA Affiliates are in compliance in all material respects with respect to the health insurance obligations imposed by Section 9801 of the Code and Part 7 of Subtitle B of Title I of ERISA with respect to any Company Benefit Plan to which such insurance obligations apply. Neither the Company nor any ERISA Affiliate has contributed to a nonconforming group health plan (as defined in Section 5000(c) of the Code) and no ERISA Affiliate has incurred a Tax under Section 5000(a) of the Code that is or is reasonably expected to become a liability of the Company or an ERISA Affiliate. Other than such health continuation coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA and except as disclosed in Section 2.20(e) of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries maintains retiree life or retiree health plans providing for continuing coverage for any employee or any beneficiary of an employee after the employee's termination of employment. (f) Other Plans. Section 2.20(f) to the Company Disclosure Letter lists each other employee benefit plan, program or arrangement of any kind maintained by the Company or any of its Subsidiaries that is not a Company Benefit Plan (the "OTHER PLANS") to which the Company contributes or has any obligation to contribute, or with respect to which the Company has any liability or potential liability. Each Other Plan (and each related trust, insurance contract, or fund) of the Company has been maintained, funded and administered in all material respects in accordance with the terms of such Other Plan and the terms of any applicable collective bargaining agreement and complies in form and in operation in all material respects with the requirements of all applicable Laws. (g) Title IV Plans. Except as disclosed in Section 2.20(g) of the Company Disclosure Letter, neither the Company nor any ERISA Affiliate maintains, contributes to, has any obligation to contribute to, or has any liability, whether direct or indirect (including withdrawal liability as defined in Section 4201 of ERISA) under or with respect to any plan covered by Title IV of ERISA, nor has the Company nor any ERISA Affiliate maintained, contributed to, had any obligation to contribute to, or had any liability, whether direct or indirect (including withdrawal liability as defined in Section 4201 of ERISA) under or with respect to any plan covered by Title IV of ERISA in the past seven years. Except as disclosed in Section 2.20(g) of the Company Disclosure Letter, no Company Benefit Plan of the Company or any ERISA Affiliate has been completely or partially terminated under Title IV of ERISA; nor has 27 EXECUTION COPY any Plan covered by Title IV of ERISA been the subject of a reportable event (as defined in ERISA and PBGC regulations) in the past seven years. The Company and any ERISA Affiliates have not incurred, and to the Company's Knowledge do not have any reason to expect that they will incur, any liability to the PBGC or any other violation under Title IV of ERISA (including any withdrawal liability as defined in ERISA Section 4201) or under the Code with respect to any Plan or under COBRA. There are no Liens with respect to any Plan, including Liens pursuant to Sections 302 and 4068 of ERISA and Section 412 of the Code. (h) International Plans. Each compensation and benefit plan required to be maintained or contributed to by the Law or applicable rule of the relevant jurisdiction outside of the United States (the "COMPANY INTERNATIONAL PLANS") is listed in Section 2.20(h) of the Company Disclosure Letter. As regards each such Company International Plan, unless disclosed in Section 2.20(h) of the Company Disclosure Letter, (i) each of the Company International Plans is in compliance in all material respects with the provisions of the Laws of each jurisdiction in which each such Company International Plan is maintained, to the extent those Laws are applicable to the Company International Plans; (ii) all contributions to, and payments from, the Company International Plans which may have been required to be made in accordance with the terms of any such Company International Plan, and, when applicable, the Law of the jurisdiction in which such Company International Plan is maintained, have been timely made or shall be made by the Closing Date, and all such contributions to the Company International Plans, and all payments under the Company International Plans, for any period ending before the Closing Date that are not yet, but will be, required to be made, are reflected as an accrued liability in the most recent audited financial statements in the Company SEC Documents; (iii) there are no pending investigations by any Governmental Entity involving the Company International Plans of which the Company has received notice, and no pending claims (except for claims for benefits payable in the normal operation of the Company International Plans), suits or proceedings against any Company International Plan or asserting in writing any rights or claims to benefits under any Company International Plan; and (iv) the consummation of the Merger will not by itself create or otherwise result in any liability with respect to any Company International Plan, other than the triggering of payment to participants. 2.21 LABOR MATTERS. (a) Agreements; Employee Relations. Except as set forth in Section 2.21 (a) of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement with employees or other Material Contract with a labor union or labor organization There are no strikes or lockouts by or with respect to any employee of the Company or any of its Subsidiaries. To the Knowledge of the Company, there is no union organizing effort pending or threatened against the Company or any of its Subsidiaries. (b) Proceedings. Except as disclosed in Section 2.21(b) of the Company Disclosure Letter, there is no litigation pending or threatened in writing against the Company or any of its Subsidiaries, at law or in equity, alleging a violation of any applicable Law, rule or regulation respecting employment and employment practices, terms and conditions of employment and wages and hours, or unfair labor practice. Except as disclosed in Section 2.21(b) of the Company Disclosure Letter, there is no unfair labor practice or labor arbitration proceeding pending or, to the Knowledge of the Company, threatened against the Company or 28 EXECUTION COPY any of its Subsidiaries relating to their business. Neither the Company nor any of its Subsidiaries has any liabilities under the Worker Adjustment and Retraining Notification Act as a result of any action taken by the Company. (c) Compliance with Laws. The Company and its Subsidiaries are in compliance in all material respects with all applicable Laws respecting (i) employment and employment practices, (ii) terms and conditions of employment and wages and hours, and (iii) unfair labor practices. All of the Company's products were produced in compliance in all material respects with all applicable requirements of (x) Sections 6, 7 and 12 of the Fair Labor Standards Act, as amended (the "FLSA"), and all regulations and orders of the DOL issued under Section 14 thereof; (y) state and local Laws pertaining to child labor, minimum wage and overtime compensation; and (z) with respect to merchandise (including components thereof) manufactured outside the United States, the wage and hour Laws of the country of manufacture and without the use of child, prison or slave labor. The Company has in effect a program of monitoring any sub-contractors who performed work for it in connection with the production of merchandise for compliance with the FLSA and comparable state, local and foreign Laws. (d) Current Compensation. Section 2.21(d) of the Company Disclosure Letter sets forth the current salary and benefits of the executive officers listed in Section 2.21(d) of the Company Disclosure Letter. 2.22 TAXES. (a) Tax Returns. For all years for which the applicable statutory period of limitations has not expired, the Company and each of its Subsidiaries have filed all material Tax Returns (including, but not limited to, income, franchise, sales, payroll, employee withholding and social security and unemployment) which were required to be filed by them and all such returns are complete and correct in all material respects, or requests for extensions to file such Tax Returns have been timely filed, granted and have not expired. The Company and each of its Subsidiaries have paid (or caused to be paid) all Taxes shown as due on such Tax Returns. The most recent financial statements contained in Company SEC Documents reflect an adequate reserve (in addition to any reserve for deferred Taxes established to reflect timing differences between book and Tax income) for all Taxes not yet due and payable by the Company and its Subsidiaries for all taxable periods and portions thereof accrued through the date of such financial statements. (b) Deliveries. The Company has made available to Parent correct and complete copies of all Tax Returns and Tax reports of the Company filed for all periods not barred by the applicable statute of limitations, through the date hereof. (c) Audits. To the Company's Knowledge, no Tax Return of the Company or any of its Subsidiaries is under audit or examination by any Taxing authority, and no written notice of such an audit or examination has been received by the Company or any of its Subsidiaries. There is no material deficiency, refund litigation, proposed adjustment or matter in controversy with respect to any Taxes due and owing by the Company or any of its Subsidiaries. Except as set forth in Section 2.22(c) of the Company Disclosure Letter, the federal income Tax Returns of the Company and each of its Subsidiaries consolidated in such Tax Returns have been either examined by and settled with the IRS or closed by virtue of the applicable statute of 29 EXECUTION COPY limitations, and no requests for waivers of the time to assess any such Taxes are pending. (d) Liens. There are no Tax Liens upon any assets or properties of the Company or any of its Subsidiaries necessary for the conduct of their respective businesses as currently conducted, except for Liens for current Taxes not yet due and payable and except for such claims which, individually or in the aggregate, do not exceed $200,000. (e) Income After the Effective Time. Except as disclosed in Section 2.22(e) of the Company Disclosure Letter, for federal income tax purposes, neither the Company nor any of its Subsidiaries will be required to include in a taxable period ending after the Effective Time taxable income attributable to income that accrued (for purposes of the financial statements of the Company included in Company SEC Documents) in a prior taxable period but was not recognized for tax purposes in any prior taxable period as a result of the installment method of accounting, the completed contract method of accounting, the long-term contract method of accounting, the cash method of accounting or Section 481 of the Code or for any other reason. 2.23 VOTE REQUIRED. If the Merger is not approved pursuant to Section 253 of the DGCL as provided in Section 1.8(a) hereof, then subject to the accuracy of the representations and warranties of Parent and Merger Sub in Sections 3.7 and 3.8 of this Agreement, following consummation of the Offer, the affirmative vote or consent of the holders of not less than 66-2/3 percent of the voting power of all outstanding shares of Company Common Stock entitled to vote with respect to the Merger in favor of the Merger (the "COMPANY STOCKHOLDER APPROVAL") is the only vote of the holders of any class or series of the Company's capital stock necessary to approve this Agreement and the Merger. 2.24 BROKERS' AND FINDERS' FEES. Except as described in Section 2.24 of the Company Disclosure Letter, the Company has not incurred any brokers', finders', investment bankers' or any similar fee in connection with the Offer or the Merger. Prior to the date of this Agreement, the Company has made available to the Parent correct and complete copies of all agreements under which any such fees are payable and all indemnification and other agreements related to the engagement of the Persons to whom such fees are payable. 2.25 FAIRNESS OPINION. The Company has received the written opinion of Sheldrick, McGehee & Kohler, Inc. to the effect that, as of the date of this Agreement, based upon and subject to the assumptions and limitations set forth in such opinion, the cash consideration to be received in the Offer and the Merger by the Company's stockholders (other than Parent and its Affiliates) is fair from a financial point of view to such stockholders. 2.26 INTERESTS OF OFFICERS AND DIRECTORS. None of the officers or directors of the Company or any of its Subsidiaries has any material interest in any property, real or personal, tangible or intangible, used in or pertaining to the business of the Company or any of its Subsidiaries, except for the normal rights of a stockholder and rights under the Company Benefit Plans and the Company Stock Options. 2.27 ABSENCE OF QUESTIONABLE PAYMENTS. Neither the Company nor any of its Subsidiaries nor any director, officer, agent, employee or other Person acting on behalf of the Company or any of its Subsidiaries, has used any corporate or other funds for unlawful contributions, payments, gifts, or entertainment, or made any unlawful expenditures relating to political activity to government officials or others or established or maintained any unlawful or 30 EXECUTION COPY unrecorded funds in violation of Section 30A of the Exchange Act. Neither the Company nor any of its Subsidiaries nor, to the Company's Knowledge, any current director, officer, agent, employee or other Person acting on behalf of the Company or any of its Subsidiaries, has accepted or received any unlawful contributions, payments, gifts or expenditures. 2.28 ANTI-DUMPING NOTIFICATION. The Company received notification (the "ANTI- DUMPING NOTIFICATION") dated November 26, 2004 from the United States Customs and Border Protection that the Company would receive, within fifteen (15) days of the notice, a check in the amount of $1,113,853.28 in satisfaction of its "Continued Dumping and Subsidiary Offset Claim." The Company has received no notice that amends, modifies or supersedes the Anti-Dumping Notification. ARTICLE III. REPRESENTATION AND WARRANTIES OF PARENT AND MERGER SUB The Parent and the Merger Sub jointly and severally represent and warrant to the Company as follows: 3.1 ORGANIZATION, STANDING AND CORPORATE POWER. Each of the Parent and the Merger Sub is a corporation or other entity duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization. Each of the Parent and Merger Sub is qualified to do business as a foreign corporation or other entity and is in good standing in the jurisdictions in which the ownership, leasing, or operation of its property or the conduct of its business requires its qualification as a foreign corporation or other entity, and has all requisite corporate or other entity power and authority to carry on its business as now being conducted, except where the failure to be so qualified and in good standing or to have such power and authority would not reasonably be expected to impair the ability of the Parent or Merger Sub to perform its obligations under this Agreement. 3.2 AUTHORIZATION; ENFORCEABILITY. The execution and delivery of this Agreement by each of the Parent and the Merger Sub and the performance of this Agreement and consummation of the Offer and the Merger by each of Parent and Merger Sub are within the respective corporate or other entity power and authority of each of Parent and Merger Sub, and have been duly authorized by all necessary entity action on the part of the Parent and Merger Sub. This Agreement has been duly executed and delivered by each of the Parent and Merger Sub and, assuming the due authorization, execution and delivery by the Company, constitutes the legal, valid and binding obligation of each of the Parent and Merger Sub, enforceable against each of them in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws now or hereafter in effect generally affecting the rights of creditors and subject to general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3.3 NO VIOLATION OR CONFLICT. The execution and delivery of this Agreement by each of the Parent and Merger Sub does not, and the performance of this Agreement and consummation of the Offer and the Merger by each of the Parent and Merger Sub will not: (i) result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation under or to the loss of a material benefit under, or to the increase of obligations under any Contract of the Parent or Merger Sub, or result in the creation of any Lien upon, any of the properties or assets of the 31 EXECUTION COPY Parent or Merger Sub, (ii) result in any violation of any provision of the certificate of incorporation or the bylaws or similar organizational documents of the Parent or Merger Sub, (iii) violate any Existing Permits of the Parent or Merger Sub or any Law applicable to the Parent or the Merger Sub, other than, in the case of clauses (i) and (iii), any such violations, defaults, rights, losses or Liens that, individually and in the aggregate, would not (y) significantly impair the ability of the Parent or the Merger Sub to perform its obligations under this Agreement or (z) prevent or materially delay the consummation of the Offer or the Merger. 3.4 GOVERNMENTAL APPROVALS. The execution and delivery of this Agreement by each of the Parent and Merger Sub do not, and the performance of this Agreement and consummation of the Offer and the Merger by each of the Parent and Merger Sub will not, require any consent of, or filing with or notification to, any Governmental Entity, except for (i) applicable requirements, if any, of the Exchange Act, the Securities Act and state securities or "blue sky" Laws, (ii) filing of a certificate of merger as required by the DGCL and appropriate documents with the relevant authorities of other states in which the Parent is qualified to do business, and (iii) where failure to obtain such consents or make such filings or notifications is not reasonably likely to (y) impair the ability of the Parent on Merger Sub to perform its obligations under this Agreement, or (z) prevent or materially delay the consummation of the Offer or the Merger. 3.5 INFORMATION SUPPLIED. None of the information supplied or to be supplied by the Parent or Merger Sub for inclusion or incorporation by reference in the Schedule 14D-9 (including, without limitation, all information, required by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder) will, at the time it is filed with the SEC or, if shares of Company Common Stock are accepted for purchase pursuant to the Offer, on the date that the Offer expires, or at the time of any amendment or supplement thereof, in each case, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the information supplied or to be supplied by the Parent or Merger Sub for inclusion or incorporation by reference in the Proxy Statement will, at the time it is filed with the SEC, at the time it is mailed to the Company's stockholders, at the time of the Special Meeting, or at the time of any amendment or supplement thereof, in each case, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.6 INFORMATION IN THE OFFER DOCUMENTS. The Offer Documents will comply as to form in all material respects with the provisions of applicable federal securities Laws and, on the date filed with the SEC, on the date first published or sent or given to the Company's stockholders, and, if shares of Company Common Stock are accepted for purchase pursuant to the Offer, on the date that the Offer expires, and at the time of any amendment or supplement of the Offer Documents, will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by Parent or Merger Sub with respect to information furnished by the Company expressly for inclusion in the Offer Documents. 32 EXECUTION COPY 3.7 OWNERSHIP OF CAPITAL STOCK OF THE COMPANY. As of the date of this Agreement and prior to consummation of the Offer, none of Parent or Merger Sub or any of their respective Affiliates or Associates (i) owns or will own of record or beneficially, directly at indirectly (within the meaning of the general rules and regulations promulgated under the Exchange Act), or (ii) is a party to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of, in the case of either clause (i) or (ii), shares of capital stock of the Company which exceed two percent (2%) of the Company Common Stock, other than shares to be sold to Merger Sub pursuant to the Stock Purchase Agreement. 3.8 INTERESTED STOCKHOLDER. Immediately prior to the time of the actions of the Company's board of directors described in Section 2.2(c) and at all times during the preceding three years, neither the Parent nor Merger Sub (nor any of their Affiliates or Associates, as those terms are defined in Section 203 of the DGCL) is or has been an Interested Stockholder of the Company (within the meaning of Section 203 of the DGCL). No other state takeover, anti-takeover, moratorium, fair price, interested stockholder, business combination or similar statute or rule is applicable to this Agreement, the Offer, or the Merger other than those that may be made applicable solely by reason of the Company's or any of its Subsidiaries' (as opposed to Parent's or Merger Sub's or any of their Affiliates') participation in the Offer or the Merger. 3.9 LEGAL PROCEEDINGS. There are no Legal Proceedings pending or, to the knowledge of the Parent or Merger Sub, threatened against or affecting the Parent or any of its Subsidiaries that, individually or in the aggregate, would, if decided adversely to the Parent or its Subsidiaries, significantly impair the ability of Parent or Merger Sub to perform its obligations under this Agreement or materially adversely affect or prevent or materially delay consummation of the Offer or the Merger, nor is there any judgment, settlement, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Parent or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to significantly impair the ability of Parent or Merger Sub to perform its obligations under this Agreement or materially adversely affect or prevent or materially delay consummation of the Offer or the Merger. 3.10 LIMITED OPERATIONS OF MERGER SUB. Merger Sub was formed in 2004 solely for the purpose of engaging in the Offer and the Merger. Merger Sub has not engaged in any other business activities. Except for (i) obligations or liabilities incurred in connection with its organization, the Offer, and the Merger and (ii) this Agreement and any other agreements and arrangements contemplated hereby or entered into in furtherance hereof, Merger Sub has not incurred any material obligations or liabilities or engaged in any business activities. ARTICLE IV. COVENANTS 4.1 CONDUCT OF BUSINESS BY COMPANY. Except as otherwise expressly contemplated by this Agreement or as consented to in writing by the Parent, during the period from the date of this Agreement to the earliest of (a) the termination of this Agreement in accordance with Article VI, (b) the time that Merger Sub's designees are elected or appointed to the Company's Board of Directors pursuant to Section 1.2(c), or (c) the Effective Time, the Company shall, and shall cause its Subsidiaries to, carry on their respective businesses only in the ordinary course consistent with past practice and in compliance in all material respects with all applicable Laws and regulations and, to the extent consistent therewith, use commercially reasonable efforts to 33 EXECUTION COPY preserve intact their current business Organizations, use commercially reasonable efforts to keep available the services of their current officers and other key employees and preserve their relationships with those Persons having business dealings with them. Without limiting the generality of the foregoing (but subject to the above exceptions), during the period from the date of this Agreement to the earlier of (a) the termination of this Agreement in accordance with Article VI or (b) the Effective Time, the Company shall not, and shall not permit any of its Subsidiaries to: (a) other than dividends and distributions (including liquidating distributions) by a direct or indirect wholly-owned Subsidiary of the Company to its parent, (i) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock, property or otherwise) in respect of, any of its capital stock, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (iii) purchase, redeem or otherwise acquire, directly or indirectly, for value any shares of capital stock of the Company or any of its Subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (b) issue, deliver, sell, pledge or otherwise encumber or subject to any Lien (i) any shares of its capital stock, (ii) any other voting securities, (iii) any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities or (iv) any "phantom" stock or stock rights, SARs or stock-based performance units, other than the issuance of shares of Company Common Stock and associated rights upon the exercise of Company Stock Options outstanding as of the date hereof in accordance with their present terms; (c) amend its certificate of incorporation, bylaws or other comparable organizational documents; (d) merge or consolidate with another Person, acquire, license or agree to acquire or license any business, division or Person or any equity or debt interest therein, acquire, license or agree to acquire or license any assets, other than immaterial assets or assets acquired in the ordinary course of business consistent with past practice, or enter into any joint venture, partnership or similar arrangement; (e) sell, lease, license out, sell and leaseback, mortgage or otherwise encumber or subject to any Lien (other than any Lien imposed by Law, such as a carriers', warehousemen's or mechanics' Lien) or otherwise dispose of any of its properties or assets having a value of $200,000 or more, other than sales or non-exclusive licenses out of finished goods or services in the ordinary course of business consistent with past practice; (f) repurchase or incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person other than in the ordinary course of business consistent with past practice, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its Subsidiaries, guarantee any debt securities of another Person, enter into any "keep well" or other Contract to maintain any financial statement condition of another Person or enter into any Contract having the economic effect of any of the foregoing, other than intercompany indebtedness between the Company and any of its direct or 34 EXECUTION COPY indirect wholly-owned Subsidiaries or between such Subsidiaries; provided, however, that upon notice to, and consultation with, Parent, the Company and its Subsidiaries shall be permitted to continue, renew, or extend for a period of no more than three (3) years any existing revolving lines of credit on terms no less favorable in the aggregate to the Company than currently exist; (g) make any loans, advances or capital contributions to, or investments in, any other Person, other than the Company or any direct or indirect wholly-owned Subsidiary of the Company and except for investments in publicly traded securities or other investments in the ordinary course of the Company's cash management or benefit plan management systems; (h) make or agree to make any new capital expenditures, or enter into any Contract providing for payments by the Company or any of its Subsidiaries which, individually, are in excess of $100,000 or, in the aggregate, are in excess of $200,000, except for Contracts to purchase inventory or supplies entered into in the ordinary course of business or renewals or extensions of existing Contracts relating to capital projects already in progress as of the date of this Agreement, which existing projects are identified in Section 4.1(h) of the Company Disclosure Letter; (i) pay, discharge, settle or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise) or Legal Proceeding (whether or not commenced prior to the date of this Agreement), other than the payment, discharge, settlement or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities recognized or disclosed in the most recent consolidated financial statements (or the notes thereto) of the Company included in Company SEC Documents or incurred in the ordinary course of business since the date of such financial statements; (j) except as required in order to comply with Law, (i) establish, enter into, adopt, amend or terminate any Company Benefit Plan or Company Stock Plan, (ii) change any actuarial or other assumption used to calculate funding obligations with respect to any Company Pension Plan, or change the manner in which contributions to any Company Pension Plan are made or the basis on which such contributions are determined, or (iii) take any action to accelerate any rights or benefits, or make any material determinations not in the ordinary course of business consistent with past practice, under any collective bargaining agreement or Company Benefit Plan, except in each case to the extent required to comply with any changes in the Laws applicable to any such Company Benefit Plan or Company Stock Plan; (k) other than in the ordinary course of business consistent with past practice (except with respect to directors and officers Whose compensation may not be increased), (i) increase the compensation, bonus or other benefits of any current or former director, consultant or employee, (ii) grant any Person any increase in severance or termination pay, or (iii) pay any benefit or amount not required by an agreement, plan, or arrangement as in effect on the date of this Agreement to any such Person; (l) transfer or license to any Person or otherwise extend, amend or modify or allow to revert, lapse Or expire any material lights to the Intellectual Property Rights of the Company and its Subsidiaries, other than in the ordinary course of business consistent with past practice; 35 EXECUTION COPY (m) increase the number of full-time, permanent employees of the Company or any of its Subsidiaries other than as a result of hiring permanent employees for annual salaries of less than $100,000 in the ordinary course of business consistent with past practice; (n) except insofar as may be required by a change in GAAP or regulatory requirements, make any material changes in accounting methods, principles or practices; (o) authorize, or commit, resolve or agree to take, any of the foregoing actions. 4.2 ADVISE OF CHANGES. The Company shall promptly advise the Parent orally and in writing to the extent it has Knowledge of (i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect, (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement, and (iii) any change or event that would have a Material Adverse Effect on the Company or the ability of the conditions in Article V of this Agreement to be satisfied, but no such notification shall affect the representations, warranties, covenants or agreements of the parties (or remedies with respect thereto) or the conditions to the obligations of the parties under this Agreement. 4.3 NO SOLICITATION BY THE COMPANY. (a) The Company shall not, nor shall any of its Subsidiaries, or their directors, officers, employees, investment bankers, accountants, attorneys or other professional advisors (collectively, the "REPRESENTATIVES") (i) solicit, initiate, or knowingly encourage (including by way of furnishing nonpublic information) any Acquisition Proposal, (ii) enter into, continue, or otherwise participate in any discussions or negotiations regarding, or furnish to any Person any nonpublic information with respect to, any Acquisition Proposal, or (iii) enter into any agreement providing for an Acquisition Proposal; provided, however, that neither this Section 4.3(a) nor any other provision contained in this Agreement shall prohibit the Company, its Subsidiaries, or their respective Representatives from furnishing information regarding the Company to, or entering into discussions or negotiations with, any Person in response to an Acquisition Proposal that the Company's board of directors (or a committee thereof) determines in good faith, after consultation with outside legal counsel, reasonably could be expected to lead to a Superior Proposal if (1) none of the Company, its Subsidiaries, or any of their Representatives shall have violated any of the restrictions set forth in this Section 4.3(a) in a manner that resulted in the submission of such Acquisition Proposal; (2) the board of directors of the Company (or a committee thereof) determines in good faith, after consultation with outside legal counsel, that failure to take such action is likely to constitute a breach of the fiduciary duties of the board of directors of the Company under applicable Law; and (3) the Company receives from such Person an executed confidentiality agreement (the provisions of which are no less restrictive than the comparable provisions, and do not omit any restrictive provisions, contained in the confidentiality agreement between the Parent and the Company (the "CONFIDENTIALITY AGREEMENT")). The Company shall notify Parent promptly (and at least 24 hours prior to furnishing nonpublic, information to, or entering into discussions or negotiations with, any Person who has made or submitted an Acquisition Proposal) of the Company's intention to furnish 36 EXECUTION COPY nonpublic information to, or enter into discussions or negotiations with, any Person who has made or submitted an Acquisition Proposal. FOR purposes of this Agreement, "ACQUISITION PROPOSAL" MEANS any inquiry, proposal, or offer from any third party relating to (i) any direct or indirect acquisition or purchase of substantially all of the assets of the Company and its Subsidiaries, taken as a whole, or a majority of the equity securities of the Company, (ii) any tender offer or exchange offer that if consummated would result in any Person beneficially owning more than 50% of the Company's common stock, or (iii) any merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution, or similar transaction involving the Company, other than the Offer and the Merger. For purposes of this Agreement, "SUPERIOR PROPOSAL" means any offer made by a third party to consummate an Acquisition Proposal on terms that the board of directors of the Company (or a committee thereof) determines in good faith, after consultation with outside legal counsel, to be more favorable to the Company's stockholders than the Offer and the Merger (as the terms of the Offer or the Merger may be amended in accordance with this Agreement) after consideration of any factors permitted to be considered in such circumstances under Delaware law, including without limitation, any condition for obtaining financing and all financial, regulatory, legal and other aspects of such proposal. (b) The Company shall promptly (and in no event later than two Business Days after receipt of any Acquisition Proposal or any request for nonpublic information in connection with any Acquisition Proposal) advise Parent in writing of any Acquisition Proposal or any request for nonpublic information in connection with any Acquisition Proposal (including the identity of the Person making or submitting such Acquisition Proposal or request, and the principal terms of any such Acquisition Proposal) that is made or submitted by any Person (other than Parent and its Affiliates) at any time prior to consummation of the Merger. (c) Nothing in this Section 4.3 or elsewhere in this Agreement shall prohibit the Company or its board of directors from taking and disclosing to its stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's stockholders required by applicable Law, or from making any disclosure to the Company's stockholders if, in the good faith judgment of the Company's board of directors (or a committee thereof), after consultation with outside legal counsel, failure to make such other disclosure could create a reasonable possibility of a breach of the Company's or board's obligations (including, without limitation, any fiduciary obligations) under applicable Law. (d) Notwithstanding anything to the contrary in tills Section 4.3, the fact that the Company, any of its Subsidiaries, or any of their Representatives have had discussions or negotiations with Persons prior to the date of this Agreement regarding a possible Acquisition Proposal shall not prevent the Company from taking any of the actions specified in the proviso to the first sentence of Section 4.3(a) with respect to a new Acquisition Proposal submitted by any such Person after the date of this Agreement, that was not solicited in violation of this Section 4.3. (e) The board of directors of the Company may withdraw, amend, or modify 37 EXECUTION COPY the Company Recommendation if, in the good faith judgment of the Company's board of directors (or a committee thereof), after consultation with outside legal counsel, failure to do so would likely constitute a breach of the board's fiduciary obligations under applicable Law. 4.4 ACCESS TO INFORMATION; CONFIDENTIALITY. Subject to the Confidentiality Agreement, upon reasonable notice, the Company shall, and shall cause each of its Subsidiaries to, afford to the Parent and to its Representatives, reasonable access during normal business hours during the period prior to the Effective Time to all its properties, books, contracts, commitments, managerial personnel and records and, during such period, the Company shall, and shall cause each of its Subsidiaries to, promptly furnish or make available to the Parent (a) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities Laws and (b) all other information concerning its business, properties and personnel as the Parent may reasonably request. The Company shall authorize its attorneys to cooperate with Parent and respond to Parent's inquiries regarding legal matters affecting the Company. Notwithstanding anything in this Section 4.4 to the contrary, the Company and its attorneys shall not be required to (i) provide access to or disclose information where such access or disclosure would contravene any law, rule, regulation, Order, decree or agreement, or (ii) take any action or disclose any information that would be likely to result in a waiver of any applicable privilege or immunity. 4.5 FILINGS AND CONSENTS; REASONABLE BEST EFFORTS. (a) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner reasonably practicable, the Offer and the Merger, including using reasonable best efforts to accomplish the following: (i) the taking of all reasonable acts necessary to cause the conditions to the Offer and the Closing to be satisfied as promptly as practicable including, without limitation, (A) any other filing necessary to obtain any consent of a Governmental Entity necessary to consummate the Offer or the Merger, (B) any filings under any other comparable pre-merger notification forms required by the merger notification or control Laws of any applicable jurisdiction, as agreed by the parties hereto, and (C) any filings required under the Securities Act of 1933, as amended, the Exchange Act, any applicable state or securities or "blue sky" Laws and the securities Laws of any foreign country, or any other legal requirement relating to the Offer or the Merger; (ii) the obtaining of all actions or nonactions, waivers, consents and approvals from Governmental Entities necessary to consummate the Offer or the Merger and the making of all necessary registrations and filings (including filings with Governmental Entities, if any) and the taking of all steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entity; (iii) the obtaining of all consents, approvals or waivers from third parties necessary to consummate the Offer or the Merger (excluding any waiver or consent from the Company's lenders); (iv) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the Offer or the Merger, including seeking to prevent the entry of any judgment, order, or decree of any court or other Governmental Entity or other legal restraint or prohibition, in each case, preventing or staying consummation of the Offer or the Merger, and to appeal, or otherwise seek to have vacated or reversed, as promptly as practicable any such judgment, order, decree, restraint, or prohibition that may be entered; and (v) the 38 EXECUTION COPY execution and delivery of any additional instruments necessary to consummate the Merger and to fully carry out the purposes of this Agreement, but the Parent will not be required to agree to, or offer to, cease to conduct business or operations in any jurisdiction in which the Parent, the Company or any of their respective Subsidiaries conducts business or operations as of the date of this Agreement. (b) Each of the Parent, Merger Sub and the Company shall notify the other promptly upon the receipt of (i) any comments from any officials of any Governmental Entity in connection with any filings made pursuant hereto and (ii) any request by any officials of any Governmental Entity for amendments or supplements to any filings made pursuant to, or information provided to comply in all material respects with, any legal requirements. Whenever any event occurs that is required to be set forth in an amendment or supplement to any filing made pursuant to Section 4.5(a), the Parent, Merger Sub or the Company, as the case may be, shall promptly inform the other of such occurrence and cooperate in filing with the applicable Governmental Entity such amendment or supplement. (c) In connection with and without limiting the foregoing, the Company and its board of directors shall (i) take all action reasonably necessary to ensure that no state takeover statute or similar statute or regulation is or becomes applicable to the Offer, the Merger or this Agreement (other than those that may be made applicable solely by reason of Parent's or Merger Sub's (as opposed to the Company's or its Subsidiaries') participation in the Offer or the Merger) and (ii) if any state takeover statute or similar statute or regulation becomes applicable to the Offer, the Merger or this Agreement (other than those that may be made applicable solely by reason of Parent's or Merger Sub's (as opposed to the Company's or its Subsidiaries') participation in the Offer or the Merger), take all action reasonably necessary to ensure that the Offer and the Merger may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Offer and the Merger. (d) Nothing in this Agreement shall require the Company, the Parent or Merger Sub to commence any litigation in order to prevent (or remove) the entry of any Restraint under antitrust or similar Laws. 4.6 INDEMNIFICATION, EXCULPATION AND INSURANCE. (a) From the Effective Time through the sixth anniversary of the date on which the Effective Time occurs, Parent and the Surviving Corporation shall jointly and severally indemnify and hold harmless each person who is now, or has been at any time prior to the date hereof, or who becomes prior to the Effective Time, a director or officer of the Company or any of its Subsidiaries (the "COVERED PERSONS"), against all claims, losses, liabilities, damages, judgments, fines, and reasonable fees, costs, and expenses, including reasonable attorneys' fees and disbursements (collectively, "COSTS"), incurred in connection with any claim, action, suit, proceeding, or investigation, whether civil, criminal, administrative or investigative (a "PROCEEDING"), arising out of or pertaining to the fact that the Covered Person is or was an officer, director, employee or agent of the Company or any of its Subsidiaries, to the fullest extent permitted under applicable Law. Each Covered Person shall be entitled to advancement from the Surviving Corporation of reasonable expenses (including attorneys' fees and disbursements) incurred in the defense of any Proceeding arising out of or pertaining to the fact 39 EXECUTION COPY that the Covered Person is or was an officer, director, employee or agent of the Company or any of its Subsidiaries, such advancement to be made within twenty days of receipt by the Surviving Corporation from the Covered Person of a request therefor, provided, that any Covered Person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such Covered Person is not entitled to indemnification. Alternatively, the Surviving Corporation may provide the defense of any such claim with counsel reasonably acceptable to the Covered Person; provided, however, that if in the opinion of such Covered Person's attorney (who is licensed to practice in the jurisdiction where the proceeding is pending) there exists a conflict of interest between the Surviving Corporation and such Covered Person, such Covered Person shall have the right to engage separate counsel, the reasonable expenses (including attorneys' fees and disbursements) of which shall be paid by the Surviving Corporation or, if not paid by the Surviving Corporation, by the Company's insurance carrier contemplated by Section 4.6(d). The Covered Person shall cooperate with the Surviving Corporation, at the Surviving Corporation's expense, in connection with the defense of any Proceeding. (b) All rights to indemnification and advancement of expenses and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time existing in favor of any Covered Person as provided in the respective certificate of incorporation or bylaws (or comparable organizational documents) of the Company and its Subsidiaries and any indemnification agreements of the Company (as each is in effect prior to the date of this Agreement), shall survive the Merger and shall continue in full force and effect in accordance with their terms. The certificate of incorporation and bylaws of the Surviving Corporation will contain provisions with respect to such indemnification, advancement of expenses, and elimination of liability for monetary damages at least as favorable in all material respects to the Covered Persons as those set forth in the current certificate of incorporation and bylaws of the Company, and for a period of six (6) years after the Effective Time, any repeal, amendment or modification of the certificate of incorporation or bylaws of the Surviving Corporation shall not adversely affect the rights thereunder of the Covered Persons, except to the extent, if any, that such modification is required by applicable law. (c) If the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any Person or Persons, or otherwise dissolves or liquidates, then, and in each such case, the Parent and the Surviving Corporation shall cause proper provision to be made so that the successors and assigns of the Surviving Corporation assume the obligations set forth in this Section 4.6. (d) Following the Effective Time, the Surviving Corporation shall maintain, at no expense to the Covered Persons, directors' and officers' liability insurance coverage for the Covered Persons for six (6) years following the Effective Time with respect to claims arising from or related to facts or events that occurred at or before the Effective Time, which insurance coverage shall provide them with the same coverage and amounts and shall contain terms and conditions that are in the aggregate no less advantageous to the Covered Persons than those in effect on the date hereof, so long as the annual premium therefor shall not be in excess of two hundred percent (200%) of the annual premiums currently paid by the Company in respect of the current policy or policies (the "MAXIMUM PREMIUM"). If such directors' and officers' liability 40 EXECUTION COPY insurance coverage expires, is terminated or is canceled during such six (6) year period or should the annual premium required to maintain such insurance exceed the Maximum Premium, the Surviving Corporation shall obtain and maintain, and the Parent shall cause the Surviving Corporation to obtain and maintain, at no expense to the Covered Persons, as much directors' and officers' insurance coverage as can be obtained and maintained for the remainder of such period for an annualized premium not in excess of the Maximum Premium, on terms and conditions no less advantageous to the Covered Persons than the terms and conditions of the coverage in effect on the date hereof. Notwithstanding anything in this subsection (d) to the contrary, in lieu of maintaining liability insurance coverage pursuant to this subsection (d), Merger Sub or the Surviving Corporation may obtain, at no expense to the Covered Persons, a "tail" policy for the Covered Persons that provides the same coverage and amounts and contains terms and conditions that are in the aggregate no less advantageous to the Covered Persons than those in effect on the date hereof with respect to claims arising from or related to facts or events that occurred at or before the Effective Time and that is effective for claims asserted during the full six-year period referred to above. (e) Notwithstanding anything herein to the contrary, if any claim is asserted or any Proceeding is initiated or commenced against or involving a Covered Person on or prior to the sixth anniversary of the Effective Time (whether such claim or Proceeding is asserted, initiated, or commenced prior to, at or after the Effective Time), the provisions of this Section 4.6 shall continue in effect until final disposition of such claim or Proceeding. (f) The provisions of this Section 4.6 are intended to be for the benefit of, and will be enforceable by, each Covered Person, his or her heirs and his or her representatives and are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such Covered Person may have by contract or otherwise. 4.7 PUBLIC ANNOUNCEMENTS. The Parent and the Company will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the Agreement, the Offer, the Stock Purchase Agreement or the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as either party may determine, upon advice of counsel, is required by applicable Law, the SEC, court process or by obligations pursuant to any listing or quotation agreement with any national securities exchange or national trading system. The parties agree that the initial press release to be issued with respect to the Agreement, the Offer, the Stock Purchase Agreement, and the Merger shall be a joint press release in the form attached hereto as Exhibit 4.7. This Section 4.7 supercedes any contradictory provision that may be included in the Confidentiality Agreement, and no disclosure made by any of the parties in accordance with this Section 4.7 shall be construed as being in violation of the Confidentiality Agreement. 4.8 RIGHTS AGREEMENT. The board of directors of the Company shall take all action necessary in order to prevent any Right (as defined in the Rights Agreement) issued or issuable under the Rights Agreement from becoming exercisable by virtue of this Agreement, the Offer, or the Merger, or the combined effect of the foregoing, while this Agreement remains in effect or upon its consummation. 4.9 DEPOSIT. Immediately upon execution of this Agreement, the Parent shall deposit 41 EXECUTION COPY with Wachovia Bank, National Association, as escrow agent, pursuant to an escrow agreement substantially in the form attached hereto as Exhibit 4.9 (the "ESCROW AGREEMENT"), the amount of $800,000 in cash (the "DEPOSIT"). In accordance with the Escrow Agreement, the Deposit shall be returned to the Parent within three (3) Business Days of termination of this Agreement pursuant to Section 6.1 of this Agreement, unless payable to the Company pursuant to Section 6.4(b) of this Agreement. At the time the Offer expires, upon the written request of Parent, the Deposit may be delivered to the Paying Agent for the purpose of purchasing shares of Company Common Stock in the Offer. 4.10 AUDITED FINANCIAL STATEMENTS. No later than the time the Company files with the SEC its Form 10-K for the year ended September 30, 2004, the Company shall deliver to Parent its financial statements for the fiscal year ended September 30, 2004 together with the unqualified audit report of PricewaterhouseCoopers. The Company's consolidated audited financial statements for the year ended September 30, 2004 included in the Company's Form 10- K will report net income and EBITDA (excluding (i) expenses related to the Transactions contemplated by this Agreement and other efforts to achieve a sale of the Company and (ii) costs associated with the claims giving rise to the Anti-Dumping Notification) for the year ended September 30, 2004 of no less than $1,050,000 and $8,500,000.00, respectively. 4.11 STOP TRANSFER INSTRUCTIONS. As soon as practicable after the date hereof and as long as the Stock Purchase Agreement shall remain in effect, the Company shall issue and deliver to the Company's transfer agent, stop transfer instructions prohibiting the transfer of any shares of Company Common Stock to be sold to Merger Sub pursuant to Section 1.01 of the Stock Purchase Agreement. 4.12 TRANSFER OF MEXICAN SUBSIDIARIES. At or before expiration of the Offer, the Company shall cause Gino Pala to transfer to Massimo Candela each share of each of the Company's Mexican Subsidiaries identified in Section 2.3 of the Company Disclosure Letter. 4.13 OFFICER CERTIFICATION. If the conditions referred to in clauses (b), (c), (d), and (e) of Section (ii) of Annex I are satisfied as of the Expiration Date, the Company shall cause its chief executive officer and chief financial officer to certify on behalf of the Company that, as of the Expiration Date, the conditions referred to in clauses (b), (c), (d), and (e) of Section (ii) of Annex I have been satisfied. If any of the conditions referred to in clauses (b), (c), (d), or (e) of Section (ii) of Annex I is not satisfied as of the Expiration Date, then the Company shall deliver to Parent a written notice specifying which of those conditions has not been satisfied. ARTICLE V. CONDITIONS PRECEDENT TO THE MERGER 5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO CONSUMMATE THE MERGER. The respective obligation of each party to effect the Merger shall be subject to the satisfaction or waiver on or prior to the Closing Date of each of the following conditions (in addition to any other conditions set forth herein): (a) The Company Stockholder Approval, if required for consummation of the Merger, shall have been obtained, unless Merger Sub shall have accepted for payment pursuant 42 EXECUTION COPY to the Offer such number of shares of Company Common Stock which, when aggregated with the shares of Company Common stock otherwise beneficially owned by Parent and its Affiliates, represents at least 90 percent of the outstanding shares of Company Common Stock. (b) No judgment, order, decree, statute, law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or issued by any court or other Governmental Entity of competent jurisdiction or other legal restraint or prohibition (collectively, "RESTRAINTS") shall be in effect preventing the consummation of the Merger. (c) Merger Sub shall have purchased, or caused to be purchased, all Company Common Stock validly tendered and not withdrawn pursuant to the Offer. (d) The filing of the Certificate of Merger with the Secretary of State of the State of Delaware shall have been made and shall have became effective. (e) If the Stockholders' Written Consent has been delivered to the Company, then more than twenty (20) calendar days shall have elapsed since the date that the Company sent or gave the Schedule I4C Information Statement to its stockholders such that Rule 14c-2 promulgated under the Exchange Act is satisfied in all respects. ARTICLE VI. TERMINATION, AMENDMENT AND WAIVER 6.1 TERMINATION. This Agreement may be terminated prior to the Effective Time, notwithstanding the requisite adoption of this Agreement by the Company's stockholders: (a) by mutual written consent of Parent and the Company: (b) by either Parent or the Company if (1) as a result of the failure of any conditions set forth in Annex I, the Offer shall have terminated or expired in accordance with its terms without Merger Sub having purchased shares of Company Common Stock pursuant to the Offer or (2) the Offer shall not have been consummated on or before the Outside Date; provided, however, that the right to terminate this Agreement under this Section 6.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the circumstances specified in clause (1) or (2), as the case may be, of this Section 6. l(b); (c) by either Parent or the Company if a court of competent jurisdiction or other Governmental Entity shall have issued a final and nonappcalable order, judgment, decree or ruling, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Offer or the Merger; (d) by either Parent or the Company, at any time prior to consummation of the Offer, if the board of directors of the Company shall have authorized the Company to enter into a written agreement for a transaction that constitutes a Superior Proposal, and the Company shall have notified Parent in writing that it intends to enter into such an agreement; (e) by the Parent, at any time prior to consummation of the Offer, if the board 43 EXECUTION COPY of directors of the Company or any committee thereof, pursuant to Section 4.3(e) of this Agreement or otherwise, shall have withdrawn, amended or modified, or resolved to withdraw, amend or modify, in a manner adverse to the Parent, the Company Recommendation; (f) by the Parent, at any time prior to consummation of the Offer, if (i) any representation or warranty of the Company contained in the Agreement that is qualified as to materiality shall not be true and complete in all respects, or any representation or warranty of the Company contained in the Agreement that is not so qualified shall not be true and complete in all material respects, in each case as of the date of the Agreement and at any time through the time the Offer expires (provided that, to the extent any such representation or warranty speaks as of a specified date, it need be true and complete only as of such specified date) and such breach is incapable of being or has not been cured by the Company, in all material respects, by the earlier of 20 calendar days after Parent has given written notice to the Company of such breach or the Outside Date and such breach would cause the conditions set forth in clause (d) of Section (ii) of Annex I not to be satisfied, or (ii) the Company shall have breached or failed to perform in any material respect any of its covenants or other agreements contained in this Agreement and such breach or failure to perform is incapable of being or has not been cured by the Company, in all material respects, by the earlier of 20 calendar days after Parent has given written notice to the Company of such breach or failure to perform or the Outside Date and such breach or failure to perform would cause the conditions set forth in clause (e) of Section (ii) of Annex I not to be satisfied; provided that neither Parent nor Merger Sub is then in material breach of any of its representations, warranties, covenants or other agreements in this Agreement; (g) by the Company, at any time prior to consummation of the Offer, if (i) any representation or warranty of the Parent or Merger Sub contained in the Agreement that is qualified as to materiality shall not be true and complete in all respects, or any representation or warranty of the Parent or Merger Sub contained in the Agreement that is not so qualified shall not be true and complete in all material respects, in each case as of the date of the Agreement and at any time through the time the Offer expires (provided that, to the extent any such representation or warranty speaks as of a specified date, it need be true and complete only as of such specified date) and such breach is incapable of being or has not been cured by the Parent or Merger Sub, in all material respects, by the earlier of 20 calendar days after the Company has given written notice to the Parent of such breach or the Outside Date, or (ii) the Parent or Merger Sub shall have breached or failed to perform in any material respect any of its covenants or other agreements contained in this Agreement and such breach or failure to perform is incapable of being or has not been cured by the Parent or Merger Sub, in all material respects, by the earlier of 20 calendar days after the Company has given written notice to the Parent of such breach or failure to perform or the Outside Date; provided that the Company is not then in material breach of any of its representations, warranties, covenants or other agreements in this Agreement; and (h) by the Company, if, without the Company's consent, Merger Sub fails to commence the Offer as provided in Section 1.1 of this Agreement or if Parent or Merger Sub makes any material changes to the Offer in contravention of this Agreement; provided that any changes that are adverse to the holders of Company Common Stock shall be deemed material for purposes of this subsection (h). 6.2 EFFECT OF TERMINATION. In the event of the termination of this Agreement as provided in Section 6.1, this Agreement shall be of no further force or effect, and no party hereto 44 EXECUTION COPY (and no stockholder, director, officer, agent, consultant, or representative of such party) shall have any further obligation or liability pursuant hereto; provided, however, that the Confidentiality Agreement, Section 4.7 (Public Announcements), this Section 6.2, Section 6.4 (Expenses; Termination Fees), and Article VII (General Provisions) shall survive the termination of this Agreement and shall remain in full force and effect. 6.3 PROCEDURE FOR TERMINATION. If a party has a right to terminate this Agreement under Section 6-1, it may exercise that right only by delivering written notice of such termination to the other parties, stating the subsection or subsections of Section 6.1 that provide the basis for such termination. 6.4 EXPENSES; TERMINATION FEES. (a) Except as set forth in this Section 6.4, all fees and expenses incurred in connection with this Agreement, the Offer and the Merger shall be paid by the party incurring such expenses, whether or not the Offer and the Merger are consummated. (b) In the event the Agreement is validly terminated pursuant to Section 6.1(g) or Section 6.l(h), the Company shall be entitled to retain the Deposit as a non-refundable termination fee, and Parent shall reimburse the Company for all reasonable and documented out-of-pocket expenses incurred by the Company since September 1, 2004 in connection with this Agreement, the Offer and the Merger in an aggregate amount not to exceed $750,000, which expenses shall be reimbursed by Parent within three Business Days after the Company provides to Parent a notice requesting reimbursement of expenses under this Section 6.4(b), together with reasonable documentation of such expenses. (c) In the event the Agreement is validly terminated pursuant to Section 6.1(d) or Section 6.1(f) (and, with respect to termination pursuant to Section 6.1(f), the Company's breach of any of its representations, warranties, covenants or other agreements contained in this Agreement that creates such right of termination under Section 6.1(f) shall give rise to a Material Adverse Effect), the Company shall pay to Parent, within three Business Days of the notice of termination, a non-refundable termination fee of $800,000 and shall reimburse Parent for all reasonable and documented out-of-pocket expenses incurred by Parent after September 1, 2004 in connection with this Agreement, the Offer and the Merger in an aggregate amount not to exceed $750,000, which expenses shall be reimbursed by the Company within three Business Days after Parent provides to the Company a notice requesting reimbursement of expenses under this Section 6.4(c), together with reasonable documentation of such expenses. In the event the Agreement is validly terminated pursuant to Section 6.1(f) and the Company's breach of any of its representations, warranties, covenants or other agreements contained in this Agreement that creates such right of termination under Section 6.l(f) shall not give rise to a Material Adverse Effect, the Company shall pay to Parent, within three Business Days of the notice of termination, a non-refundable termination fee of $400,000 and shall reimburse Parent for all reasonable and documented out-of-pocket expenses incurred by Parent after September 1, 2004 in connection with this Agreement, the Offer and the Merger in an aggregate amount not to exceed $750,000, which expenses shall be reimbursed by the Company within three Business Days after Parent provides to the Company a notice requesting reimbursement of expenses under this Section 6.4(c), together with reasonable documentation of such expenses. 45 EXECUTION COPY (d) In the event the Agreement is validly terminated pursuant to Section 6.1 (e) by reason of a withdrawal by the Board of Directors of the Company of the Company Recommendation, the Company shall pay to Parent, within three Business Days of the notice of termination, a non-refundable termination fee of $800,000 and shall reimburse Parent for all reasonable and documented out-of-pocket expenses incurred by Parent after September 1, 2004 in connection with this Agreement, the Offer and the Merger in an aggregate amount not to exceed $750,000, which expenses shall be reimbursed by the Company within three Business Days after Parent provides to the Company a notice requesting reimbursement of expenses under this Section 6-4(d), together with reasonable documentation of such expenses. (e) If (i) prior to the Expiration Date an Acquisition Proposal shall have been publicly disclosed, announced, commenced, submitted, or made by a third party (other than by Parent or an Affiliate of Parent) and shall not have been withdrawn or abandoned, and (ii) the Agreement is validly terminated pursuant to Section 6.l(b) because the Minimum Condition has not been satisfied, and at the time of termination, there are no Restraints in effect preventing consummation of the Offer, and Parent is not in breach of any material obligation under the Agreement, then the Company shall pay to Parent, within three Business Days of the notice of termination, a non-refundable termination fee of $800,000 and shall reimburse Parent for all reasonable and documented out-of-pocket expenses incurred by Parent after September 1, 2004 in connection with this Agreement, the Offer and the Merger in an aggregate amount not to exceed $750,000, which expenses shall be reimbursed by the Company within three (3) Business Days after Parent provides to the Company a notice requesting reimbursement of expenses under this Section 6.4(e), together with reasonable documentation of such expenses. (f) If either the Parent or the Company fails to pay when due any amount payable under this Section 6.4, then the party failing to pay such amount shall reimburse the other party for all reasonable costs and expenses (including reasonable attorneys' fees and disbursements) incurred in connection with the collection of such overdue amount and the enforcement by the other party of its rights under this Section 6.4. (g) Payment of the fees and expenses described in this Section 6.4 shall constitute the sole and exclusive remedy of Parent and Merger Sub against the Company and the Company against Parent and Merger Sub for any damages suffered or incurred in connection with this Agreement, except that the parties shall be entitled to the equitable remedies set forth in Section 7.11, including injunction and specific performance, and all other remedies available in equity to which a party is entitled. It is specifically agreed that any amount to be paid pursuant to this Section 6.4 represents liquidated damages and not a penalty. ARTICLE VII. GENERAL PROVISIONS 7.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This Section 7.1 shall not limit any covenant or agreement of the parties that by its terms contemplates performance after the Effective Time. 46 EXECUTION COPY 7.2 AMENDMENT. This Agreement may be amended by the parties at any time prior to the Effective Time; provided that after the Company Stockholder Approval has been obtained, there shall not be made any amendment that by Law requires further approval by the stockholders of the Company without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. 7.3 EXTENSION; WAIVER. At any time prior to the Effective Time, a party may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties of the other parties contained in this Agreement or in any document delivered pursuant to this Agreement, or (c) subject to the proviso of Section 7.2, waive compliance by the other party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if and to the extent set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. 7.4 NOTICES. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally, by facsimile (which is confirmed) or sent by internationally recognized overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to the Parent or Merger Sub, to: Mr. Alberto Candela Mr. Massimo Candela Fila - Fabbrica Italiana Lapis Ed Affini S.p.A. Via Pozzone 5, Milano, Italy Facsimile: 39 02 35 38 546 With a copy (which shall not constitute notice) to: Robert W. Forman, Esq. Shapiro Forman Allen Miller & McPherson LLP 380 Madison Avenue New York, NY 10017 Facsimile: (212) 557-1275 and Alessandro Marena Studio legale Marena, Bonvinci, Aghina e Ludergnani Via degli Omenoni, 2 20121 Milan Italy Facsimile: 39 02 72 02 39 04 (b) If to the Company, to: 47 EXECUTION COPY Dixon Ticonderoga Company Attention: Gino Pala 195 International Parkway Heathrow, FL 32746 Facsimile: (407) 829-2574 With a copy (which shall not constitute notice) to each of: Philip M. Shasteen, Esq. Johnson, Pope, Bokor, Ruppel & Bums, LLP 100 N. Tampa Street, Suite 1800 Tampa, FL 33602 Facsimile: (813)225-1857 and Michael A. Pittenger, Esq. Potter Anderson & Corroon LLP 1313 North Market Street Hercules Plaza P.O. Box 951 Wilmington, DE 19899 Facsimile: (302)658-1192 7.5 DEFINITIONS. For purposes of this Agreement: (a) Except as provided otherwise in Sections 2.2(b) and 3.7, "AFFILIATE" shall mean, in relation to any party hereto, any entity directly or indirectly, controlling, controlled by, or under common control with, such party, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a party, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. (b) Except as provided otherwise in Sections 2.2(b) and 3.7, "ASSOCIATE" shall have the meaning set forth in Rule 12b-2 under the Exchange Act. (c) "BUSINESS DAY" shall have the meaning set forth in Rule 14d-l(g)(3) under the Exchange Act. (d) "COMPANY STOCK OPTIONS" shall mean outstanding stock options granted pursuant to (i) the Company's Amended and Restated Stock Option Plan (formerly known as the 1988 Executive Stock Plan) and (ii) the Company's 1999 Stock Option Plan, the plans in clauses (i) and (ii) being collectively referred to as the "COMPANY STOCK PLANS." (e) "CONTRACT" shall mean any written contract, agreement or obligation of the Company or any of its Subsidiaries to which the Company or any of its Subsidiaries is a party or by which the Company or any Subsidiary or any of the assets of the Company or any of its Subsidiaries are bound. 48 EXECUTION COPY (f) "ENVIRONMENTAL LAW" shall mean any federal, state, or local law of the United States, Canada, Mexico, the Peoples Republic of China or the United Kingdom, relating to (i) releases or threatened releases of Hazardous Materials; (ii) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Materials; or (iii) pollution or protection of the environment. (g) "ENVIRONMENTAL LIEN" shall mean any Lien, whether recorded or unrecorded, in favor of any Governmental Entity, relating to any liability of the Company or any of its Subsidiaries, arising under any Environmental Law. (h) "ERISA" shall mean the Employee Retirement Income Security Act of 1974 as in effect on the date hereof. (i) "EXCHANGE ACT" shall mean The Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. (j) "EXISTING PERMITS" shall mean those permits, licenses, approvals, qualifications, authorizations, and registrations required by Law that the Company and its Subsidiaries have or hold. (k) "GOVERNMENTAL ENTITY" shall mean any federal, state, local or foreign court, arbitral tribunal, administrative agency or commission or other governmental or regulatory authority or administrative agency. (l) "HAZARDOUS MATERIALS" shall mean (i) those substances defined in or regulated under any of the following United States federal statutes and any similar statutes or statutes with similar purposes in the states or in Canada, Mexico, the Peoples Republic of China or the United Kingdom, as each may be amended from time to time, and all regulations promulgated thereunder: the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide Act, the Toxic Substances Control Act and the Clean Air Act; (ii) petroleum and petroleum products, including crude oil and any fractions thereof; (iii) asbestos or silica or mixed dust; and (iv) any regulated radioactive materials, hazardous or toxic substances, wastes, or chemicals regulated by any Governmental Entity pursuant to any Environmental Law. (m) "INDEBTEDNESS" shall mean (i) all obligations for borrowed money, or with respect to deposits or advances of any kind, (ii) all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (iii) all obligations upon which interest charges are customarily paid, (iv) all obligations under conditional sale or other title retention agreements relating to purchased property, (v) all obligations issued or assumed as the deferred purchase price of property or services (excluding obligations to creditors for raw materials, inventory, services and supplies incurred in the Ordinary and usual course of business), (vi) all capitalized lease obligations, (vii) all obligations of others secured by a Lien, on property or assets, whether or not the obligations secured thereby have been assumed, (viii) all obligations under interest rate or currency hedging transactions (valued at the termination value thereof), (ix) all obligations arising under letters of credit (including standby and commercial), bankers' 49 EXECUTION COPY acceptances, bank guaranties, surety bonds and similar instruments, (x) all guarantees and arrangements having the economic effect of a guarantee of any indebtedness of any other Person and (xi) net obligations under any swap or derivative agreement. (n) "IRS" shall mean the Internal Revenue Service. (o) "KNOWLEDGE" shall mean the actual knowledge of the directors and officers of the Company and its Subsidiaries listed in Section 7.5 of the Company Disclosure Letter. (p) "LAW" shall mean any foreign, federal, state or local governmental law, rule, regulation or requirement, including any rules, regulations and orders promulgated thereunder and any orders, decrees, consents or judgments of any governmental regulatory agencies and courts having the force of law, excluding any Environmental Law. (q) "LIEN" shall mean, with respect to any asset (real, personal or mixed): (i) any mortgage, pledge, encumbrance, lien, easement, lease, title defect or imperfection or any other form of security interest, whether imposed by Law or by contract; and (ii) the interest of a vendor or lessor under any conditional sale agreement, financing lease or other title retention agreement relating to such asset. (r) "MATERIAL ADVERSE EFFECT" OR "MATERIAL ADVERSE CHANGE" shall mean any effect, change, event, circumstance or condition which when considered with all other effects, changes, events, circumstances or conditions has materially adversely affected or would reasonably be expected to materially adversely affect the results of operations, financial condition, or business of the Company, including its Subsidiaries together with it taken as a whole. For purposes hereof, any of the foregoing shall constitute a "Material Adverse Effect" or "Material Adverse Change" if, among other things, such effect, change, event, circumstance or condition (i) does or would reasonably be expected to result in the amount of the Company's EBITDA for the 12 months ending September 30, 2004 being reduced by 5% or more from the amount of the Company's EBITDA for the 12 months ending September 30, 2004, as reflected in the September 30, 2004 financial statements referred to in Section 2.9(b) hereof, or (ii) does or would reasonably be expected to result in the amount of the Company's EBITDA for the 12 months ending September 30, 2005 being reduced by 5% or more from the projected amount of the Company's EBITDA for the 12 months ending September 30, 2005, as reflected in the projections previously delivered to Parent and Merger Sub. In no event shall any of the following, considered alone without regard to any other effects, changes, events, circumstances or conditions, constitute a Material Adverse Effect or a Material Adverse Change: (i) a change in the trading prices of the Company's securities between the date hereof and the Effective Time; (ii) effects, changes, events, circumstances or conditions generally affecting the industry in which either the Parent or the Company operate or arising from changes in general business or economic conditions, provided such effects, changes, events, circumstances or conditions do not disproportionately impact the Company and its Subsidiaries, taken as a whole; (iii) any effects, changes, events, circumstances or conditions resulting from any change in Law or GAAP, which affect generally entities such as the Company: (iv) any effects, changes, events, circumstances or conditions resulting from the announcement or pendency of the Offer or the Merger other than a breach of a representation or warranty pursuant to this Agreement which would occur except for clauses (iv) or (v) of this definition of Material Adverse Effect and Material Adverse Change; 50 EXECUTION COPY and (v) any effects, changes, events, circumstances or conditions resulting from actions taken by the Parent or the Company in order to comply with the terms of this Agreement other than a breach of a representation or warranty pursuant to this Agreement which would occur except for clauses (iv) or (v) of this definition of Material Adverse Effect and Material Adverse Change. (s) "OUTSIDE DATE" shall mean March 1, 2005; provided, however, that if, on an Expiration Date occurring on or within ten (10) Business Days prior to March 1, 2005, all conditions to Merger Sub's obligations to accept for payment and pay for shares of Company Common Stock validly tendered pursuant to the Offer are satisfied or, to the extent permitted by this Agreement, waived, other than the condition set forth in Section (vi) of Annex I, then the Company or Parent may elect, by notifying Parent or the Company, respectively, in writing, to extend the Outside Date to a date up to ten (10) Business Days after March 1, 2005, such date to be specified in such written notice. (t) "PERMITTED LIENS" shall mean those Liens affecting any of the assets or properties of the Company or any of its Subsidiaries that do not materially detract from the value of the property or assets of the Company subject thereto and do not materially impair the business or operations of the Company. (u) "PERSON" shall mean a natural person, corporation, partnership (general or limited), limited liability company, joint venture, association, trust, unincorporated organization, Governmental Entity, agency or branch or department thereof, or any other legal entity. (v) "PROXY STATEMENT" shall mean the proxy statement (as such term is defined in Regulation 14(a)-1 under the Exchange Act) filed with the SEC with respect to the Special Meeting, including the form of proxy, and all amendments or supplements thereto, if any, similarly filed. (w) "RELEASE" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching, emanation or migration in, into, onto, or through the atmosphere, soil, surface water or groundwater. (x) "RIGHTS" shall mean those Rights issued pursuant to the Rights Agreement. (y) "RIGHTS AGREEMENT" shall mean the Rights Agreement, dated as of March 3, 1995, between the Company and First Union National Bank of North Carolina, as Rights Agent, and any supplements or amendments thereto. (z) "SEC" shall mean the Securities and Exchange Commission. (aa) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. (bb) An entity shall be deemed to be a "SUBSIDIARY" of a Person if such Person directly or indirectly owns, beneficially or of record, an amount of voting securities or other interests in such, entity that is sufficient to enable such Person to elect at least a majority of the 51 EXECUTION COPY members of such entity's board of directors or other governing body, or, if there are no such voting interests, 50% or more of the equity or financial interests of such entity. (cc) "TAX" shall include (i) all forms of taxation, whenever created or imposed, and whether domestic or foreign, and whether imposed by a national, federal, state, provincial, local or other Governmental Entity, including all interest, penalties and additions imposed with respect to such amounts, (ii) liability for the payment of any amounts of the type described in clause (i) as a result of being a member of an affiliated, consolidated, combined or unitary group, and (iii) liability for the payment of any amounts as a result of being party to any tax sharing agreement or as a result of any express or implied obligation to indemnify any other Person with respect to the payment of any amount described in clause (i) or (ii). (dd) "TAX LAW" shall mean any Law relating to Taxes. (ee) "TAX RETURNS" shall mean all domestic or foreign (whether national, federal, state, provincial, local or otherwise) returns, declarations, statements, reports, schedules, forms and information returns relating to Taxes, and any amended Tax Return. (ff) "WARRANTS" shall mean those warrants issued pursuant to the Amended and Restated Note and Warrant Purchase Agreement, dated as of October 3, 2002, by and between the Company and the institutional investors named therein. 7.6 CONSTRUCTION AND INTERPRETATION. When a reference is made in this Agreement to a section or article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified. The plural of any defined term shall have a meaning correlative to such defined term, and words denoting any gender shall include all genders and the neuter. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. A reference to any party to this Agreement or any other agreement or document shall include such party's successors and permitted assigns. A reference to any legislation or to any provision of any legislation shall include any modification, amendment or re-enactment thereof, any legislative provision substituted therefor and all rules, regulations and statutory instruments issued thereunder or pursuant thereto. The parties have participated jointly in the negotiation and drafting of this Agreement. If there is an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. Each provision of this Agreement shall be given full separate and independent effect. Although the same or similar subject matters may be addressed in different provisions of this Agreement, the parties intend that, except as expressly provided in this Agreement, each such provision be read separately, be given independent significance and not be construed as limiting any other provision in this Agreement (whether or not more general or more specific in scope, substance or context). No prior draft of this 52 EXECUTION COPY Agreement nor any course of performance or course of dealing shall be used in the interpretation or construction of this Agreement. 7.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered (whether delivered electronically or otherwise) one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. 7.8 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement (including the documents and instruments referred to herein) (a) constitutes the entire agreement, and supersedes all prior agreements, negotiations and understandings, whether written, electronic or oral, among the parties with respect to the subject matter of this Agreement, and each party hereto represents and acknowledges that it has not relied in any way upon any such other agreements, negotiations or understandings, and (b) except for the provisions in Article I and Section 4.6 (Indemnification, Exculpation, and Insurance), is not intended to confer upon any Person, other than the parties, any rights or remedies. 7.9 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of Delaware, without giving effect to any other choice of law or conflict of law provision or rule (whether of the State of Delaware or otherwise) that would cause the application of the Laws of any jurisdiction, other than the State of Delaware. 7.10 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of Law or otherwise by any of the parties hereto without the prior written consent of the other parties. Any assignment in violation of the preceding sentence shall be void. Subject to the preceding two sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. 7.11 ENFORCEMENT. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the Court of Chancery of the State of Delaware (or, in the case of claims as to which there is exclusive federal question jurisdiction, in the United States District Court for the District of Delaware), this being in addition to any other remedy to which any party may be entitled at law or in equity, subject to Section 6.4(g) hereof. In addition, each of the parties (a) consents to submit itself to the personal jurisdiction of the Court of Chancery of the State of Delaware (or, in the case of claims as to which there is exclusive federal question jurisdiction, in the United States District Court for the District of Delaware), in connection with any dispute that arises out of or relates to this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (c) agrees that it will not bring any action arising out of or relating to this Agreement in any court other than the Court of Chancery of the State of Delaware (or, in the case of claims as to which there is exclusive federal question jurisdiction, in the United States District Court for the District of Delaware). In the event the Court of Chancery of the State of Delaware (or the Delaware Supreme Court) determines that the Court of Chancery does not have or should not exercise subject matter jurisdiction with respect to any particular action or proceeding (or part thereof) arising out of or relating to this Agreement, then each of 53 EXECUTION COPY the parties (a) consents to submit itself to the personal jurisdiction of the United States District Court for the District of Delaware, if such court has subject matter jurisdiction, and to any other court having subject matter jurisdiction and personal jurisdiction over the parties hereto, if the United States District Court for the District of Delaware does not have subject matter jurisdiction, in connection with such action or proceeding (or part thereof), (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from the United States District Court for the District of Delaware and (c) agrees that it will not bring such action or proceeding (or part thereof) in, or transfer such action or proceeding (or part thereof) to, any court other than the United States District Court for the District of Delaware as provided in this Section 7.11 unless the United States District Court for the District of Delaware does not have subject matter jurisdiction. EACH OF THE PARENT, MERGER SUB, AND THE COMPANY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NEGOTIATION OR ENFORCEMENT HEREOF. Each of the parties hereby consents to service of any summons and complaint and any other process that may be served in any action or proceeding arising out of or relating to this Agreement in the Court of Chancery of the State of Delaware or the United States District Court for the District of Delaware as is specified in this Section 7.11 by mailing by certified or registered mail copies of such process to such party at its address for receiving notice pursuant to Section 7.4 hereof. Nothing herein shall preclude service of process by any other means permitted by Law. 7.12 SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. If the final judgment of a court of competent jurisdiction or other authority declares that any term or provision hereof is invalid, void or unenforceable, the parties agree that the court making such determination shall have the power to and shall, subject to the discretion of such court, reduce the scope, duration, area or applicability of the term or provision, delete specific words or phrases, or replace any invalid, void or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 54 EXECUTION COPY IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year first written above. FILA-FABBRICA ITALIANA LAPIS ED AFFINI S.P.A. By: /s/ Massino Candela ----------------------------------------- Name: Massino Candela Title: Managing Director PENCIL ACQUISITION CORP By: /s/ Massino Candela ----------------------------------------- Name: Massino Candela Title: President DIXON TICONDEROGA COMPANY By: /s/ Gino Pala ---------------------------------------- Name: Gino Pala Title: Chairman EXECUTION COPY ANNEX 1 CONDITIONS OF OFFER Notwithstanding any other provisions of the Offer, and in addition to (and not in limitation of) Merger Sub's right to extend and amend the Offer as permitted by the Agreement and subject to any applicable rules and regulations of the SEC, including Rule 14e(1)(c) under the Exchange Act, Merger Sub shall not be required to accept for payment, or may delay the acceptance for payment of, any validly tendered Company Common Stock if: (i) by the expiration of the Offer (as it may be extended in accordance with the requirements of Section 1.1) the Minimum Condition shall not be satisfied; (ii) any of the following events shall occur and be continuing as of the Expiration Date: (a) there shall be any Restraints in effect preventing the consummation of the Offer; (b) since the date of this Agreement, there shall have occurred any Material Adverse Effect on the Company and any of its Subsidiaries taken as a whole; (c) the Company's board of directors shall have (i) withdrawn or modified in a manner adverse to Parent and Merger Sub the Company Recommendation, (ii) recommended any Acquisition Proposal, or (iii) resolved to do any of the foregoing of this subsection (c); (d) any representation or warranty of the Company contained in the Agreement that is qualified as to materiality shall not be true and complete in all respects or any representation or warranty of the Company contained in the Agreement that is not so qualified shall not be true and complete in all material respects, in each case as of the time the Offer otherwise would expire (provided that, to the extent any such representation or warranty speaks as of a specified date, it need be true and complete only as of such specified date); (e) the Company shall have breached or failed, in any material respect, to perform or to comply with its covenants and other agreements to be performed or complied with by it under the Agreement; (f) all consents, permits and approvals of Governmental Entities and other Persons necessary to permit Merger Sub to purchase the shares of Company Common Stock validly tendered and not withdrawn shall not have been obtained other than those the failure of which to obtain, individually or in the aggregate, would not have a Material Adverse Effect on the Company and its Subsidiaries taken as a whole; provided that in no EXECUTION COPY event shall any consent of any kind of the Company's lenders be a condition to consummation of the Offer; or (g) the Agreement shall have been validly terminated in accordance with its terms; (iii) any of the following have occurred and continue to exist (A) any general suspension of trading in, or limitation on prices for, securities on any major United States stock exchange or market, (excluding suspensions or limitations resulting solely from physical damage or interference with such exchanges not related to market conditions), (B) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, or (C) any material limitation (whether or not mandatory) by any United States federal or United States state or governmental authority or agency on the extension of credit by banks or other financial institutions; (iv) the Company has not filed with the SEC its Form 10-K for the year ended September 30, 2004, accompanied by certifications, without qualification, required under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002; (v) the Company's shareholders who are party to the Stock Purchase Agreement with Merger Sub shall have failed to sell their stock pursuant to such Stock Purchase Agreement; or (vi) the number of shares of Company Common Stock validly tendered and not withdrawn prior to the final expiration of the Offer, together with the shares of Company Common Stock then beneficially owned by the Parent or its Affiliates (including, without limitation, the shares of Company Common Stock to be sold to Merger Sub pursuant to the Stock Purchase Agreement), represents less than 90% of the shares of Company Common Stock then outstanding and the Schedule 14C Information Statement, as filed with the SEC, would not be permitted by applicable SEC rules to be mailed to the Company's stockholders immediately after the Offer is consummated and the Stockholders' Written Consent is delivered to the Company. The foregoing conditions are for the benefit of Parent and Merger Sub, may be asserted by Parent or Merger Sub regardless of the circumstances giving rise to such condition, and except for the Minimum Condition may be waived by Parent or Merger Sub in whole or in part at any time and from time to time, subject in each case to the terms of the Agreement. The failure by Parent or Merger Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. The capitalized terms used in this Annex I shall have the meanings set forth in the Agreement to which it is annexed. EX-99.D.2 11 y04189exv99wdw2.txt STOCK PURCHASE AGREEMENT EXHIBIT (d)(2) EXECUTION COPY STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of December 16, 20O4 among PENCIL ACQUISITION CORP., a Delaware corporation (the "Purchaser"), and the other persons executing this Agreement whose signatures appear on a counterpart hereof (the "Stockholders"). WHEREAS, DIXON TICONDEROGA COMPANY, a Delaware corporation (the "Company"), Fila-Fabbrica Italiana Lapis Ed Affini S.P.A., an Italian company and sole stockholder of Purchaser, are concurrently herewith entering into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which provides, among other things, for the acquisition by Parent of the Company through a tender offer (the "Offer") made by Purchaser for all of the outstanding shares of the Company's Common Stock, $1.00 par value ("Common stock"), and the subsequent merger (the "Merger") of Purchaser into the Company; and WHEREAS, each stockholder is the beneficial owner of that number of shares of Common Stock (the "Shares") and is also indebted to the Company in the amount set forth on Annex I attached hereto. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants, representations, warranties, and agreements set forth herein, the parties hereto agree as follows: ARTICLE I. SALE AND PURCHASE OF THE SHARES 1.01 Subject to the terms and conditions of this Agreement, at the closing provided for in Section 2.02 hereof (the "Closing"), each Stockholder will sell, transfer, assign and deliver or cause to be delivered the Shares to Purchaser, and Purchaser will purchase the Shares from each Stockholder. At Purchaser's written request, each Stockholder shall tender to Purchaser in the Offer his or her shares subject to this Agreement. 1.02 Subject to the terms and conditions of this Agreement, in reliance on the representations, warranties and agreements of each Stockholder contained herein and in full payment for the shares, Purchaser will deliver at the closing by wire transfer of immediately available funds to each Stockholder 1 EXECUTION COPY an aggregate amount equal to the product of (A) $7.00 in cash (or any higher price which may be paid pursuant to the Offer) and (B) the number of Shares beneficially owned by such Stockholder (such product, the "Purchase Price"). At the Closing, each Stockholder will deliver, or cause to be delivered, to Purchaser certificates representing the Shares duly endorsed to Purchaser or accompanied by stock powers duly executed by such Stockholder in blank, together with a duly executed Substitute Form W-9 or equivalent form for corporate entities. In the event that any Stockholder receives, on or after the date hereof, any dividend or distribution paid or distributed in respect of any Shares purchased hereunder at any time, such Stockholder shall pay, or cause to be paid, to Purchaser such dividend or distribution (and all dividends and distributions and amounts received in respect of any securities or other assets which are themselves payable pursuant to this sentence) upon either the Closing or promptly following the receipt of any such dividend or distribution, whichever occurs last, it being understood that nothing in this sentence shall require such Stockholder to pay to Purchaser the Purchase Price received by it hereunder. In the event that, after the date hereof, any Stockholder shall become the beneficial owner of any shares of Common Stock in addition to the number of shares appearing opposite such Stockholder's name at the foot of this Agreement, such additional shares of Common Stock shall be deemed "Shares" subject to purchase and sale pursuant to this Agreement and subject to all terms and conditions of this Agreement. 1.03 The Purchaser shall be entitled to withhold from the Purchase Price due to any Stockholder, and to pay to the Company, the amount of any indebtedness (plus accrued interest, the "Indebtedness") due from such stockholder to the Company. The amount of any such Indebtedness is set forth on Annex I hereto. ARTICLE II. CONDITIONS TO PARTIES' OBLIGATIONS, ETC. 2.01 (A) The obligations of Purchaser to purchase and pay for the Shares pursuant to this Agreement .shall be subject to the fulfillment of the following conditions: (a) no preliminary or permanent injunction or other order against the delivery of the Shares or prohibiting the consummation of any of the transactions contemplated hereby or by the Merger Agreement issued by any court of competent jurisdiction shall be in effect, (b) the representations and warranties made by each 2 EXECUTION COPY Stockholder in Article III hereof shall be true in all material respects as of the date of this Agreement and as of the time of the Closing, (c) all conditions to the Offer set forth in Exhibit A to the Merger Agreement shall have been satisfied or waived, and (d) Purchaser, substantially simultaneously with the purchase of the Shares pursuant to this Agreement, shall have purchased all shares of Common Stock (if any) validly tendered and not properly withdrawn pursuant to the terms of such Offer. (B) The obligations of each Stockholder to sell the Shares pursuant to this Agreement shall be subject to the fulfillment of the conditions set forth in clause (a) of section 2.01 (A) and to the further conditions that (i) the representations and warranties made by Purchaser in Article IV hereof shall be true in all material respects as of the date of this Agreement and as of the time of the Closing, and (ii) Purchaser (or one of its affiliates) shall have commenced the Offer and purchased all shares of Common Stock (if any) validly tendered and not properly withdrawn pursuant to the terms of such offer. 2.02 The Closing of the purchase by Purchaser of the Shares contemplated by Section 1.01 of this Agreement shall take place substantially simultaneously with the closing of the Offer and immediately following the satisfaction (or waiver by the party entitled to the benefit thereof) of the conditions set forth in this Article II. The Closing shall take place at the offices of the Purchaser's attorneys, or at such other place as the parties hereto shall mutually agree. 2.03 Upon the termination of the Merger Agreement pursuant to the provisions of Article VI thereof, this Agreement also shall terminate without any adverse consequence to the Stockholders and without any further action by the parties hereto. 2.04 It is expressly understood and agreed that the Stockholders are entering into this Agreement solely in their capacity as stockholders of the Company, and nothing contained herein shall restrict or limit their rights, duties or fiduciary obligations as directors or officers of the Company, including without limitation their rights, duties and obligations under Section 4.3 of the Merger Agreement. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Each Stockholder Represents and warrants to Purchaser as follows: 3 EXECUTION COPY 3.01 Such Stockholder has all necessary power and authority to execute and deliver this Agreement and to sell, assign, transfer and deliver to Purchaser the Shares pursuant to the terms and conditions of this Agreement. Such Stockholder has sole voting power and sole power of disposition with respect to all of the Shares with no restrictions material to this Agreement on the Stockholder's voting rights or rights of disposition pertaining thereto, and the Shares constitute all shares of Common Stock beneficially owned by the Stockholder. 3.02 The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by such Stockholder, and no other proceedings on the part of the Stockholder are necessary to authorize this Agreement or to consummate the transactions so contemplated. This Agreement has been duly and validly executed and delivered by such Stockholder and, assuming it has been duly and validly authorized, executed and delivered by Purchaser, such agreement constitutes a valid and binding agreement of such Stockholder, enforceable against the Stockholder in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect generally affecting the rights of creditors and subject to general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). Neither the execution and delivery of this Agreement nor the consummation by such Stockholder of the transactions contemplated hereby will conflict with or constitute a material violation of or default under any contract, commitment, agreement, arrangement or restriction of any kind to which such Stockholder is a party or by which such Stockholder is bound. If this Agreement is being executed in a representative or fiduciary capacity, the person signing this Agreement has full power and authority to enter into and perform such agreement. 3.03 Each Stockholder has good title to the number of Shares appearing opposite his or its name, free of all claims, liens, options, charges, security interests or other legal or equitable rights and encumbrances of whatsoever nature (collectively, "Encumbrances"), and there exist no restrictions on the voting rights pertaining thereto, and Purchaser shall receive at the Closing good title to all Shares purchased from such Stockholder, free of all Encumbrances, and with no restriction on the voting rights pertaining thereto. 4 EXECUTION COPY 3.04 Such Stockholder's United States taxpayer identification number is as set forth beneath his or its signature below or on Schedule I hereto.Such Stockholder is not a foreign person as defined in Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to each Stockholder as follows: 4.01 Purchaser is duly organized, validly existing and in good standing under Delaware law and has all necessary power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. 4.02 The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by Purchaser and no other corporate proceedings on the part of Purchaser are necessary to authorize this Agreement or to consummate the transactions so contemplated. This Agreement has been duly and validly executed and delivered by Purchaser, and, assuming this Agreement has been duly and validly authorized, executed and delivered by each Stockholder, this Agreement constitutes a valid and binding agreement of Purchaser enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect generally affecting the rights of creditors and subject to general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.03 Purchaser is acquiring the Shares for its own account and not with a view to the public distribution thereof and will not offer to sell or otherwise dispose of the Shares so acquired in violation of the Securities Act of 1933, as amended. ARTICLE V. COVENANTS OF THE STOCKHOLDERS 5.01 Each Stockholder hereby covenants and agrees that, on and after the date hereof and during the term of this Agreement, such Stockholder will not sell, transfer, assign, pledge, hypothecate or otherwise dispose of or limit its right to vote in any manner, or otherwise encumber, any of the Shares which are the subject matter of this Agreement, or enter into any agreement to do any of the foregoing, except pursuant to 5 EXECUTION COPY Sections 1.01, 1.02 and 5.02 hereof. No Stockholder will take any action that would have the effect of preventing or disabling such Stockholder from performing his or its obligations under this Agreement. 5.02 Subject in all respects to Sections 2.03 and 2.04 hereof, effective upon the execution of this Agreement, each Stockholder appoints Greg Byrne and Massimo Candela, and each of them, with power of substitution in each, as proxies. (a) to vote the shares at any meeting of stockholders of the Company or any adjournment or adjournments thereof or (b) to execute and deliver consents with respect to the Shares upon any and all such matters as each such proxy or his substitute shall in his sole discretion deem proper. Each Stockholder intends this proxy to be irrevocable and coupled with an interest. Each Stockholder hereby revokes any proxy previously granted by such Stockholder with respect to any of the Shares. Subject in all respects to Sections 2.03 and 2.04 hereof, effective upon the execution and delivery of this Agreement, each Stockholder hereby agrees to vote the Shares in favor of the approval of the Merger and adoption of the Merger Agreement at any meeting of stockholders of the Company or any adjournment or adjournments thereof and in opposition to any transaction or action inconsistent with the Merger or the Merger Agreement and, if requested by Purchaser, to execute and deliver a consent to the approval of the Merger and adoption of the Merger Agreement and in opposition to any transaction or action inconsistent with the Merger or the Merger Agreement. 5.03 Each Stockholder shall, as soon as practicable after the execution and delivery of this Agreement, take all reasonable action required, if any, (i) to obtain all waivers, consents, approvals and agreements of any third parties, including governmental authorities, necessary or advisable to authorize, approve or permit the purchase and sale of Shares pursuant hereto, (ii) to release all encumbrances, if any, on the Shares, and (iii) to cooperate with Purchaser in defending any legal proceedings, whether judicial or administrative and whether brought derivatively or on behalf of third parties (including government agencies or officials), challenging this Agreement. 5.04 Simultaneously with the purchase of his Shares, each Stockholder who is a director of the Company shall submit his written resignation as a director of the Company effective as of the date of such resignation. 6 EXECUTION COPY ARTICLE VI. MISCELLANEOUS 6.01 In the event the Company institutes any change in the Common Stock by reason of a stock dividend, split-up, merger, recapitalization, combination, conversion, exchange of shares or the like, the number and kind of shares subject hereto and the Purchase Price shall be appropriately adjusted to reflect changes made in the Common Stock. 6.02 This Agreement will be governed by and construed in accordance with the internal laws of the State of Delaware, without regard to the principles of conflicts of law. This Agreement may be executed simultaneously in counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument. 6.03 The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 6.04 From time to time, at Purchaser's request and without further consideration, each Stockholder will execute and deliver to Purchaser such documents and take such action as Purchaser may reasonably request in order to consummate more effectively the transactions contemplated hereby and to vest in Purchaser good title to the Shares being sold by such Stockholder, including, but not limited to, using its best efforts to cause the Company's transfer agent to transfer the shares on the transfer books of the Company to Purchaser. 6.05 This Agreement will be binding upon, inure to the benefit of and be enforceable by (i) each Stockholder and such Stockholder's heirs, beneficiaries, representatives, successors and assigns, and (ii) Purchaser's successors and permitted assigns. Each Stockholder agrees that damages would be an inadequate remedy for breach of this Agreement and that the obligations of the parties hereto shall be enforced by the remedies of specific enforcement and injunctive relief. This Agreement may not be assigned by the parties hereto, except that Purchaser may assign its rights hereunder to any direct or indirect subsidiary of Purchaser. 6.06 In furtherance of this Agreement, each Stockholder hereby agrees to cause, within five business days of the date hereof, all certificates for the Shares to be legended to the effect that they are subject to the terms of this Agreement (and 7 EXECUTION COPY that this Agreement places limits on the voting and transfer of the Shares), and each Stockholder acknowledges that the Company, pursuant to Section 4.11 of the Merger Agreement, is issuing stop transfer instructions to the transfer agent for the Common Stock with respect to any transfer of Shares other than to Purchaser or any its affiliates. 6.07 This Agreement, and the documents referred to herein or delivered pursuant hereto which form a part hereof, contain the entire understanding of the parties hereto with respect to its subject matter, and each party hereto represents and acknowledges that it has not relied in any way upon any other agreements or understandings. There are no restrictions, agreements, promises, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein or therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. This Agreement may be amended only by a written instrument duly executed by all parties hereto. Any condition to a party's obligations hereunder may be waived by such party. 6.08 All notices, claims certificates, requests, demands and other communications hereunder ("notices") will be given in writing and will be deemed to have been duly given if delivered or mailed (registered or certified mail, postage prepaid, return receipt requested) or by facsimile transmission as follows (or at such other address for a party as shall be specified by like notice): (a) If to the Purchaser, to: Robert W. Forman Shapiro Forman Allen Miller & McPherson LLP 380 Madison Avenue New York, NY 10017 Fax no. 212 557-1275 (b) If to any stockholder, to the address set forth below such stockholder's signature below, with a copy to: 8 EXECUTION COPY Vernon R. Proctor, Esquire The Bayard Firm 222 Delaware Avenue, Suite 900 Wilmington, DE 19801 Fax. No. 302 658-6395 6.09 In the event any party shall commence any legal proceeding to enforce its rights under this Agreement, the prevailing party or parties in such proceeding shall be entitled all legal fees and expenses incurred by it or them in connection with such proceeding from the other party or parties. A party commencing any proceeding shall not be deemed to be a prevailing party unless it shall have obtained a final judgment in its favor in such proceeding that is no longer subject to appeal. 6.10 The parties agree to cooperate in connection with obtaining all regulatory approvals, if any, required to be obtained in connection with this Agreement, so as to minimize costs to be incurred by each of the parties. 9 EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. /s/ Gino Pala --------------------------------------- Gino Pala /s/ Gino Pala --------------------------------------- Gino Pala, as trustee of the Janice Pala Declaration of Trust /s/ Richard F. Joyce --------------------------------------- Richard F. Joyce, individually and as joint tenant with Deborah P. Joyce /s/ Richard Asta --------------------------------------- Richard Asta /s/ Len Dahlberg --------------------------------------- Len Dahlberg /s/ John Adornetto --------------------------------------- John Adornetto /s/ Laura Hemmings --------------------------------------- Laura Hemmings /s/ Deborah P. Joyce --------------------------------------- Deborah P. Joyce,(a) individually, (b) as Trustee of the Second Janice Pala Declaration of Trust, (c) as Custodian Shares in the names of Ryan F. Joyce, Kyle P. Joyce, Kevin M. Joyce and Daniel P. Joyce and (d) as Joint Tenant With Richard F. Joyce 10 EXECUTION COPY PENCIL ACQUISITION CORP. By: /s/ Massimo Candela ------------------------------- Massimo Candela President 11 EXECUTION COPY ANNEX I
Indebtedness (including No. of Shares accrued interest Stockholder Beneficially Owned through 11/30/04) ----------- ------------------ ----------------- Gino N. Pala 485,670 $208,997.38 Gino N. Pala as Trustee of Janice Pala Trust dated 1/24/91 150,000 Gino N. Pala as Custodian for Grandchildren 12,800 Richard F. Joyce 42,145 $133,618.83 Richard F. Joyce and Debbie Joyce jointly 3,310 Debbie Joyce 2,900 Debbie Joyce as Trustee for UA dated 5/11/92 97,420 Laura Hemmings 6,365 $ 19,087.04 Debbie Joyce as Custodian for Ryan Joyce 5,800 Debbie Joyce as Custodian for Kyle Joyce 9,120 Debbie Joyce as Custodian for Kevin Joyce 9,120 Debbie Joyce as Custodian for Daniel Joyce 9,120 Leonard D. Dahlberg, Jr. 8,094 $ 54,068.45 Richard A. Asta 58,145 $130,485.10 John Adornetto 11,815 $ 33,127.74
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