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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
September 30,
For the fiscal year ended 1996 Commission file number 0-2655
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DIXON TICONDEROGA COMPANY
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(Exact name of Company as specified in its charter)
Form 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 (Fee Required) For the fiscal year ended September 30, 1996.
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 (No Fee Required) For the transaction period from
__________ to __________.
Delaware 23-0973760
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
195 International Parkway, Heathrow, FL 32746
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (407) 829-9000
Title of each class Name of each exchange on which registered
Common Stock, $1.00 par value American Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Based on the closing sales price on December 3, 1996, the aggregate market
value of the voting stock held by non-affiliates of the Company was
$15,380,904.
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of December 3, 1996: 3,293,778 shares of common stock,
$1.00 Par Value.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of Form 10-K or any
amendment to this Form 10-K. [ ]
Documents Incorporated by Reference:
Proxy statement to security holders incorporated into Part III for the fiscal
year ended September 30, 1996.
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PART I
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ITEM 1. BUSINESS
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NEW DEVELOPMENTS AND BUSINESS STRATEGIES
Dixon Ticonderoga Company (hereinafter the "Company") accomplished
many strategic objectives during 1996. The Company reorganized and
strengthened its management ranks into its two core business groups, as
revenues grew to $106.7 million from $95.6 million in 1995. In addition,
these businesses earned approximately $10 million in operating income for
the second consecutive year. The Company also continued its efforts to
improve its customer service capabilities by opening a dedicated central
distribution center in Shelbyville, Tennessee, and through further
technology enhancements.
Corporate activities included the recapitalization of the Company's
debt, including nearly $70 million of new financing. The new arrangements
provide significantly more working capital to support the aforementioned
growth of the Company's Consumer and Industrial Groups. Moreover, in 1996
the Company completed and relocated its corporate headquarters to its new
facility in Heathrow, Florida.
Despite the success experienced in 1996, the results from operations
were adversely affected by certain unusual items. The Company provided
approximately $2 million ($1.44 million after tax) towards the final
settlement of its long-standing Dixon Venture lawsuit, based upon the
decision rendered by the Court in April 1996. In addition, an extraordinary
charge of $282,000 was incurred in connection with the early retirement of
certain long-term debt as part of the recapitalization described above.
Further information regarding these matters is included elsewhere in the
Annual Report on Form 10-K.
<PAGE> 3
INDUSTRY SEGMENTS
In 1996, the Company redefined its principal business segments to
reflect its current management structure and strategic objectives. The
Company has two principal continuing business segments: its Consumer Group
and Industrial Group. These segments, and the primary operations of each,
are as follows:
BUSINESS SEGMENTS OPERATIONS
Consumer Group Manufacture and sale of writing and drawing
pencils, pens, artist materials, felt tip
markers, industrial markers, lumber crayons,
typewriter correction materials and allied
products.
Industrial Group Manufacture and sale to industry of processed
natural and synthetic bulk graphite, graphite
oil, solvent and water-based lubricants, as
well as colloidal graphitic suspensions
(Graphite and Lubricants division); clay and
graphite stopper heads, firebrick,
non-graphitic refractory kiln furniture and
furnace linings (Refractories division).
Financial information regarding net revenues, operating profits and
identifiable assets related to the Company's industry segments for the years
ended September 30, 1996, 1995, and 1994, is contained in Note 11 to
Consolidated Financial Statements.
The Company's international operations are subject to certain risks
inherent in carrying on business abroad, including the risk of currency
fluctuations, currency remittance restrictions and unfavorable political
conditions. It is the Company's opinion that there are presently no material
political risks involved in doing business in the foreign countries (i.e.
Mexico, Canada and Europe) in which its operations are being conducted.
CONSUMER GROUP
The Company manufactures its leading brand TICONDEROGA and a full line
of pencils in Versailles, Missouri. The Company also manufactures and markets
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advertising specialty pencils, pens and markers through its promotional
products division.
The Company is also the producer of WEAREVER writing products at its
facility in Deer Lake, Pennsylvania. In addition to the WEAREVER and Dixon
lines of pens, the Company also manufactures and markets its Prang and
Ticonderoga lines of markers, mechanical pencils, and allied products at
this facility.
The Company also manufactures in Sandusky, Ohio (mainly for wholesale
school suppliers and retailers) PRANG, COLORART, and other well known
brands of wax crayons, chalks, dry and liquid tempera, water colors and art
materials. This division also manufactures special markers for industrial
use and paper-wrapped pencils, all of which are marketed and sold, together
with the products manufactured by the Versailles and Deer Lake operations, by
the U.S. Consumer Products group.
Under an agreement with Warner Bros. Consumer Products, the Company also
manufactures and markets in the U.S. and Canada a complete product line of
pencils, pens, crayons, chalks, markers, paints, art kits and related items
featuring the famous Looney Tunes characters. (See Note 12 to Consolidated
Financial Statements.)
Dixon Ticonderoga Inc., a wholly-owned subsidiary with a distribution
center in Newmarket, Ontario, and a manufacturing plant in Acton Vale,
Quebec, Canada, is engaged in the sale in Canada of black and color writing
and drawing pencils, pens, lumber crayons, correction materials, erasers,
rubber bands and allied products. It also distributes certain of the school
product lines. The Acton Vale plant also produces eraser products and
correction materials for distribution by the U.S. Consumer Products group.
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Dixon Ticonderoga de Mexico, Inc., S.A. de C.V., a majority-owned
subsidiary (50.1%) of Dixon Ticonderoga Inc., is engaged in the manufacture
and sale in Mexico of black and color writing and drawing pencils, typewriter
correction materials, lumber crayons and allied products. This subsidiary
also manufactures and sells in Mexico certain products of the type
manufactured at the Sandusky facility, as well as marker products
manufactured at the Deer Lake facility.
Dixon Europe, Limited, a wholly-owned subsidiary of the Company is
engaged in the distribution of many Dixon Consumer Products in the United
Kingdom and other European countries.
INDUSTRIAL GROUP
Through its Graphite and Lubricants division, Dixon manufactures and
sells processed natural and synthetic graphite, graphite oil, solvent and
water-based lubricants as well as colloidal graphitic suspensions. The
American Graphite location in Manchester Township, New Jersey, and the
Southwestern Graphite location in Burnet, Texas, process and sell graphite to
industrial customers, and are engaged in the processing and blending of
various grades of foreign and domestic graphites for use in the manufacture
and sale of related products.
The New Castle Refractories division, with plants located in Ohio,
Pennsylvania and West Virginia, manufactures various types of non-graphitic
refractory kiln furniture used by the ceramic and glass industries;
firebrick, various types and designs of non-graphitic refractory special
shapes for ferrous and nonferrous metal industries; refractory shapes for
furnace linings and industrial furnace construction; various grades of
insulating firebrick and graphite stopper heads.
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REAL ESTATE OPERATIONS (Discontinued Operations)
The Company previously developed Bryn Mawr Ocean Towers (three
nine-story towers) on North Hutchinson Island, Florida, which were sold as
condominiums. Pursuant to a formal plan and agreement dated September 29,
1995, the Company disposed of the remaining property dedicated to this
project and has ceased any further real estate activities. This segment is
therefore treated as "Discontinued Operations." (See Note 10 to Consolidated
Financial Statements.)
DISTRIBUTION
Consumer products manufactured at the Sandusky, Ohio; Deer Lake,
Pennsylvania; and Versailles, Missouri plants are distributed nationally
through wholesale, commercial and retail stationers, school supply houses,
industrial supply houses, blueprint and reproduction supply firms, art
material distributors and retailers. In 1996, the Company opened a central
distribution center in Shelbyville, Tennessee, to enhance service levels,
especially with respect to large retail customers. The consumer products
manufactured at the Canadian and Mexican plants are distributed nationally in
these countries through wholesalers, distributors, school supply houses and
retailers.
The industrial products manufactured at the various plants are sold by
direct sales, manufacturers' representatives and industrial distributors in
North America. In addition, these products are sold worldwide, principally
in Central and South America, Europe, the Philippines and Japan.
RAW MATERIALS
Graphite, which can be considered a strategic raw material for the
Company's business, is sold by the Company in bulk and as a component, and is
used in the manufacture of refractory products, lubricants and leads for
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wood-cased pencils. Graphite is purchased from Brazil, Madagascar, India,
Mexico, People's Republic of China, Sri Lanka, West Germany and Zimbabwe.
There were no significant raw material shortages of any consequence during
1996 nor any anticipated for future periods.
TRADEMARKS, PATENTS AND COPYRIGHTS
The Company owns a large number of trademarks, patents and copyrights in
each industry segment related to products manufactured and marketed by it,
which have been secured over many years. These have been of value in the
growth of the business and should continue to be of value in the future.
However, in the opinion of the Company, its business generally is not
dependent upon the protection of any patent or patent application or the
expiration of any patent.
SEASONAL ASPECTS OF THE BUSINESS
The Consumer Group reflects greater portions (approximately 65% in 1996)
of its sales in the third and fourth fiscal quarters of the year due to
shipments of school orders to its distribution network. This practice, which
is standard for this industry, usually causes the Company to incur additional
bank borrowings during the period between shipment and payment.
The Industrial Group has no material seasonal aspects.
COMPETITION
Both of the Company's industry segments are engaged in a highly
competitive business with a number of competitors, some of whom are larger
and have greater resources than the Company. Important to the Company's
market position are the quality and performance of its products, its
marketing and distribution systems, and the reputation developed over the
many years that the Company has been in business.
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RESEARCH AND DEVELOPMENT
The Company employs approximately 17 full-time professional employees in
the area of quality control and product development. The Company has
established a centralized research and development laboratory in its
Sandusky, Ohio facility. For accounting purposes, research and development
expenses in any year presented in the accompanying Consolidated Financial
Statements do not represent more than 1% of revenues.
EMPLOYEES
The total number of persons employed by the Company was approximately
1,240 of which 796 were employed in the United States.
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ITEM 2. PROPERTIES
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The following properties of the Company are owned in fee and are
collateralized or pledged under the Company's loan agreement with a
consortium of lenders (First Union Capital Corporation as agent), except for
the Heathrow, Florida, property, which is subject to a separate mortgage
agreement. See Notes 3 and 4 to Consolidated Financial Statements. Most of
the buildings are of steel frame and masonry or concrete construction.
SQUARE FEET
LOCATION OF FLOOR SPACE
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Heathrow, Florida (Corporate Headquarters) 33,000
Sandusky, Ohio (Consumer) 276,000
Manchester Township, New Jersey (American
Graphite) (Graphite and Lubricants division) 76,000
Near Burnet, Texas (Southwestern Graphite)
(Graphite and Lubricants division) 97,000
New Castle, Pennsylvania (Refractories division) 131,000
Newell, West Virginia (Refractories division) 45,000
Massillon, Ohio (Refractories division) 113,000
Zoar, Ohio (Refractories division) 65,000
Acton Vale, Quebec, Canada (Dixon
Ticonderoga Inc.) (Consumer) 32,000
Tlalnepantla, D.F., Mexico (Dixon Ticonderoga de Mexico,
S.A. de C.V.) (Consumer) 55,000
Versailles, Missouri (Consumer) 120,000
Shelbyville, Tennessee (Consumer) 94,000
Deer Lake, Pennsylvania (Consumer) 150,000
The Company also owns a non-operating graphite mine near Burnet, Texas,
included with land at historical cost in the consolidated balance sheets.
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ITEM 3. LEGAL PROCEEDINGS
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In March 1986, The Dixon Venture ("Venture") (an unrelated company)
filed a civil action in the New Jersey Superior Court seeking recovery of
damages and costs allegedly incurred by Venture in connection with the clean-
up of industrial property acquired from the Company in Jersey City, New
Jersey in February, 1984. Venture's claims were brought pursuant to the New
Jersey Environmental Clean-up Responsibility Act ("ECRA"), an environmental
remedial statute dealing with the transfer of industrial property.
On April 24, 1996, a decision was rendered by the Superior Court of New
Jersey in Hudson County finding the Company responsible for $1.94 million in
certain environmental clean-up costs relating to this matter. Including pre-
judgment interest on the damage award, it is estimated that the Company's
exposure will not exceed approximately $3.3 million. The Company continues
to evaluate pursuing other responsible parties for indemnification and/or
contribution to the payment of this claim (including its insurance carriers
and a legal malpractice action against its former attorneys) and is in the
process of preparing and filing an appeal. As a result of the judgment, the
Company increased its liability accrued for this matter to $3.3 million
during fiscal 1996.
Also see Note 12 to Consolidated Financial Statements.
ITEM 4. SUBMISSION ON MATTERS TO VOTE OF SECURITY HOLDERS
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None.
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PART II
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ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS
-----------------------------------
Dixon Ticonderoga Company common stock is traded on the American Stock
Exchange. The following table sets forth the low and high per share prices
as per the American Stock Exchange closing prices for the applicable quarter.
FISCAL FISCAL
QUARTER ENDING 1996 1995
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LOW HIGH LOW HIGH
--- ---- --- ----
December 31 5.50 9.88 7.38 9.88
March 31 6.38 7.75 8.50 11.13
June 30 6.00 7.50 7.13 8.88
September 30 6.50 8.13 7.25 8.38
Since fiscal 1990, the Board of Directors has suspended payment of
dividends. The Board will continue to review the Company's future
performance and determine the dividend policy on a quarter-to-quarter basis.
The Company's debt agreements restrict the amount of dividends which can be
paid in the future. (See Notes 3 and 4 to Consolidated Financial Statements).
The number of record holders of the Company's common stock at
December 3, 1996, was 448.
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ITEM 6. SELECTED FINANCIAL DATA
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DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
FOR THE FIVE YEARS ENDED SEPTEMBER 30, 1996
(in thousands, except per share amounts)
1996 1995 1994 1993 1992
REVENUES $106,696 $95,565 $91,932 $82,138 $81,740
======== ======= ======= ======= =======
INCOME FROM
CONTINUING OPERATIONS $ 1,168 $ 1,658 $ 3,417 $ 476 $ 437
LOSS FROM
DISCONTINUED OPERATIONS - (595) (116) (146) (179)
EXTRAORDINARY ITEM (282) - - - -
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE - - - 235 -
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NET INCOME $ 886 $ 1,063 $ 3,301 $ 565 $ 258
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EARNINGS (LOSS) PER
COMMON SHARE:
CONTINUING OPERATIONS $ .36 $ .52 $ 1.10 $ .15 $ .14
DISCONTINUED OPERATIONS - (.19) (.04) (.04) (.06)
EXTRAORDINARY ITEM (.09) - - - -
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE - - - .07 -
-------- ------- ------- ------- ------
NET INCOME $ .27 $ .33 $ 1.06 $ .18 $ .08
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TOTAL ASSETS $ 77,848 $70,158 $68,852 $63,946 $61,981
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LONG-TERM DEBT $ 25,119 $14,541 $19,141 $18,279 $23,083
======== ======= ======= ======= =======
DIVIDENDS PER
COMMON SHARE $ - $ - $ - $ - $ -
======== ======= ======= ======= =======
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
1996 vs. 1995
Income from continuing operations before income taxes, minority interest
and extraordinary items decreased $1,014,000 in 1996. In 1996 and 1995 there
were provisions of $2,039,000 and $1,530,000, respectively, for litigation
settlements and legal costs related to several lawsuits (see Item 3 and Note
12 to Consolidated Financial Statements). Foreign Consumer operating profits
decreased $962,000 primarily due to provisions for doubtful accounts
receivable (of approximately $500,000) in Mexico, as well as 1995 foreign
currency gains of over $500,000. Also in 1996, there were additional
distribution and promotional costs incurred by U.S. Consumer to service the
mass retail and mega-store markets.
1995 vs. 1994
Income from continuing operations before income taxes and minority
interest decreased $1,000,000 in 1995. Included in 1995 are provisions of
$1,530,000 for litigation settlements and legal costs related to several
lawsuits (see Item 3 and Note 12 to Consolidated Financial Statements). In
1994, there was a gain on sale of subsidiary stock and other assets of
$2,313,000 relating primarily to the sale of stock in our Mexico subsidiary
(see Note 8 to Consolidated Financial Statements). Net corporate expenses
decreased $690,000 in 1995, while interest expense decreased $678,000. The
interest expense reduction was principally due to the Mexican subsidiary's
low borrowing position subsequent to the aforementioned sale of stock.
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1994 vs. 1993:
The improvement in income before income taxes amounted to $3,946,000 in
1994. The increase in gain on sale of subsidiary stock and other assets of
$1,942,000 is primarily due to the sale of the stock in the Mexico subsidiary
(see Note 8 to Consolidated Financial Statements). Increased revenue in the
Consumer Group (primarily due to volume) led to better manufacturing
efficiencies. New products and more aggressive marketing, particularly in
the retail market, contributed to this volume increase. Industrial Group
revenue improved principally due to Refractory division increases in volume
and more favorable mix contributing to higher profitability. The interest
expense increase was due primarily to higher average rates of interest in
1994.
Discontinued Operations:
The 1995 loss from discontinued operations of the real estate segment
represents a net operating loss of $175,000 (net of a tax benefit of
$104,000) and a loss on disposal of $420,000 (net of a tax benefit of
$250,000). Net operating losses of the real estate segment was $116,000 in
1994.
Extraordinary Item:
The 1996 extraordinary charge of $282,303 represents costs associated
with the early retirement of the Company's 10.59% Senior Subordinated Notes,
due 1999. See Note 4 to Consolidated Financial Statements.
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REVENUES
Overall 1996 revenues increased $11,131,000 over the prior year. The
changes by segment are as follows:
Increase % Increase (Decrease)
(Decrease) Total Volume Price/Mix
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Consumer U.S. $8,223,000 15 14 1
Consumer Foreign 3,082,000 19 19 -
Industrial (174,000) (1) - (1)
Consumer revenues in the United States increased primarily in the commercial
office supply mega-stores and mass retail markets. The increase in Foreign
Consumer revenue included increases of $1,100,000 in Canada and $1,960,000 in
Mexico. In the prior year, Mexico revenue was depressed because of the
devaluation of the Mexican peso that occurred in early fiscal 1995. This
year's revenue decreased $1,700,000 in Mexico due to the decline of the peso
value compared to the U.S. dollar. This decline was offset by increased peso
selling prices.
Revenues in 1995 increased $3,632,000 over the prior year. The changes
by segment are as follows:
Increase % Increase (Decrease)
(Decrease) Total Volume Price/Mix
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Consumer U.S. $4,624,000 9 8 1
Consumer Foreign (2,198,000) (13) (9) (4)
Industrial 1,206,000 5 4 1
U.S. Consumer revenue volume increases were primarily in the office supply
mega-store market. The decrease in Foreign Consumer revenue was primarily
due to the majority-owned subsidiary in Mexico. Revenue in Mexico decreased
$5,200,000 due to the decline of the peso value compared to the U.S. dollar.
This decrease was partially offset by increased peso selling prices.
Industrial revenue increased primarily due to higher volume in the Refractory
division.
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Overall 1994 revenues increased $9,795,000 over the prior year. The
increases and decreases by segment are as follows:
Increase % Increase (Decrease)
(Decrease) Total Volume Price/Mix
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Consumer U.S. $6,347,000 15 14 1
Consumer Foreign 1,807,000 11 12 (1)
Industrial 1,641,000 7 3 4
The increase in U.S. Consumer Products volume was in both the commercial and
mass retail markets and was enhanced by new product introductions. Foreign
revenue increase was primarily by our subsidiary in Mexico. However, the
foreign revenue increase is after revenue reductions in Canada and Mexico of
$470,000 and $450,000, respectively, due to the decline of their local
currency value (as compared with the U.S. dollar). Industrial revenue
increased due principally to improved Refractory division product mix and
higher volume.
OPERATING PROFITS
There was a decrease of $582,000 in operating profits by segment in
1996. Foreign Consumer operating profits decreased $962,000 primarily due to
provisions for doubtful accounts receivable (of approximately $500,000) in
Mexico, as well as 1995 foreign currency gains of over $500,000. U.S.
Consumer operating profits increased $367,000. This increase was due to the
U.S. Consumer revenue growth. However, additional distribution and
promotional costs incurred to service the U.S. Consumer retail and mega-store
markets partially offset revenue growth.
Operating profits increased $1,476,000 in 1995. Foreign operations
increased $984,000. Our Canadian subsidiary increase of $396,000 reflected
higher revenues and a stable year with respect to that country's currency.
The increase in Mexico was primarily due to increased shipments to the U.S.
<PAGE> 17
and related plant efficiencies and currency gains. Industrial Group revenues
increased $350,000 on higher Refractories division volume. U.S. Consumer
operating profits were relatively flat. U.S. Consumer revenue and gross
profit increases were offset by increased selling and distribution costs,
primarily incurred to service the office supply mega-store markets.
In 1994, operating profits by segment increased $2,718,000. Consumer
increased $2,132,000 on significantly higher revenues. A decrease in the
value of the local currency in Mexico was offset by price increases and
volume. Industrial increased $500,000 on higher volume and favorable product
mix of the Refractories division.
MINORITY INTEREST
Minority interest represents 49.9% of the net income of the consolidated
subsidiary, Dixon Ticonderoga de Mexico, S.A. de C.V. ($920,000 and
$1,151,000 in 1996 and 1995, respectively), equivalent to the extent of the
investment of the minority shareholders. As described in Note 8 to
Consolidated Financial Statements, this minority interest was created by an
initial public offering in September 1994. Accordingly, 1994 minority
interest of $11,000 only reflects the portion of net income earned in the
latter part of September 1994.
EFFECT OF CERTAIN NEW ACCOUNTING PRONOUNCEMENTS
As discussed in Note 1 to Consolidated Financial Statements, the
Financial Accounting Standards Board (FASB) issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." This statement, which must be adopted by the Company no
later than fiscal 1997, establishes accounting standards with respect to the
impairment of long-lived assets. Its adoption is not expected
<PAGE> 18
to materially affect the future results of operations or financial position
of the Company.
In 1995, the FASB also issued Statement No. 123, "Accounting for Stock-
Based Compensation." The statement (effective for the Company in fiscal
1997) would provide certain specific disclosures regarding the value of stock
option grants made in fiscal 1996 and thereafter. The Company does not
expect to adopt the compensation recognition provision of the Statement, and,
accordingly, it is not expected to affect the future results of operations or
financial position of the Company.
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition has benefited from its recent
operating success and the completion of major financing initiatives. Cash
flows from operating activities in 1996 improved by approximately $1.3
million over the prior year, due principally to more strict inventory control
practices. Inventory levels were reduced in excess of $1 million, despite an
increase in sales of 16%, in the Company's Consumer Group. In comparison,
Consumer inventory levels increased 15% in 1995. This significant
improvement in inventory management was offset by an increase in accounts
receivable due to higher revenues. Company revenues for the fourth quarter
increased 21% in 1996. As is the case historically, cyclical short-term
borrowings (see below) financed peak mid-year increases in accounts
receivable and inventories.
The Company's investing activities included approximately $4 million in
purchases of property and equipment in 1996. This higher level of purchases
as compared with prior years is attributable to the construction of the
Company's new corporate headquarters facility in Heathrow, Florida.
Expenditures to complete this building project approximated $2.2 million in
1996 (with a total project cost of approximately $3.6 million). The
construction costs were ultimately financed through a permanent $2.73 million
mortgage arrangement. (See Note 4 to Consolidated Financial Statements).
The Company also intends to finance certain strategic manufacturing equipment
(in the amount of $2.8 million) under a long-term lease arrangement
commencing in late 1996. Generally, all other major capital projects are
discretionary in nature and thus no material purchase commitments exist.
Other capital expenditures will include customary projects, and will continue
to be funded from operations and existing financing arrangements.
<PAGE> 20
The Company completed major refinancing activities during 1996. In July
1996, the Company entered into new financing arrangements with a consortium
of lenders (First Union Commercial Corporation as agent) to provide
additional working capital. The new loan and security agreement provides for
a total of $48 million in financing. This includes a revolving line of
credit facility in the amount of $40 million which bears interest at either
the prime rate, plus 0.5%, or the prevailing LIBOR rate plus 2.5%.
Borrowings under the revolving credit facility are based upon eligible
accounts receivable and inventories of the Company's U.S. and Canada
operations, as defined. The financing agreement also includes a term loan in
the amount of $7.75 million. The term loan bears interest at the same rate,
and is payable in varying monthly installments through 2001. The Company
previously executed certain interest rate "swap" agreements which effectively
fix the rate of interest on approximately $13 million of this debt at 8.75%
to 8.87%.
These new financing arrangements are collateralized by the tangible and
intangible assets of the U.S. and Canada operations (including accounts
receivable, inventories, property, plant and equipment, patents and
trademarks) and a pledge of the capital stock of the Company's subsidiaries.
The loan and security agreement contains provisions pertaining to the
maintenance of certain financial ratios and annual capital expenditure
levels, as well as restrictions as to payment of cash dividends. The Company
is presently in compliance with all such provisions. These new arrangements
provide up to $10 million in additional financing as compared with the
Company's previous primary lender agreement. At September 30, 1996, the
Company had approximately $27 million of unused lines of credit available
under this new financing arrangement.
<PAGE> 21
In September 1996, the Company also completed the private placement of
$16.5 million of new 12% Senior Subordinated Notes, due 2003. The net
proceeds were used to retire early the remaining $7 million of the Company's
prior issue of Senior Subordinated Notes due 1999, and to reduce short-term
borrowings, thus providing additional working capital. This transaction also
reduced the Company's annual debt service obligations by approximately $3.3
million through 1998. The Company executed a reverse interest rate "swap"
agreement which converts $10 million of the notes to a floating rate of
interest (approximately 10.6% at September 30, 1996). In connection with the
private placement, the Company issued to noteholders warrants to purchase
300,000 shares of Company stock at its market value of $7.24 per share. The
note agreement contains provisions which limit the payment of dividends and
require the maintenance of certain financial covenants and ratios, with which
the Company is presently in compliance.
Refer to Notes 3 and 4 to Consolidated Financial Statements for further
description of the aforementioned new financing arrangements.
The new and existing sources of financing and cash expected to be
generated from future operations will, in management's opinion, be sufficient
to fulfill all current and anticipated requirements of the Company's ongoing
business and to meet all of its obligations.
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE
Report of Independent Accountants 23
Consolidated Balance Sheets as of
September 30, 1996 and 1995 24-25
Consolidated Statements of Operations For the Years
Ended September 30, 1996, 1995 and 1994 26
Consolidated Statements of Shareholders' Equity
For the Years Ended September 30, 1996, 1995 and 1994 27
Consolidated Statements of Cash Flows For the Years
Ended September 30, 1996, 1995 and 1994 28-29
Notes to Consolidated Financial Statements 30-45
Schedule For the Years Ended
September 30, 1996, 1995, and 1994:
II. Valuation and Qualifying Accounts 46
Consent of Independent Accountants 47
Information required by other schedules called for under Regulation S-X
is either not applicable or is included in the Consolidated Financial
Statements or Notes thereto.
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of Directors of
Dixon Ticonderoga Company
We have audited the accompanying consolidated financial statements and
the financial statement schedule of Dixon Ticonderoga Company and
subsidiaries as listed in the index on page 22 of this Form 10-K. These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Dixon Ticonderoga Company and subsidiaries at September 30, 1996 and 1995,
and the consolidated results of their operations and cash flows for each of
the three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Orlando, Florida
November 27, 1996
<PAGE> 24
<TABLE>
<CAPTION>
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
ASSETS 1996 1995
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,597,032 $ 1,513,622
Receivables, less allowance for
doubtful accounts of $1,352,411
in 1996 and $796,715 in 1995 23,442,889 18,202,541
Inventories 31,460,934 32,638,385
Assets held for sale 94,937 436,306
Other current assets 2,949,859 2,254,101
----------- -----------
Total current assets 60,545,651 55,044,955
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 15,711,724 12,908,945
Machinery and equipment 16,537,994 16,986,408
Furniture and fixtures 917,222 902,043
----------- -----------
33,166,940 30,797,396
Less accumulated depreciation (17,730,505) (17,229,617)
----------- -----------
15,436,435 13,567,779
----------- -----------
OTHER ASSETS 1,866,054 1,545,110
----------- -----------
$77,848,140 $70,157,844
=========== ===========
<PAGE> 25
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY 1996 1995
-------------------- ---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable $14,159,143 $17,877,665
Current maturities of long-term debt 1,613,773 4,587,016
Accounts payable 5,461,348 5,280,884
Accrued liabilities 10,934,838 8,388,309
----------- -----------
Total current liabilities 32,169,102 36,133,874
----------- -----------
LONG-TERM DEBT 25,119,305 14,540,884
----------- -----------
DEFERRED INCOME TAXES AND OTHER 1,051,171 1,177,288
----------- -----------
MINORITY INTEREST 3,517,006 3,073,375
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par $1, authorized
100,000 shares, none issued -- --
Common stock, par $1, authorized
8,000,000 shares, issued 3,537,211
shares in 1996 and 3,448,466
shares in 1995 3,537,211 3,448,466
Capital in excess of par value 2,489,674 2,166,329
Retained earnings 13,526,520 12,640,762
Cumulative translation adjustment (2,669,031) (2,087,354)
----------- -----------
16,884,374 16,168,203
Less treasury stock, at cost
(243,433 shares in 1996; 255,147
shares in 1995) (892,818) (935,780)
----------- -----------
15,991,556 15,232,423
----------- -----------
$77,848,140 $70,157,844
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 26
<TABLE>
<CAPTION>
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES $106,695,874 $95,565,000 $91,932,479
------------ ----------- -----------
COSTS AND EXPENSES:
Cost of goods sold 70,343,837 62,193,918 62,246,254
Selling and
administrative expenses 27,955,760 24,241,328 22,721,878
------------ ----------- -----------
98,299,597 86,435,246 84,968,132
------------ ----------- -----------
OPERATING INCOME 8,396,277 9,129,754 6,964,347
------------ ----------- -----------
INTEREST EXPENSE (3,423,650) (3,652,824) (4,330,581)
PROVISIONS FOR LITIGATION
SETTLEMENTS AND RELATED COSTS (2,039,000) (1,530,377) --
GAIN ON SALE OF SUBSIDIARY
STOCK AND OTHER ASSETS -- -- 2,313,470
------------ ----------- -----------
(5,462,650) (5,183,201) (2,017,111)
------------ ----------- -----------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND MINORITY INTEREST 2,933,627 3,946,553 4,947,236
INCOME TAXES 845,044 1,137,897 1,518,053
------------ ----------- -----------
2,088,583 2,808,656 3,429,183
MINORITY INTEREST 920,522 1,150,690 11,469
------------ ----------- -----------
INCOME FROM CONTINUING OPERATIONS 1,168,061 1,657,966 3,417,714
DISCONTINUED OPERATIONS -- (594,923) (116,481)
EXTRAORDINARY ITEM (282,303) -- --
------------ ----------- -----------
NET INCOME $ 885,758 $ 1,063,043 $ 3,301,233
============ =========== ===========
EARNINGS (LOSS) PER
COMMON SHARE:
Continuing operations .36 $ .52 $ 1.10
Discontinued operations -- (.19) (.04)
Extraordinary item (.09) -- --
----------- ---------- ----------
Net income $ .27 $ .33 $ 1.06
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 27
<TABLE>
<CAPTION>
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Common Capital in Cumulative
Stock $1 Excess of Retained Translation Treasury
Par Value Par Value Earnings Adjustment Stock
--------- --------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1993 $ 3,376,835 $ 1,769,171 $ 8,276,486 $ (627,419) $(1,007,043)
Net income 3,301,233
Cumulative translation adjustment 95,964
Employee stock options exercised 48,038 253,958
Employee Stock Purchase Plan
(9,305 shares) 19,510 34,131
----------- ----------- ---------- ----------- -----------
BALANCE, September 30, 1994 $ 3,424,873 $ 2,042,639 $11,577,719 $ (531,455) $ (972,912)
Net income 1,063,043
Cumulative translation adjustment (1,555,899)
Employee stock options exercised 23,593 91,985
Employee Stock Purchase Plan
(10,123 shares) 31,705 37,132
----------- ----------- ---------- ----------- -----------
BALANCE, September 30, 1995 $ 3,448,466 $ 2,166,329 $12,640,762 $(2,087,354) $ (935,780)
Net income 885,758
Cumulative translation adjustment (581,677)
Employee stock options exercised 88,745 295,368
Employee Stock Purchase Plan
(11,714 shares) 21,977 42,962
----------- ----------- ---------- ----------- -----------
BALANCE, September 30, 1996 $ 3,537,211 $ 2,489,674 $13,526,520 $(2,669,031) $ (892,818)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 28
<TABLE>
<CAPTION>
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from
operating activities:
Income from continuing
operations $1,168,061 $1,657,966 $3,417,714
Loss from discontinued
operations -- (594,923) (116,481)
Loss from extraordinary item (282,303) -- --
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,361,081 2,379,728 2,502,451
Gain on sale of subsidiary stock
and other assets -- -- (2,313,470)
Deferred taxes (900,298) 83,802 (19,111)
Income attributable to
minority interest 920,522 1,150,690 11,469
(Income) loss attributable
to currency translation (201) (511,424) 110,830
Changes in assets [(increase)
decrease] and liabilities
[increase(decrease)]:
Receivables, net (5,649,182) 194,045 (3,053,682)
Inventories 632,502 (4,929,306) (698,187)
Other current assets 122,595 147,739 (260,203)
Accounts payable and accrued
liabilities 3,176,740 (21,632) 3,270,750
Other assets (530,503) 114,006 (331,606)
---------- ---------- ----------
Net cash provided by (used in)
operating activities 1,019,014 (329,309) 2,520,474
---------- ---------- ----------
Cash flows from
investing activities:
Purchases of plant and equipment (4,090,295) (3,007,547) (1,842,331)
Proceeds from sale of assets -- -- 573,708
Proceeds from sale of
subsidiary stock -- -- 5,734,723
---------- ---------- ----------
Net cash provided by (used in)
investing activities (4,090,295) (3,007,547) 4,466,100
<PAGE> 29
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from
financing activities:
Principal additions to Senior
Subordinated Notes 16,500,000 -- --
Principal reductions of Senior
Subordinated Notes (10,350,000) (3,325,000) (3,325,000)
Proceeds from additions to
long-term debt 2,725,000 -- 9,666,667
Proceeds from additions to
notes payable -- 8,040,299 7,937,368
Principal reductions of
long-term debt (1,222,847) (1,131,276) (5,980,120)
Principal reductions of
notes payable (3,718,522) -- (14,248,878)
Other non-current liabilities (1,949) (109,626) 113,341
Employee Stock Purchase Plan 70,939 68,837 53,641
Exercise of stock options 384,113 115,578 301,996
---------- ---------- ----------
Net cash provided by (used in)
financing activities 4,386,734 3,658,812 (5,480,985)
---------- ---------- ----------
Effect of exchange rate changes
on cash (232,043) (631,098) (14,866)
---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents 1,083,410 (309,142) 1,490,723
Cash and cash equivalents,
beginning of year 1,513,622 1,822,764 332,041
---------- ---------- ----------
Cash and cash equivalents,
end of year $ 2,597,032 $ 1,513,622 $ 1,822,764
=========== =========== ===========
Supplemental Disclosures:
Cash paid during the year for:
Interest (net of amount capitalized) $3,545,106 $ 3,697,023 $ 4,282,857
Income taxes 972,403 1,616,427 400,411
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 30
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business:
Dixon Ticonderoga Company is a diversified manufacturer and marketer of
writing and art products as well as a producer of graphite, lubricant
and refractory products. Its largest principal customers are school
products distributors, mass merchandisers and industrial manufacturers,
although none account for over 6% of revenues.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the
financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Principles of consolidation:
The consolidated financial statements include the accounts of Dixon
Ticonderoga Company and all of its subsidiaries (the "Company"). All
significant intercompany transactions and balances have been eliminated
in consolidation. Minority interest represents the minority
shareholders' proportionate share of the equity of the Company's Mexico
subsidiary (49.9%).
Translation of foreign currencies:
In accordance with Financial Accounting Standards Board (FASB) Statement
No. 52, results from Canada, Mexico and United Kingdom operations are
translated using average exchange rates during the period. Assets and
liabilities denominated in local currency are translated into U.S.
dollars at current exchange rates with the gain or loss being recorded
in shareholders' equity. Gains and losses from foreign currency
transactions are included in the Consolidated Statement of Operations.
Cash and cash equivalents:
Cash and cash equivalents include investment instruments with a maturity
of three months or less at time of purchase.
<PAGE> 31
Inventories:
Inventories are stated at the lower of cost or market. Certain
inventories amounting to $16,253,000 and $15,250,000, at September 30,
1996 and 1995, respectively, are stated on the last-in, first-out (LIFO)
method of determining inventory costs. Under the first-in, first-out
(FIFO) method of accounting, these inventories would be $958,000 and
$1,282,000 higher at September 30, 1996 and 1995, respectively. All
other inventories are accounted for using the FIFO method.
All inventories that are stated on the LIFO method were acquired in 1983
as a result of an acquisition. This acquisition was treated as a
purchase and accordingly, inventory was recorded at its fair market
value for financial accounting purposes. As a result, the financial
accounting basis for the LIFO inventories exceeds the LIFO tax basis by
approximately $1,276,000 and $1,339,000 at September 30, 1996 and 1995,
respectively.
Inventories consist of (in thousands):
September 30,
1996 1995
---------------------
Raw material $ 12,538 $ 12,450
Work in process 4,268 4,462
Finished goods 14,655 15,726
-------- --------
$ 31,461 $ 32,638
======== ========
Assets held for sale:
Assets held for sale represent idled and other assets specifically
identified for sale within the next fiscal year. The assets are stated
at their aggregate net book value which does not exceed estimated net
realizable value.
Property, plant and equipment:
Property, plant and equipment are stated at cost. During 1996,
capitalized interest (reflected in land and buildings) amounted to
$120,443. Depreciation is provided principally on a straight-line basis
over the estimated useful lives of the respective assets.
When assets are sold or retired, their cost and related accumulated
depreciation are removed from the accounts. Any gain or loss is
included in income.
<PAGE> 32
Income taxes:
The Company recognizes deferred tax assets and liabilities for future
tax consequences of events that have been included in the financial
statements or tax returns. Under this method, amounts for deferred tax
assets and liabilities are determined based on the differences between
the financial statement and tax bases of assets and liabilities using
enacted tax rates. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
Accounting for long-lived assets:
The FASB recently issued Statement No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement, which must be adopted by the Company no later than
fiscal 1997, establishes accounting standards with respect to the
impairment of long-lived assets. Its adoption is not expected to
materially affect the future results of operations or financial position
of the Company.
Reclassifications:
Certain prior year amounts have been reclassified to conform with the
current year classifications.
(2) ACCRUED LIABILITIES:
The major components of accrued liabilities are as follows (in
thousands):
September 30,
1996 1995
-----------------------
Salaries and wages $ 2,012 $ 1,707
Employee benefit plans 769 797
Income taxes 1,572 1,173
Other 6,582 4,711
-------- --------
$ 10,935 $ 8,388
======== ========
(3) NOTES PAYABLE:
In July 1996, the Company entered into new financing arrangements with
a consortium of lenders to provide additional working capital. The new
loan and security agreement provides for a total of $48 million in
financing through July 1999. This includes a revolving line of credit
facility in the amount of $40 million which bears interest at either the
prime rate (8.25% at September 30, 1996), plus 0.5%, or the prevailing
LIBOR rate (approximately 5.5% at September 30, 1996) plus 2.5%.
Borrowings under the revolving credit facility ($13,016,000 as of
September 30, 1996) are based upon eligible accounts receivable and
inventories of the Company's U.S. and Canada operations, as defined. In
addition, the financing agreement also includes a term loan in the
<PAGE> 33
amount of $7.75 million (see Note 4). In 1995, the Company executed an
interest rate "swap" agreement which effectively fixes the rate of
interest on approximately $5 million of the revolver debt at 8.87% for
five years. The carrying value of borrowings under the revolving credit
facility is a reasonable estimate of fair value as interest rates are
based on prevailing market rates.
These new financing arrangements are collateralized by the tangible and
intangible assets of the U.S. and Canada operations (including accounts
receivable, inventories, property, plant and equipment, patents and
trademarks) and a pledge of the capital stock of the Company's
subsidiaries. The loan and security agreement contains provisions
pertaining to the maintenance of certain financial ratios and annual
capital expenditure levels, as well as restrictions as to payment of
cash dividends. As of September 30, 1996, the Company is presently in
compliance with all such provisions. These new arrangements provide up
to $10 million in additional financing as compared with the Company's
previous primary lender agreement. At September 30, 1996, the Company
had approximately $27 million of unused lines of credit available under
this new financing arrangement. A fee of 0.25% is paid on the unused
portion of the revolving credit facility.
The weighted average interest rate of the Company's outstanding notes
payable (including foreign borrowings) was 8.6%, 9.4% and 12.9% as of
September 30, 1996, 1995 and 1994, respectively.
(4) LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
September 30,
1996 1995
------------------
12% Senior Subordinated Notes $ 16,500 $ --
10.59% Senior Subordinated Notes -- 10,350
Bank term loan 7,500 8,667
Building mortgage 2,717 --
Other 16 111
-------- -------
26,733 19,128
Less-current maturities (1,614) (4,587)
-------- -------
$ 25,119 $ 14,541
======== ========
In September 1996, the Company completed the private placement of $16.5
million of new 12% Senior Subordinated Notes, due 2003. The net
proceeds were used to retire early the remaining $7 million of the
Company's prior issue of 10.59% Senior Subordinated Notes due 1999, to
reduce short-term borrowings and to provide additional working capital.
This transaction also reduced the Company's annual debt service
obligations by approximately $3.3 million through 1998. The Company
executed a reverse interest rate "swap" agreement which converts $10
million of the notes to a floating rate of interest (approximately 10.6%
at September 30, 1996). In connection with the private placement,
<PAGE> 34
the Company issued to noteholders warrants to purchase 300,000 shares
of Company stock at its market value of $7.24 per share. The note
agreement contains provisions which limit the payment of dividends and
require the maintenance of certain financial covenants and ratios. As
of September 30, 1996, the Company is in compliance with all such
provisions.
In connection with the early retirement of the 10.59% Senior
Subordinated Notes, the Company incurred a loss on early
extinquishment of debt of $448,303 ($282,303, after tax), presented as
an extraordinary item in the accompanying consolidated financial
statements.
The loan and security agreement with the Company's primary lender (see
Note 3) also includes a term loan in the amount of $7.75 million.
Interest on the term loan is payable monthly at either the bank's prime
rate (8.25% at September 30, 1995) plus 0.5% or the prevailing LIBOR
rate (approximately 5.5% at September 30, 1995) plus 2.5%. In 1995, the
Company executed an interest rate "swap" agreement which effectively
fixes the term loan rate at 8.75% through its maturity. The term loan
is payable in varying monthly installments through May 2001.
In addition, in 1996 the Company entered into a mortgage agreement with
respect to its corporate headquarters building in Heathrow, Florida.
The mortgage (in the original amount of $2.73 million) is for a period
of 15 years and bears interest at 8.1%.
Carrying values of the Senior Subordinated Notes, the bank term loan and
the building mortgage are reasonable estimates of fair value as interest
rates are based on prevailing market rates.
Aggregate maturities of long-term debt are as follows (in thousands):
1997 $ 1,614
1998 1,662
1999 1,782
2000 1,791
2001 6,746
Thereafter 13,138
-------
$26,733
=======
<PAGE> 35
(5) INCOME TAXES:
The components of net deferred tax liability recognized in the
accompanying consolidated balance sheet are as follows (in thousands):
1996 1995
------- -------
U.S. current deferred tax assets
(included in other current assets) $ 1,884 $ 1,267
Foreign current deferred tax liability
(included in accrued liabilities) (758) (1,071)
U.S. and foreign, noncurrent deferred
tax liability (included in deferred
income taxes and other) (1,017) (1,155)
------- -------
Net deferred tax asset (liability) $ 109 $ (959)
======= =======
Deferred tax assets:
Vacation pay $ 193 $ 168
Accrued pension 175 147
Accrued legal 983 381
Accrued environmental costs 135 151
Accounts receivable 224 216
Other 111 --
Foreign net operating loss carryforward 504 492
Valuation allowance (504) (492)
------- -------
Total deferred tax assets 1,821 1,063
------- -------
Deferred tax liabilities:
Inventories (549) (786)
Depreciation (461) (464)
Property, plant and equipment (502) (525)
Foreign dividend income (200) (200)
Other -- (47)
------- -------
Total deferred tax liability (1,712) (2,022)
------- -------
Net deferred tax asset (liability) $ 109 $ (959)
======= =======
It is the policy of the Company to accrue deferred income taxes on
temporary differences related to the financial statement carrying
amounts and tax bases of investments in foreign subsidiaries which are
expected to reverse in the foreseeable future. Certain undistributed
earnings of foreign subsidiaries that are essentially permanent in
duration and not expected to reverse in the foreseeable future
approximate $8,600,000 as of September 30, 1996. The determination of
the unrecognized deferred tax liability for such temporary differences
is not practicable.
<PAGE> 36
The provision for income taxes (benefit) from continuing operations is
comprised of the following (in thousands):
1996 1995 1994
---- ---- ----
Current:
U.S. Federal $ 910 $ 795 $ 76
State 13 44 70
Foreign 822 215 1,391
------ ------ ------
$1,745 $1,054 $1,537
------ ------ ------
Deferred:
U.S. Federal (740) (612) 88
Foreign (160) 696 (107)
------ ------ ------
(900) 84 (19)
------ ------ ------
$ 845 $1,138 $1,518
====== ====== ======
Foreign deferred tax provision (benefit) is comprised principally of
temporary differences related to Mexico asset purchases. U.S. deferred
benefit in 1996 and 1995 results primarily from expenses accrued but not
deductible for taxes.
The Company has net operating loss carryforwards for its United Kingdom
subsidiary of approximately $2,000,000 without an expiration date.
The differences between the provision for income taxes on continuing
operations computed at the U.S. statutory federal income tax rate and
the provision in the consolidated financial statements are as follows
(in thousands):
1996 1995 1994
---- ---- ----
Amount computed using statutory rate $ 997 $1,342 $1,682
Foreign income (327) (329) (203)
State taxes, net of federal benefit 9 29 46
Permanent differences 126 104 154
Difference between tax and book
basis of subsidiary stock - - 386
Utilization of NOL valuation
allowance - - (400)
NOL from utilization of
foreign tax credits - - (113)
Others 40 (8) (34)
------ ------ ------
Provision for income taxes $ 845 $1,138 $1,518
====== ====== ======
<PAGE> 37
Permanent differences result primarily from intercompany net income that
is eliminated from the consolidated statements of operations but are
taxed in various jurisdictions.
(6) EMPLOYEE BENEFIT PLANS:
The Company maintains several defined benefit pension plans covering
substantially all union employees. The benefits are based upon fixed
dollar amounts per years of service. The assets of the various plans
(principally corporate stocks and bonds, insurance contracts and cash
equivalents) are managed by independent trustees. The policy of the
Company and its subsidiaries is to fund the minimum annual contributions
required by applicable regulations.
The following table sets forth the plans' funded status (accumulated
benefits exceed assets in all plans) at September 30, 1996 and 1995 (in
thousands):
September 30,
1996 1995
--------------
Actuarial present value of:
Accumulated benefit obligation $(3,530) $(3,366)
======= =======
Projected benefit obligation $(3,530) $(3,366)
Plan assets at market value 2,277 2,030
------- -------
Projected benefit obligation in excess
of plan assets (1,253) (1,336)
Unrecognized net gain from past
experience different from assumptions 474 441
Unrecognized net obligation being
recognized over periods from
10 to 16 years 762 800
------- -------
Pension liability $ (17) $ (95)
======= =======
Net periodic pension costs include the following components (in
thousands):
1996 1995 1994
---- ---- ----
Service costs - benefits earned during period $ 124 $ 100 $ 99
Interest cost on projected benefit obligation 222 184 179
Actual (return) loss on plan assets (167) (150) 28
Net amortization and deferral 155 155 (44)
----- ----- -----
Net periodic pension cost $ 334 $ 289 $ 262
===== ===== =====
<PAGE> 38
In determining the projected benefit obligation, the assumed discount
rates ranged from 4.5% to 7.5% for 1996, 6.0% to 7.5% for 1995, and 4.5%
to 7.5% for 1994. The expected long-term rates of return on assets used
in determining net periodic pension cost ranged from 7.5% to 8.5% for
1996, 7.5% to 8.5% for 1995, and 7.5% to 9% for 1994. There are no
assumed rates of increase in compensation expense in any year, as
benefits are fixed and do not vary with compensation levels.
The Company also maintains a defined-contribution plan (401K) for all
non-union domestic employees who meet minimum service requirements, as
well as a supplemental deferred contribution plan for certain executives.
Company contributions under the plans consist of a basic 3% of the
compensation of participants for the plan year, and for those
participants who elected to make voluntary contributions to the plan,
matching contributions up to an additional 4%, as specified in the plan.
Charges to operations for these plans for the years ended September 30,
1996, 1995 and 1994 were $586,000, $552,000, and $479,000, respectively.
In fiscal 1994, the Company adopted FASB Statement No. 106 "Employers
Accounting for Postretirement Benefits Other Than Pensions". This
statement generally requires the accrual of health care benefits and
other postretirement benefits over the course of the employees' active
service. For substantially all current employees, there are no
postretirement benefits provided, except for pension plans. The current
expenses and the effect of adopting the new statement are not material.
(7) SHAREHOLDERS' EQUITY:
The Company provides an employee stock purchase plan under which 100,000
shares of its common stock can be issued. Among the terms of this plan,
eligible employees may purchase through payroll deductions shares of the
Company's common stock up to 10% of their compensation at the lower of
85% of the fair market value of the stock on the first or last day of the
plan year (May 1 and April 30). On May 1, 1996, 1995, and 1994, 11,714,
10,123, and 9,305 shares, respectively, were issued under this plan. At
September 30, 1996, there are 19,689 shares available for future
purchases under the plan.
In addition, the Company has granted options to key employees, under the
1979 and 1988 Dixon Ticonderoga Company Executive Stock Plans to purchase
shares of its common stock at the market price on the date of grant.
Options under the 1979 Plan (as amended) become exercisable one year
after date of grant and were exercisable during a period not to exceed
ten years from date of grant. All remaining options under the 1979 Plan
were exercised during 1996. Under the 1988 Plan (as amended) options
vest 25% after one year; 25% after two years; and 50% after three years,
and remain exercisable for a period of three years from the date of
vesting. All options expire three months after termination of
employment. At September 30, 1996, there were 287,192 options
exercisable and 231,390 shares available for future grants under the
Plans. The following table summarizes the combined stock options
activity for 1996, 1995 and 1994:
<PAGE> 39
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Number of Option Number of Option Number of Option
Shares Price Shares Price Shares Price
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding 74,026 $4.20 74,026 $4.20 94,213 $4.20
beginning of year 52,333 4.75 75,302 4.75 103,152 4.75
1,500 5.13 2,000 5.13 2,000 5.13
42,375 7.75 43,000 7.75 46,000 7.75
2,000 6.13 2,000 6.13
99,000 8.63
Options exercised (74,026) 4.20 (20,187) 4.20
(14,069) 4.75 (22,969) 4.75 (27,850) 4.75
(500) 5.13
(125) 7.75
Options granted 2,000 6.13
94,000 6.75
17,000 7.13
2,000 8.13
100,000 8.63
Options expired (1,447) 4.75
or canceled (1,500) 5.13
(500) 7.75 (3,000) 7.75
(2,000) 8.13
(2,000) 8.63 (1,000) 8.63
(2,000) 6.75
------- ------- -------
287,192 271,234 196,328
</TABLE>
In 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation." The statement (effective for the Company in fiscal 1997)
provides for certain specific disclosures regarding the value of stock
option grants made in fiscal 1996 and thereafter. The Company does not
expect to adopt the compensation recognition provision of the Statement,
and, accordingly, it is not expected to affect the future results of
operations or financial position of the Company. The specific
disclosures required by the Statement have not been calculated at this
time.
In March 1995, the Company declared a dividend distribution of one
Preferred Stock Purchase Right on each share of Company common stock.
Each Right will entitle the holder to buy one-thousandth of a share of
a new series of preferred stock at a price of $30.00 per share. The
Rights will be exercisable only if a person or group (other than the
Company's chairman, Gino N. Pala, and his family members) acquires 20%
or more of the outstanding shares of common stock of the Company or
announces a tender offer following which it would hold 30% or more of
such outstanding common stock. The Rights entitle the holders other
than the acquiring person to purchase Company common stock having a
market value of two times the exercise prices of the Right. If,
<PAGE> 40
following the acquisition by a person or group of 20% or more of the
Company's outstanding shares of common stock, the Company were acquired
in a merger or other business combination, each Right would be exercisable
for that number of the acquiring company's shares of common stock having
a market value of two times the exercise prices of the Right.
The Company may redeem the Rights at one cent per Right at any time
until ten days following the occurrence of an event that causes the
Rights to become exercisable for common stock. The Rights expire in ten
years.
(8) GAIN ON SALE OF SUBSIDIARY STOCK AND OTHER ASSETS:
In September 1994, the Company completed an initial public offering of
the stock of its wholly-owned subsidiary, Dixon Ticonderoga de Mexico,
S.A. de C.V. ("Dixon Mexico"). The underwriter for the offering was
Casa de Bolsa Prime, S.A. de C.V. The offering represented 49.9% of the
shares of Dixon Mexico and was placed in the new Mexican Intermediate
Market. A total of 16,627,760 shares were sold at a per-share price of
N$1.35 (new pesos) in a mixed offering. Of this amount, 4,163,605
shares (or approximately 25%) were sold in a primary offering with the
net proceeds going to Dixon Mexico for working capital and/or the
reduction of cyclical bank borrowings. The balance (12,464,155 shares
or approximately 75%) represented a secondary offering of shares owned
by the Company with the net proceeds going to reduce U.S. debt.
The net proceeds (after underwriting commissions and related expenses)
were approximately N$5 million from the primary offering and N$16
million from the secondary offering (or U.S. $1.4 million and U.S. $4.7
million, respectively). Proceeds from the offering (after taxes of
approximately U.S. $1.0 million) reduced the Company's consolidated debt
(net of cash balances) by approximately U.S. $5 million. The net after-
tax gain from the transaction was approximately U.S. $1.6 million. (The
gain on sale of company-owned shares was approximately U.S. $970,000 and
on the sale of new shares in the subsidiary was U.S. $630,000).
The Underwriting Agreement between the Company, Dixon Mexico and Casa de
Bolsa Prime, S.A. de C.V., provided for a firm offering of shares as
described above at the per-share price of N$1.35, less underwriting
commissions of 5%, plus other customary expenses. Prior to the
offering, there were no relationships between Casa de Bolsa Prime, S.A.
de C.V. and either the Company or Dixon Mexico.
After the successful completion of the offering, the Company maintained
50.1% controlling ownership of Dixon Mexico and five of nine seats on
its board of directors. The remaining four seats on the Dixon Mexico
board of directors will be held by designees of Casa de Bolsa Prime,
S.A. de C.V. or other investors having a minimum of 10% ownership in
Dixon Mexico.
To protect the continuing business relationships between the Company and
Dixon Mexico and ensure the continuity of management planning,
development and administration of the operation, the Company executed a
trademark license agreement and various other business agreements with
Dixon Mexico.
<PAGE> 41
The trademark license agreement is for a minimum term of ten years. All
other agreements are for a minimum term of five years. In return for
the rights, services and assistance provided by the Company under these
agreements, Dixon Mexico will pay to the Company a total fee of 1.5% of
its total monthly sales.
Also in fiscal 1994, the Company sold idle property in Westampton, New
Jersey, generating net proceeds of $460,000 (which approximated its net
book value), as well as certain idle equipment. In addition, the
Company expensed approximately $300,000 to provide for contingencies
related to a previous sale of property.
(9) EARNINGS PER COMMON SHARE:
Earnings per common share have been computed based upon the total
weighted average number of common shares outstanding (3,233,684,
3,180,626, and 3,114,538 in 1996, 1995 and 1994, respectively).
(10) DISCONTINUED OPERATIONS:
Pursuant to a 1995 formal plan and agreement, the Company transferred
the remaining property and its developmental rights dedicated to the
Bryn Mawr Ocean Towers Condominium project to its Association.
Discontinued operations in 1995 reflect a loss on disposal of $420,000
(net of a tax benefit of $250,000).
The Real Estate segment has been accounted for as a discontinued
operation as of September 30, 1995, and, accordingly, its operating
results are reported in this manner in all years presented in the
accompanying Consolidated Financial Statements and related data.
Revenues of the Real Estate segment were $135,000 in 1994. There were
no revenues in 1995. Net real estate operating losses were $279,000 and
$126,000 in 1995 and 1994, respectively. Related income tax benefits
were $104,000 and $10,000 in 1995 and 1994, respectively.
<PAGE> 42
(11) LINE OF BUSINESS REPORTING:
In 1996, the Company redefined its principal business segments to
reflect its current management structure and strategic objectives.
Accordingly, certain prior year amounts have been reclassified to
conform with the related current year presentation.
The Company has two principal business segments -- its Consumer Group
and Industrial Group. The following information sets forth certain data
pertaining to each line of business as of September 30, 1996, 1995 and
1994, and for the years then ended (in thousands).
Consumer Industrial Total
Group Group Company
-------- ---------- -------
Net
revenues:
1996 $81,756 $24,940 $106,696
1995 $70,451 $25,114 $ 95,565
1994 $68,025 $23,908 $ 91,933
Operating
profits:
1996 $ 6,082 $ 3,707 $ 9,789
1995 $ 6,677 $ 3,694 $ 10,371
1994 $ 5,554 $ 3,341 $ 8,895
Certain corporate expenses have been allocated based upon respective
segment sales. Interest expense was $3,424, $3,653 and $4,330;
litigation settlements and related costs were $2,039 in 1996 and $1,530
in 1995; general corporate expenses were $1,393, $1,241 and $1,931 in
1996, 1995 and 1994 respectively; gains on sales of assets were $2,313
in 1994, resulting in income from continuing operations before income
taxes of $2,934, $3,947, and $4,947 in 1996, 1995 and 1994,
respectively.
Consumer Industrial Total
Group Group Company
-------- ---------- -------
Identifiable
assets:
1996 $59,115 $13,417 $ 72,532
1995 $51,373 $13,801 $ 65,174
1994 $51,090 $13,555 $ 64,645
<PAGE> 43
Corporate assets were $5,316, $4,984, and $3,423, at September 30, 1996,
1995 and 1994, respectively. Assets of discontinued operations were
$783 at September 30, 1994.
Consumer Industrial Total
Group Group Company
-------- ---------- -------
Depreciation and
amortization:
1996 $ 1,296 $ 441 $ 1,737
1995 $ 1,347 $ 456 $ 1,803
1994 $ 1,578 $ 437 $ 2,015
Expenditures for
plant and equipment:
1996 $ 1,250 $ 585 $ 1,835
1995 $ 1,029 $ 461 $ 1,490
1994 $ 898 $ 704 $ 1,602
Corporate depreciation and amortization were $624, $577, and $487 for
the years ended September 30, 1996, 1995 and 1994, respectively.
Corporate expenditures for equipment were $2,418, $1,601, and $389 in
1996, 1995 and 1994, respectively.
Foreign operations (Consumer Group):
Operating Identifiable
Revenues Profits Assets
-------- --------- ------------
1996:
Canada $ 8,715 $ 670 $ 6,277
Mexico 9,544 1,946 8,906
United Kingdom 873 (45) 635
1995:
Canada $ 7,623 $ 576 $ 6,839
Mexico 7,588 2,997 8,085
United Kingdom 839 (40) 648
1994:
Canada $ 7,087 $ 180 $ 4,433
Mexico 10,551 2,431 10,475
United Kingdom 617 (62) 483
<PAGE> 44
(12) COMMITMENTS AND CONTINGENCIES:
Under an agreement with Warner Bros. Consumer Products, the Company
manufactures and markets in the U.S. and Canada a complete line of
products featuring the famous Looney Tunes characters. Under the
terms of the agreement, the Company has the right to market and sell
all types of pencils, pens, crayons, chalks, markers, paints, art kits
and related items. Through fiscal 1996, the Company has exceeded its
minimum obligation under the agreement and currently pays a royalty of
10% on all related sales.
In 1995, the Company entered into employment agreements with two
executives which provide for the continuation of salary (currently
aggregating $31,700 per month) and related employee benefits for a
period of 24 months following their termination of employment under
certain changes in control of the Company. In addition, all options
held by the executives would become immediately exercisable upon the
date of termination and remain exercisable for 90 days thereafter.
The Company, in the normal course of business, is party in certain
litigation. Ongoing litigation includes a claim under New Jersey's
Environmental Clean-Up Responsibility Act (ECRA) by a 1984 purchaser
of industrial property from the Company. On April 24, 1996, a
decision was rendered by the Superior Court of New Jersey in Hudson
County finding the Company responsible for $1.94 million in certain
environmental clean-up costs relating to this matter. Including pre-
judgment interest on the damage award, it is estimated that the
Company's exposure will not exceed approximately $3.3 million. The
Company continues to evaluate pursuing other responsible parties for
indemnification and/or contribution to the payment of this claim
(including its insurance carriers and a legal malpractice action
against its former attorneys) and is in the process of preparing and
filing an appeal. As a result of the judgment, a provision of
approximately $2 million ($1.44 million, net of tax or 45 cents per
share) has been recorded in 1996. In 1995, the Company provided
approximately $1.5 million in total ($960,000 net of tax or 30 cents
per share) for settlement and related legal costs associated with
three separate lawsuits, including the aforementioned ECRA claim.
The Company has evaluated the merits of other litigation and believes
their outcome will not have a further material effect on the Company's
future results of operations or financial position.
The Company is aware of several environmental matters related to
certain facilities purchased or to be sold. The Registrant assesses
the extent of these matters on an ongoing basis. In the opinion of
management (after taking into account accruals), the resolution of
these matters will not materially affect the Company's future results
of operations or financial position.
<PAGE> 45
(13) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (In Thousands,
Except Per Share Data):
1996: First Second Third Fourth
Revenues $20,946 $20,622 $33,170 $31,958
Operating income 980 1,016 3,680 2,720
Income (loss) before taxes
and minority interest 365 (1,814)* 2,759 1,624
Minority interest (114) (127) (348) (332)
Extraordinary item -- -- -- (282)
Net income (loss) 151 (1,254)* 1,417 572
Earnings (loss) per share .05 (.39)* .44 .17
1995: First Second Third Fourth
Revenues $21,393 $19,371 $28,446 $26,355
Operating income 1,373 1,623 3,181 2,953
Income before taxes
and minority interest 618 784 2,185 360*
Minority interest (58) (332) (154) (607)
Discontinued operations (20) (30) (100) (445)
Net income (loss) 302 140 1,185 (564)*
Earnings (loss) per share .10 .04 .37 (.18)*
* Reflects provision for litigation settlements and related costs as
described in Note 12.
(14) SUBSEQUENT EVENT:
On November 22, 1996, the Company's New Castle Refractories Division
entered into an agreement to perpetually license certain silicon
carbide refractory brick technology from Carborundum Corporation.
Under the terms of the perpetual license agreement, the Company is
obligated to pay a fixed sum of $450,000 with payments made through
2001 or earlier, if certain stipulated sales levels are reached.
The Company also executed related agreements to, at its option,
purchase manufactured product or specific equipment from Carborundum
Corporation.
<PAGE> 46
<TABLE>
<CAPTION>
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Deductions
Balance at Additions From Balance
Beginning Charged Reserves at Close
Description of Period to Income (1) of Period
----------- ---------- --------- ---------- ---------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
<S> <C> <C> <C> <C>
Year Ended
September 30, 1996 $ 796,715 $ 977,965 $ 422,269 $1,352,411
========= ========= ========= ==========
Year ended
September 30, 1995 $ 564,905 $ 421,850 $ 190,040 $ 796,715
========= ========= ========= ==========
Year ended
September 30, 1994 $ 610,427 $ 198,647 $ 244,169 $ 564,905
========= ========= ========= ==========
</TABLE>
(1) Write-off of accounts considered to be uncollectible (net of
recoveries).
<PAGE> 47
CONSENT OF INDEPENDENT ACCOUNTANTS
Shareholders and Board of Directors of
Dixon Ticonderoga Company
We consent to the incorporation by reference into the previously
filed registration statements of Dixon Ticonderoga Company on Form S-8
(File Nos. 33-20054 and 33-23380) of our report, dated November 27, 1996,
on our audit of the consolidated financial statements and financial
statement schedule of Dixon Ticonderoga Company and subsidiaries as of
September 30, 1996, 1995 and 1994, and for the years then ended, which
report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Orlando, Florida
December 19, 1996
PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
- ---------------------------------------------------------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------------------------------
Information required under this Item with respect to Directors will be
contained in the Company's 1996 Proxy Statement, pursuant to Regulation 14A,
which is incorporated herein by reference.
The following table sets forth the names and ages of the Company's
Executive Officers, together with all positions and offices held with the
Company by such Executive Officers. All Executive Officers are subject to
re-election or re-appointment by the Board of Directors at the first
Directors' Meeting succeeding the next Annual Meeting of shareholders.
Name Age Title
---- --- -----
Gino N. Pala 68 Chairman of the Board since February
(Father-in-law of 1989; President and Chief Executive
Richard F. Joyce) Officer since July 1985; prior thereto
President and Co-chief Executive
Officer since 1978.
Richard A. Asta 40 Executive Vice President of Finance
and Chief Financial Officer since
February 1991; prior thereto Senior
Vice President - Finance and Chief
Financial Officer since March 1990.
Richard F. Joyce 41 Vice Chairman of the Board since
(Son-in-law of January 1990; President and Chief
Gino N. Pala) Operating Officer, Consumer Group,
since March, 1996; Executive Vice
President and Chief Legal Executive
since February 1991; prior thereto
Corporate Counsel since July 1990.
<PAGE> 49
Leonard D. Dahlberg, Jr. 45 Executive Vice President, Industrial
Group, since March 1996; prior thereto
Executive Vice President of
Manufacturing/Consumer Products
Division since August 1995; prior
thereto Senior Vice President of
Manufacturing since February 1993;
prior thereto Vice President of
Manufacturing since March 1990.
Kenneth A. Baer 50 Vice President and Treasurer since
January 1991; prior thereto Treasurer
since November 1985.
Laura Van Camp 45 Corporate Secretary since January
1986; prior thereto secretary to
President and Chief Executive Officer
since February 1982.
John Adornetto 55 Vice President and Corporate
Controller since January 1991; prior
thereto Corporate Controller since
September 1978.
Richard H. D'Antonio 48 Senior Vice President and Chief
Information Officer since March 1996;
prior thereto Vice President of
Information Services since October
1993; prior thereto Principal of RHD
Management Consulting since May 1990.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Information required under this Item will be contained in the Company's
1996 Proxy Statement which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
- --------------------------------------------------
Information required under this Item will be contained in the Company's
1996 Proxy Statement which is incorporated herein by reference.
<PAGE> 50
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
Information required under this Item will be contained in the Company's
1996 Proxy Statement which is incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) Documents filed as part of this report:
1. Financial statements
See index under Item 8. Financial Statements and Supplementary Data.
2. Exhibits
The following exhibits are required to be filed as part of this Annual
Report on Form 10-K:
(3) Amended and Restated Bylaws
(10)a. First Modification of Amended and Restated Revolving Credit
Loan and Security Agreement by and among Dixon Ticonderoga
Company, Dixon Ticonderoga, Inc., First Union Commercial
Corporation, First National Bank of Boston and National Bank
of Canada
(10)b. 12.00% Senior Subordinated Notes, Due 2003, Note and Warrant
Purchase Agreement
(10)c. 12.00% Senior Subordinated Notes, Due 2003, Common Stock
Purchase Warrant Agreement
(10)d. License and Technological Agreement between Carborundum
Corporation and New Castle Refractories Company, a division
of Dixon Ticonderoga Company
(10)e. Equipment Option and Purchase Agreement between Carborundum
Corporation and New Castle Refractories Company, a division
of Dixon Ticonderoga Company
(10)f. Product Purchase Agreement between Carborundum Corporation
and New Castle Refractories Company, a division of Dixon
Ticonderoga Company
(21) Subsidiaries of the Company
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None.
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIXON TICONDEROGA COMPANY
/s/ Gino N. Pala
---------------------------
Gino N. Pala, President and
Chief Executive Officer
Pursuant to the Securities Exchange Act of 1934, this Annual Report on
Form 10-K has been signed below by the following persons on behalf of the
Company in the capacities indicated.
/s/ Gino N. Pala Chairman of Board, President, Chief
- -------------------------- Executive Officer and Director
Gino N. Pala
/s/ Richard F. Joyce Vice Chairman, Executive Vice President/
- -------------------------- Corporate Counsel and Director
Richard F. Joyce
/s/ Richard A. Asta Executive Vice President of Finance and
- -------------------------- Chief Financial Officer
Richard A. Asta
/s/ Bobby Brantley Director
- --------------------------
Bobby Brantley
/s/ John E. Ramondo Director
- --------------------------
John E. Ramondo
/s/ Joseph R. Sadowski Director
- --------------------------
Joseph R. Sadowski
/s/ Philip M. Shasteen Director
- --------------------------
Philip M. Shasteen
/s/ Samuel B. Casey, Jr. Director
- --------------------------
Samuel B. Casey, Jr.
/s/ Ben Berzin, Jr. Director
- --------------------------
Ben Berzin, Jr.
<PAGE> 52
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
EXHIBIT (21)
TO
1996 ANNUAL REPORT ON FORM 10-K
SUBSIDIARIES OF THE COMPANY
All of the Company's subsidiaries as of September 30, 1996, are listed
below. All subsidiaries are included in the consolidated financial
statements of the Company.
State Or Percentage of
Jurisdiction Voting
Of Organization Securities Owned
Bryn Mawr Ocean Resorts, Inc. (a) Florida 100%
Dixon Ticonderoga, Inc. Ontario, Canada 100%
Dixon Ticonderoga Company
de Mexico, S.A. de C.V.
(subsidiary of Dixon
Ticonderoga, Inc.) Mexico 50.1%
Ticonderoga Graphite Inc. (a) New York 100%
Dixon Europe, Limited United Kingdom 100%
(a) Inactive
<PAGE> 1
BYLAWS
OF
DIXON TICONDEROGA COMPANY.
ARTICLE I
STOCKHOLDERS
SECTION 1. PLACE OF STOCKHOLDERS' MEETINGS. All meetings of
the stockholders of the Corporation shall be held at such place or places,
within or outside the State of Delaware, as may be fixed by the Board of
Directors from time to time or as shall be specified in the respective
notices thereof.
SECTION 2. DATE, HOUR AND PURPOSE OF ANNUAL MEETINGS OF
STOCKHOLDERS. Annual Meetings of Stockholders shall be held on such day and
at such time as the Directors may determine from time to time by resolution, at
which meeting the stockholders shall elect, by a plurality of the votes cast at
such election, such members of the Board of Directors whose terms do not
continue beyond such Annual Meeting, and transact such other business as may
properly be brought before the meeting.
SECTION 3. SPECIAL MEETINGS OF STOCKHOLDERS. Special
meetings of the stockholders entitled to vote may be called by the Chairman
of the Board, the President or any Vice President, the Secretary or by the
Board of Directors by vote of a majority of its members.
SECTION 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Except as
otherwise expressly required or permitted by the laws of Delaware, not less than
ten days nor more than sixty days before the date of every stockholders' meeting
the Secretary shall give to each stockholder of record entitled to vote at such
meeting written notice stating the place, date and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the
meeting is called. Such notice, if mailed, shall be deemed to be given when
deposited in the United States mail, with postage thereon prepaid, addressed
to the stockholder at the post office address for notices to such stockholder
as it appears on the records of the Corporation. An Affidavit of the Secretary
or an Assistant Secretary or of a transfer agent of the Corporation that the
notice has been given shall, in the absence of fraud, be prima facie evidence
of the facts stated therein.
SECTION 5. QUORUM OF STOCKHOLDERS.
(a) Unless otherwise provided by the laws of Delaware, at any meeting of
the stockholders the presence in person or by proxy of stockholders entitled to
cast a majority of the votes thereat shall constitute a quorum.
<PAGE> 2
(b) At any meeting of the stockholders at which a quorum shall be
present, the holders of a majority of shares representing votes entitled to be
cast, which holders are present in person or by proxy, may adjourn the meeting
from time to time until a quorum shall be present. Notice of any adjourned
meeting other than announcement at the meeting shall not be required to be
given, except as provided in paragraph (d) below and except where expressly
required by law.
(c) At any adjourned meeting at which a quorum shall be represent, any
business may be transacted which might have been transacted at the meeting
originally called, but only those stockholders entitled to vote at the meeting
as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof, unless a new record date is fixed by the Board of
Directors.
(d) If an adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjournment meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting.
SECTION 6. CHAIRMAN AND SECRETARY OF MEETING. The
Chairman, or in his absence, the President, or in his absence, any Vice
President, shall preside at meetings of the stockholders. The Secretary shall
act as secretary of the meeting, or in his or her absence an Assistant
Secretary shall act, or if neither is present, then the presiding officer
shall appoint a person to act as secretary of the meeting.
SECTION 7. VOTING BY STOCKHOLDERS. Except as may be
otherwise provided by the Certificate of Incorporation or by these Bylaws, at
every meeting of the stockholders each stockholder shall be entitled to one vote
for each share of stock standing in his name on the books of the Corporation on
the record date for the meeting. At all meetings of the stockholders for the
election of Directors, a plurality of the votes cast shall be sufficient to
elect. All matters other than the election of Directors shall be decided by
the affirmative vote of a majority of the shares present in person or
represented by proxy and entitled to vote at the meeting, except as otherwise
permitted or required by the laws of Delaware, the Certificate of
Incorporation or these Bylaws.
SECTION 8. PROXIES. Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for him
or her by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument
revoking the proxy or by delivering to the Secretary of the Corporation a
proxy in accordance with applicable law bearing a later date. Except with
respect to the election of Directors, voting at meetings of stockholders need
not be by written ballot and, unless otherwise required by law, need not be
conducted by inspectors of election unless so determined by the holders of
shares of stock having a majority of the votes which could be cast by the
holders of all outstanding shares of stock entitled to vote thereon which are
present in person or by proxy at such meeting.
<PAGE> 3
SECTION 9. FIXING DATE FOR DETERMINATION OF
STOCKHOLDERS OF RECORD. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors and which record
date: (a) in the case of determination of stockholders entitled to vote at
any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty nor less than ten days before the
date of such meeting; (b) in the case of determination of stockholders
entitled to express consent to corporate action in writing without a meeting,
shall not be more than ten days from the date upon which the resolution
fixing the record date is adopted by the Board of Directors; and (c) in the case
of any other action, shall not be more than sixty days prior to such other
action. If no record date is fixed: (a) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held; (b) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation in accordance with applicable law, or, if prior action by the
Board of Directors is required by law, shall be at the close of business on
the day on which the Board of Directors adopts the resolution taking such
prior action; and (c) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 10. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board of Directors may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all of the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it.
<PAGE> 4
SECTION 11. LIST OF STOCKHOLDERS.
(a) At least ten days before every meeting of stockholders, the
Secretary shall prepare or cause to be prepared a complete list of the
stockholders entitled to vote at the meeting, arranged, in alphabetical order
and showing the address of each stockholder and the number of shares
registered in the name of each stockholder.
(b) During ordinary business hours, for a period of at least ten days
prior to the meeting, such list shall be open to examination by any
stockholder for any purpose germane to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in
the notice of the meeting, or if not so specified, at the place where the
meeting is to be held.
(c) The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and it may be inspected by any
stockholder who is present.
(d) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 12. TELEPHONIC MEETINGS PERMITTED. Members of the
Board of Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this By-
Law shall constitute presence in person at such meeting.
SECTION 13. CONDUCT OF MEETINGS. The Board of Directors may
adopt by resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board of Directors, the
chairman of any meeting of stockholders shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such acts as, in
the judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board
of Directors or prescribed by the chairman of the meeting, may include, without
limitation, the following: (a) the establishment of an agenda or order of
business for the meeting; (b) rules and procedures for maintaining order at the
meeting and the safety of those present; (c) limitations on attendance at or
participation in the meeting to stockholders of record of the Corporation,
their duly authorized and constituted proxies or such other persons as the
chairman of the meeting shall determine; (d) restrictions on entry to the
meeting after the time fixed for the commencement thereof; and (e)
limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chairman
of the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
<PAGE> 5
ARTICLE II
DIRECTORS
SECTION 1. POWERS OF DIRECTORS. The property, business and affairs
of the Corporation shall be managed by or under the direction of its Board of
Directors, which may exercise all the powers of the Corporation except such as
are by the laws of Delaware or the Certificate of Incorporation or these Bylaws
required to be exercised or done by the stockholders.
SECTION 2. NUMBER, METHOD OF ELECTION, TERMS OF OFFICE
DIRECTORS. The number of Directors which shall constitute the whole Board of
Directors shall be such as from time to time determined by resolution of the
Board of Directors, but the number shall not be less than five nor more than
thirteen provided that the tenure of a Director shall not be affected by any
decrease in the number of Directors so made by the Board. Each Director shall
hold office until his successor is elected and qualified, provided however that
a Director may resign at any time.
SECTION 3. VACANCIES ON BOARD OF DIRECTORS.
(a) Any Director may resign his office at any time by delivering his
resignation in writing to the Chairman or the President or the Secretary. It
will take effect at the time specified therein, or if no time is specified,
it will be effective at the time of its receipt by the Corporation. The
acceptance of a resignation shall not be necessary to make it effective,
unless expressly so provided in the resignation.
(b) Any vacancy or newly created Directorship resulting from any
increase in the authorized number of Directors may be filled by vote of a
majority of the Directors then in office, though less than a quorum, and any
Director so chosen shall hold office until the next election by the
stockholders of the class for which such Directors shall have been chosen
and until his successor is duly elected and qualified, or until his earlier
resignation or removal.
SECTION 4. MEETINGS OF THE BOARD OF DIRECTORS.
(a) The Board of Directors may hold their meetings, both regular and
special, either within or outside the State of Delaware.
(b) Regularly scheduled meetings of the Board of Directors may be held
without notice at such time and place as shall from time to time be determined
by resolution of the Board of Directors.
(c) The first meeting of each Board of Directors which includes newly
elected members shall be held as soon as practicable after the Annual Meeting of
the stockholders, for the election of officers and the transaction of such other
business as may come before it.
<PAGE> 6
(d) Special meetings of the Board of Directors shall be held whenever
called by direction of the Chairman or the President or at the request of
Directors constituting a majority of the number of Directors then in office.
(e) The Secretary shall give notice to each Director of any meeting of
the Board of Directors except for regularly scheduled meetings at least
twenty-four hours before the meeting. Such notice need not include a
statement of the business to be transacted at, or the purpose of, any such
meeting. Any and all business may be transacted at any meeting of the Board of
Directors. No notice of any adjourned meeting need by given. No notice to or
waiver by any Director shall be required with respect to any meeting at which
the Director is present.
SECTION 5. QUORUM AND ACTION. At any meeting of the Board of
Directors, one-third of the entire Board of Directors, but in no event less than
two Directors, shall constitute a quorum for the transaction of business; but if
there shall be less than a quorum at any meeting of the Board, a majority of
those present may adjourn the meeting from time to time. Unless otherwise
provided by the laws of Delaware, the Certificate of Incorporation or these
Bylaws, the act of a majority of the Directors present at any meeting at
which a quorum is present shall be the act of the Board of Directors.
SECTION 6. PRESIDING OFFICER AND SECRETARY OF MEETING.
The Chairman or, in his absence, a member of the Board of Directors selected by
the members present, shall preside at meetings of the Board. The Secretary
shall act as secretary of the meeting, but in his or her absence the presiding
officers shall appoint a secretary of the meeting.
SECTION 7. ACTION BY CONSENT WITHOUT MEETING. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the records of the Board or committee.
SECTION 8. COMMITTEES. The Board of Directors may appoint from
among its members such committees of one or more Directors as it may from
time to time deem desirable, and may delegate to such committees such powers
of the Board as it may consider appropriate.
SECTION 9. COMPENSATION OF DIRECTORS. Directors shall
receive such reasonable compensation for their service on the Board of Directors
or any committees thereof, whether in the form of retainer or a fixed fee for
attendance at meetings, or both, with expenses, if any, as the Board of
Directors may from time to time determine. Nothing herein contained shall be
construed to preclude any Director from serving in any other capacity and
receiving compensation therefor.
<PAGE> 7
ARTICLE III
OFFICERS
SECTION 1. EXECUTIVE OFFICERS OF THE CORPORATION. The
Board of Directors shall elect a Chairman of the Board, a President, a
Secretary and a Treasurer and, in its discretion, such number of Vice
Presidents and such other executive officers as the Board may from time to time
determine, none of whom need be a member of the Board except the Chairman of the
Board. Any number of offices may be held by the same person.
SECTION 2. ADDITIONAL OFFICERS. The Board of Directors may
appoint additional Vice Presidents, Assistant Secretaries, Assistant Treasurers
and such other officers and agents as it shall deem necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board.
SECTION 3. TERM, REMOVAL AND VACANCIES. The officers of the
Corporation shall hold office until their respective successors are chosen and
qualify. Any officer may resign his or her office at any time upon written
notice to the Corporation. Any officer elected or appointed by the Board of
Directors may be removed with or without cause at any time by the affirmative
vote of the Board of Directors, but such removal shall be without prejudice to
the contractual rights of such officer, if any, with the Corporation. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise may be filled by the Board of Directors.
SECTION 4. POWERS AND DUTIES OF EXECUTIVE OFFICERS. The
officers of the Corporation shall have such powers and duties in the management
of the Corporation as may be prescribed in a resolution by the Board of
Directors and, to the extent not so provided, as generally pertain to their
respective offices, subject to the control of the Board of Directors.
ARTICLE IV
CAPITAL STOCK
SECTION 1. STOCK CERTIFICATES.
(a) Every holder of stock in the Corporation shall be entitled to have a
certificate signed in the name of the Corporation by the Chairman or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, certifying the number of shares owned
by him.
(b) Any or all of the signatures of the officers of the Corporation
may be facsimiles and, if permitted by Delaware law, any other signature on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with
<PAGE> 8
the same effect as if he were such officer, transfer agent or registrar at the
date of issue.
(c) Certificates of stock shall be issued in such form not inconsistent
with the Certificate of Incorporation as shall be approved by the Board of
Directors. They shall be numbered and registered in the order in which they are
issued. No certificate shall be issued until fully paid.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES.
Certificates representing shares of the stock of the Corporation shall be
issued in place of any certificate alleged to have been lost, stolen or
destroyed in such manner an don such terms and conditions as the Board of
Directors from time to time may authorize.
ARTICLE V
SECURITIES HELD BY THE CORPORATION
SECTION 1. VOTING. Unless the Board of Directors shall otherwise
order, the Chairman, the President, any Vice President or the Treasurer shall
have full power and authority on behalf of the Corporation to attend, act
and vote at any meeting of the stockholders of any corporation in which the
Corporation may hold stock and at such meeting to exercise any or all rights
and powers incident to the ownership of such stock, and to execute on behalf
of the Corporation a proxy or proxies empowering another or others to act as
aforesaid. The Board of Directors from time to time may confer like powers
upon any other person or persons.
Section 2. GENERAL AUTHORIZATION TO TRANSFER SECURITIES HELD
BY THE CORPORATION.
(a) Any of the following officers, to-wit: the Chairman, the President ,
any Vice President, the Treasurer, the Secretary or any Assistant Secretary of
the Corporation shall be and are hereby authorized and empowered to transfer,
convert, endorse, sell, assign, set over and deliver any and all shares of
stock, bonds, debentures, notes, subscription warrants, stock purchase
warrants, evidences of indebtedness, or other securities now or hereafter
standing in the name of or owned by the Corporation, and to make, execute and
deliver under the seal of the Corporation any and all written instruments of
assignments and transfer necessary or proper to effectuate the authority
hereby conferred.
(b) Whenever there shall be annexed to any instrument of assignment
and transfer executed, pursuant to and in accordance with the foregoing
paragraph (a), a certificate of the Secretary or an Assistant Secretary of the
Corporation in office at the date of such certificate setting forth the
provisions hereof and stating that they are in full force and effect and
setting forth the names of persons who are then officers of the Corporation,
then all persons to who such instrument and annexed certificate shall
thereafter be entitled, without further inquiry or investigation and
regardless of the date of such certificate, to assume and to act in reliance
upon the assumption that the shares of stock or other securities named in
such instrument were theretofore duly and properly transferred, endorsed,
<PAGE> 9
sold, assigned, set over and delivered by the Corporation, and that with
respect to such securities the authority of these provisions of the Bylaws
and of such officers is still in full force and effect.
ARTICLE VI
INDEMNIFICATION
SECTION 1. INDEMNIFICATION; CLAIMS OTHER THAN IN THE RIGHT OF
CORPORATION. The Corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended (but in the case of any such amendment, only to the
extent such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a Director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
Director or officer of another corporation, partnership, joint venture, trust
or other enterprise, including service with respect to an employee benefit
plan, against expenses (including attorneys' fees), judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal action or proceeding had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendre or its
equivalent, shall not of itself create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation and, with respect to
any criminal action proceeding, had reasonable cause to believe that his
conduct was unlawful. Provided, however, except as provided in Section 6
with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such person in connection with a proceeding
(or any part thereof) initiated by such person only if such proceeding (or
any part thereof) was authorized by the Board of Directors.
SECTION 2. INDEMNIFICATION; CLAIMS IN THE RIGHT OF
CORPORATION. The Corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended (but in the case of any such amendment, only to the
extent such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a Director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a Director or officer of another corporation partnership,
joint venture, trust or other enterprise, including service with respect to
an employee benefit plan, against expenses (including attorneys' fees)
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best inerests of the Corporation
<PAGE> 10
and except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
to the Corporation unless and only to the extent that the Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled
to indemnify for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 3. EXPENSES. To the extent that a Director or officer of
the Corporation has been successful on the merits, or otherwise, in defense of
any action, suit or proceeding referred to in Sections 1 and 2, or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith. If a Director or officer is or was a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding not only in his capacity as a Director or officer, but
also in his capacity as a shareholder or in any other capacity, and there is
no convenient way to separate out expenses incurred in such separate
capacities, all of such expenses shall be indemnified against by the
Corporation.
SECTION 4. AUTHORIZATION. Any indemnification under Sections
1 and 2 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon determination that indemnification of the
Director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 1 and 2. Such
determination shall be made (1) by a majority vote of the Directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(2) if there are no such Directors, or if such Directors so direct, by
independent legal counsel in a written opinion, or (3) by the stockholders.
SECTION 5. RIGHT TO ADVANCEMENT OF EXPENSES. The right to
indemnification conferred in Article VI shall include the right to be paid
by the Corporation the expenses incurred in defending any proceeding for which
such right to indemnification is applicable in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a Director or officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Article or otherwise.
SECTION 6. RIGHT OF INDEMNITEE TO BRING SUIT. The rights to
indemnification and to the advancement of expenses conferred in Article VI shall
be contract rights. If a claim hereunder is not paid in full by the Corporation
within sixty days after a written claim has been received by the Corporation,
except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit, or in a suit
<PAGE> 11
brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the indemnitee shall be entitled to be paid the
expense of prosecuting or defending such suit. In (a) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (b) any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth
in the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee
to enforce a right to indemnification or to an advancement of expenses
hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article VI or otherwise shall be on the Corporation.
SECTION 7. APPLICABILITY. In the event of any amendment or
repeal of this Article VI, the persons entitled to indemnification hereunder
nevertheless shall be entitled to its benefits as to any act or events which
occurred during the period during which it was in effect. All rights
provided by this Article VI shall inure to the benefit of the heirs, executors
or administrators of any person entitled to indemnification hereunder. The
foregoing right of indemnification shall exist whether or not such person
continues to be a Director or officer at such time any expenses, judgments,
and fines are incurred or any claims or liabilities arise or any settlement
is effected and, whether the act or omission upon which such claims or
liabilities are or are alleged to be based on occurred prior to or
subsequent to the adoption of this Article VI.
SECTION 8. NON-EXCLUSIVITY. The indemnification and rights to
advancement of expenses provided by this Article shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled to
under any By-Law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director or officer and shall inure to the benefit of
the heirs, executors and administrators of such a person.
SECTION 9. INSURANCE. The Corporation shall have power to
purchase and maintain insurance at its expense on behalf of any person who is or
was a Director or officer of the Corporation, or is or was serving at the
request of the Corporation as a Director or officer of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
<PAGE> 12
indemnify him against such liability under the provisions of this Article.
SECTION 10. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF
THE CORPORATION. The Corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification, and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article VI with respect to the
indemnification and advancement of expenses of Directors and officers of the
Corporation.
ARTICLE VII
MISCELLANEOUS
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall
be determined by resolution of the Board of Directors.
SECTION 2. SEAL. The Corporation may, but need not, have a
corporate seal, which seal shall have inscribed thereon the name of the
Corporation, and shall be in such form as may be approved from time to time by
the Board of Directors.
SECTION 3. WAIVER OF OR DISPENSING WITH NOTICE. Whenever
any notice of the time, place or purpose of any meeting of the stockholders,
Directors or a committee is required to be given under the laws of Delaware, the
Certificate of Incorporation or these Bylaws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or
after the holding thereof, or actual attendance at the meeting in person, or
in the case of the stockholders, by his attorney-in-fact, shall be deemed
equivalent to the giving of such notice to such persons. Neither the
business to be transacted nor the purpose of any regular or special meeting
of the stockholders, Directors or members of a committee of Directors need
be specified in any written waiver of notice.
SECTION 4. AMENDMENT OF BYLAWS. These Bylaws, or any of
them, may from time to time be supplemented, amended or repealed by the Board
of Directors, but the stockholders may make additional by-laws and may alter and
repeal any by-laws whether adopted by them or otherwise.
Adopted by the Board of Directors on __________________, 1996.
<PAGE> 1
FIRST MODIFICATION OF AMENDED AND RESTATED
REVOLVING CREDIT LOAN AND SECURITY AGREEMENT
This First Modification of Amended and Restated Revolving
Credit Loan and Security Agreement (this "First Modification") dated as
of September 26, 1996 (the "Effective Date"), amends the Amended and
Restated Revolving Credit Loan and Security Agreement dated as of July
10, 1996, by and among DIXON TICONDEROGA COMPANY, a Delaware corporation
("DTC"), and DIXON TICONDEROGA INC., an Ontario corporation ("DTI"; DTC
and DTI, are collectively referred to hereinafter as the "Borrower"), the
Lenders named therein and FIRST UNION COMMERCIAL CORPORATION, a North
Carolina corporation ("FUCC"), as Agent for the Lenders (in its capacity
as Agent, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has entered into an Amended and
Restated Revolving Credit Loan and Security Agreement, dated as of July
10, 1996 (said Agreement, as it may be further amended, restated or
otherwise modified from time to time, being hereinafter called the
"Revolving Credit Agreement"), pursuant to which the Lenders extended
financial accommodations to Borrower in the form of a $40,000,000
revolving line of credit and letter of credit facility in accordance
with, and subject to, the terms and conditions of the Revolving Credit
Agreement; and
WHEREAS, the Borrower has entered into a Term Loan
Agreement, dated as of July 10, 1996 (said Agreement, as it may be
amended, restated or otherwise modified from time to time, being herein-
after called the "Term Loan Agreement"; and, together with the Revolving
Credit Agreement, being hereinafter called the "Loan Agreements"),
pursuant to which the Lenders extended a term loan to Borrower in the
original principal amount of $7,750,000.08; and
WHEREAS, the Borrower has requested the Lenders to
consent to the issuance by DTC of its 12% Senior Subordinated Notes due
2003 in the aggregate principal amount of $16,500,000; and
WHEREAS, the Lenders are willing to give such consent
only if the Borrower agrees to certain modification of the Loan
Agreements, as set forth herein.
NOW, THEREFORE, in consideration of the premises and
the covenants and agreements hereinafter set forth, the parties hereto
agree as follows:
SECTION 1: Defined Terms. Capitalized terms used in this First
Modification and not otherwise defined herein, shall have the meanings
ascribed to them in the Revolving Credit Agreement.
SECTION 2: Definitions.
(a) Section 1 (Definitions) of the Revolving Credit Agreement is amended to
add the following new definitions in their alphabetical order:
<PAGE> 2
"Guarantor" shall mean each of Dixon Europe, Limited, a
United Kingdom company, Bryn Mawr Ocean Resorts, Inc., a Florida
corporation, Dixon Ticonderoga Company de Mexico, S.A. de C.V., a Mexican
corporation, and Ticonderoga Graphite Inc., a New York corporation, each
of which is executing and delivering a Guaranty to the Agent and the
Lenders, and each existing or future other Subsidiary which executes and
delivers a Guaranty to the Agent and the Lenders.
"Guaranty" shall collectively mean each agreement made in
favor of the Agent and the Lenders by a Guarantor in the form attached
hereto as Exhibit R.
(b) Section 1 (Definitions) of the Revolving Credit Agreement is amended by
amending the following definitions to read in their entirety as follows:
"Change of Control" shall mean (a) the acquisition
after the date hereof by any Person or related group for purposes
of Section 13(d) of the Securities Exchange Act of 1934, as amended
(a "Group"), together with any Affiliates thereof, of 30% or more
of the voting stock of the Borrower, or (b) the success by any Person
or Group, together with any Affiliates thereof, in having its or their
nominees elected to the Board of Directors of the Borrower such that
such nominees, when added to any director remaining on the Board of
Directors of the Borrower who is an Affiliate of or related Person to
such Person or Group, shall constitute a majority of the Board of
Directors of the Borrower.
"Subordinated Debt" shall mean the 12% Senior
Subordinated Notes of DTC due 2003 in the original principal amount
of $16,500,000 issued pursuant to the Subordinated Debt Documents.
"Subordinated Debt Documents" shall mean the Note and
Warrant Purchase Agreement dated as of September 26, 1996, between
DTC and the Subordinated Lenders, the Subordinated Notes issued
pursuant thereto, and all other documents evidencing, securing or
otherwise related to the Subordinated Debt, together with any
restatements, amendments, modifications and supplements thereto, and
any renewals or extensions thereof, in whole or in part.
"Subordinated Lenders" shall mean the holders from time
to time of the Subordinated Debt.
SECTION 3: Additional Guaranties. Simultaneously with the execution and
delivery of this First Modification, each of the Guarantors is executing and
delivering to the Agent a Guaranty.
SECTION 4: Amendment of Covenants.
(a) Amendment of Affirmative Covenants. The following
sections of the Revolving Credit Agreement are amended as follows:
1. Section 7.3(b) is amended by deleting the words "Within
forty-five (45) days" at the beginning of such section and replacing such
words with the following: "Not later than the earlier to occur of (i) the
fiftieth (50th) day", and by adding in the second line thereof after the
comma and before the word "beginning" the following: "and (ii) the date
of the filing thereof with the Securities and Exchange Commission".
<PAGE> 3
2. Section 7.3(c) is amended by deleting the words "Within
ninety (90) days" at the beginning of such section and replacing such
words with the following: "Not later than the earlier to occur of (i) the
one hundred and fifth (105th) day", and by adding in the second line
thereof after the comma and before the word "Beginning" the following:
"and (ii) the date of the filing thereof with the Securities and Exchange
Commission".
3. Section 7.3(i) of the Revolving Credit Agreement is
amended by deleting the last word ("and") thereof.
4. Section 7.3(j) is renumbered as 7.3(l).
5. New Sections 7.3(j) and (k) of the Revolving Credit
Agreement are added to read as follows:
(j) concurrently with the delivery thereof to other
lenders or security holders of Dixon-Mexico, quarterly and annual
balance sheets of Dixon-Mexico and the related statements of income,
stockholders" equity and (annually) cash flows of Dixon-Mexico for
such period, all meeting substantially the same criteria as set forth
in subparagraphs (a) and (b) of this Section 7.3;
(k) Immediately upon delivery to each holder of
Subordinated Debt, copies of any legal or fairness opinions, officers"
certificates and other notifications required to be delivered pursuant
to the Subordinated Debt Loan Documents; and
(b) Amendment of Financial Covenants. The following
sections of the Revolving Credit Agreement are amended in their entirety
to read as follows:
8.8 Subordinated Debt. (i) Permit the Subordinated
Debt at any time to exceed Sixteen Million Five Hundred Thousand U.S.
Dollars ($16,500,000), (ii) agree to any amendment of Sections 9.1,
10.1(b), (c), (d) or (i), 10.2(f) or (j), 10.8 or 13 of the
Subordinated Debt Loan Documents, (iii) agree to any amendment of
the Subordinated Debt Loan Documents that would (X) have the effect
of amending, eliminating, shortening, narrowing the scope of or
restricting the operation of the 45-day "standstill" provision in
clause (B) following subdivision (i) of Section 11, or (Y) result
in the occurrence of an "Event of Default" or a "Potential Event of
Default" (as such terms are defined in the Subordinated Debt Loan
Documents) at the time such amendment takes effect, (iv) make any
payments of the Subordinated Debt prior to the scheduled repayment
dates or maturity date for such payments, or (v) agree to any other
amendment of the Subordinated Debt Loan Documents (such other amendment
being herein called a "Sub Debt Amendment") unless (A) at least fifteen
(15) Business Days prior to such Sub Debt Amendment taking effect, the
Borrower gives written notice thereof to the Agent, which notice shall
contain the full text of the Sub Debt Amendment, and (B) during such
15-day period, the Borrower negotiates in good faith with the Agent and
the Lenders to amend the Credit Agreement to include changed or additional
provisions thereto which are at least as onerous to the Borrower as any
such Sub Debt Amendment; provided, however, that if no such amendment of
the Credit Agreement is agreed to during such 15-day period and if any
such Sub Debt Amendment either (i) amends a covenant or an Event of
Default which is more onerous to the Borrower than a counterpart covenant
or Event of Default in the Credit Agreement or (ii) adds a new covenant
or event of default to any of the Subordinated Debt Loan Documents which
<PAGE> 4
is not contained in the Credit Agreement, the Credit Agreement shall be
deemed to have been amended so as to include the more onerous or new
provision(s).
8.9 Tangible Net Worth. Permit Tangible Net Worth to
be less than the amounts shown below at the dates set forth below:
DATE AMOUNT
Effective Date through May 31, 1997 $13,000,000
June 1, 1997 through September 30, 1998 14,000,000
October 1, 1998 through September 30, 1999 16,500,000
October 1, 1999 and thereafter 18,500,000
8.10 Current Ratio. Permit the ratio of Current
Assets to Current Liabilities (including the Revolving Credit Loans)
to be less than 1.25 to 1.00 at any time.
8.11 Fixed Charge Coverage Ratio. As of the last day
of each fiscal quarter, permit the ratio of EBITDA to Fixed Charges
for the twelve (12) months immediately preceding such date to be less
than the ratio show below for the period corresponding thereto:
QUARTER ENDED IN PERIOD RATIO
Effective date to September 29, 1997 0.80 to 1.0
September 30, 1997 and thereafter 1.10 to 1.0
8.12 Senior Fixed Charge Coverage Ratio. The existing
covenant is deleted and replaced with the following:
8.12 Interest and Dividend Coverage. The Borrower
will not at any time permit the Consolidated Interest and Dividend
Coverage Ratio to be less than the ratio shown below for the period
corresponding thereto:
QUARTER ENDED IN PERIOD RATIO
Effective date to September 30, 1996 1.75 to 1.0
October 1, 1996 through
September 30, 1997 1.90 to 1.0
October 1, 1997 through
September 30, 1998 2.30 to 1.0
October 1, 1998 and thereafter 2.55 to 1.0.
Solely for purposes of this Section 12, the following
capitalized terms shall have the following respective meanings:
Adjusted EBIT: for any Reference Period, Consolidated
Net Income before dividends, (a) adjusted by adding thereto (i)
Consolidated Interest Expense, (ii) "minority interests" related to
Dixon-Mexico, and (iii) income taxes, all to the extent deducted in
arriving at the calculation of Consolidated Net Income for such Reference
Period; (b) further adjusted by excluding therefrom all extraordinary
<PAGE> 5
gains and losses and all other extraordinary or non-recurring items
(in each case as determined in accordance with GAAP); and (c) further
adjusted by deducting therefrom Minority EBIT for such Reference Period.
Consolidated Interest and Dividend Coverage Ratio: for
any Reference Period, the ratio of (a) Adjusted EBIT for such Reference
Period to (b) the sum of (i) Consolidated Interest Expense for such
Reference Period, plus (ii) capitalized interest for such Reference
Period, plus (iii) all cash dividends accrued or paid on capital stock of
the Borrower during such Reference Period.
Consolidated Interest Expense: for any Reference
Period, Interest Expense of the Borrower and its consolidated
Subsidiaries for such Reference Period.
Consolidated Net Income: for any Reference Period, (a)
the net income (or deficit) of the Borrower and its Subsidiaries for such
period (taken as a cumulative whole), after deducting all operating
expenses, provisions for all taxes and reserves and all other proper
deductions, all determined in accordance with GAAP, less (b) the net
income (or deficit) of any Subsidiary that is less than wholly-owned
(other than Dixon-Mexico).
Interest Expense: as applied to any Person with
reference to any period, interest expense of such Person for such
period, including amortization of debt discount and expense and
imputed interest on Capital Lease Obligations properly chargeable to
income during such period in accordance with GAAP.
Minority EBIT: for any Reference Period, the product
of (a) the ownership percentage of all Persons, other than the Borrower
and any Subsidiary, of the outstanding shares of Dixon-Mexico times (b)
the net income (or deficit) of Dixon-Mexico for such Reference Period
(taken as a cumulative whole), after deducting all operating expenses,
provisions for all taxes and reserves and all other proper deductions,
all determined in accordance with GAAP, (i) adjusted by adding thereto
Interest Expense and income taxes deducted in the calculation of the net
income of Dixon-Mexico for such Reference Period, and (ii) further
adjusted by excluding therefrom all extraordinary gains and losses and
all other extraordinary or non-recurring items (in each case as
determined in accordance with GAAP), provided, that all items under
clause (b) above shall be determined in accordance with United States
GAAP and shall be denominated in U.S. dollars.
Reference Period: as of any date of determination, the
four (4) consecutive full fiscal quarters ended most recently prior to
such date.
8.13 Ratio of EBIT to Interest on Indebtedness. As of
the last day of each fiscal quarter, permit the ratio of EBIT to interest
payable on Indebtedness for the twelve (12) months immediately preceding
such date to be less than the ratio shown below during the period
corresponding thereto:
<PAGE> 6
QUARTER ENDED IN PERIOD RATIO
Effective date to September 29, 1997 1.80 to 1.0
September 30, 1997 to September 29, 1998 2.00 to 1.0
September 30, 1998 and thereafter 2.25 to 1.0
8.14 Ratio of EBIT to Senior Debt Interest. [The
existing covenant is deleted.]
8.15 Quick Ratio. [The existing covenant is deleted.]
8.16 Debt-to-Equity Ratio. Permit the ratio of Total
Liabilities to Tangible Net Worth to be more than the ratio show below
at the dates corresponding thereto:.
DATE RATIO
September 30, 1996 4.40 to 1.0
September 30, 1997 3.75 to 1.0
September 30, 1998 3.00 to 1.0
September 30, 1999 and
thereafter 2.75 to 1.0
8.21 Funded Debt Limitation. Permit total Funded Debt
at any time to exceed: (A) in the case of the Borrower, the sum of (i)
all Obligations then outstanding, (ii) all Subordinated Debt then
outstanding, (iii) all other Funded Debt outstanding on September 25,
1996 as reflected on Debt Schedule B-2 attached to the Subordinated
Debt Loan Documents, and (iv) $3,100,000; and (B) in the case of
Dixon-Mexico, an aggregate of $3,000,000, provided that for purposes of
this clause (B) only, references to the Borrower in the definition of
"Funded Debt" shall be deemed references to Dixon-Mexico.
SECTION 5: Ratification; Effect on Term Loan Agreement. Except as
modified hereby, the terms and conditions of the Loan Agreements and the
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed in all respects. To the extent that any of the
amendments of the Revolving Credit Agreement contained in this First
Modification are amendments of provisions which are incorporated by
reference in the Term Loan Agreement, the Term Loan Agreement shall be
deemed to be similarly amended.
SECTION 6: Representations and Warranties. The Borrower represents
warrants to, and agrees with, the Agent and the Lenders and for the benefit
of First Union that (i) it has no defenses, set-offs, or counterclaims of
any kind or nature whatsoever against the Agent, the Lenders or First Union
with respect to the Obligations, any of the agreements among the parties
hereto, including, without limitation, the obligations of the Borrower under
the Loan Agreements, the Notes, this First Modification or any other Loan
Document, or any action previously taken or not taken by the Agent or any
Lender with respect thereto or with respect to any Lien or Collateral in
connection therewith to secure the Obligations, and (ii) this First
Modification has been duly authorized by all necessary corporate action
on the part of the Borrower, has been duly executed by a duly authorized
officer of each entity comprising the Borrower, and constitutes the valid
and binding obligation of the Borrower, enforceable against each entity
comprising the Borrower in accordance with the terms hereof.
<PAGE> 7
SECTION 7: Loan Agreement Representations and Warranties. The last
sentence of Section 6.1 of the Revolving Credit Agreement is amended to
read as follows:
None of the entities which collectively constitute the
Borrower has any Subsidiaries, except for DTC, which has DTI,
Dixon-U.K. and the Guarantors as its only directly-owned Subsidiaries,
and Dixon-Mexico which is a Subsidiary of DTI.
The Borrower hereby certifies that the representations and warranties
contained in the Loan Agreements, as amended herein, continue to be true
and correct and that no Event of Default, or event which with the passage
of time or the giving of notice, or both, would constitute an Event of
Default has occurred.
SECTION 8: Conditions Precedent to Effectiveness of Modification.
It shall be a condition precedent to the effectiveness of this First
Modification that the Borrower shall have complied with each of the following:
(a) Guaranties. Each Guarantor shall have executed and delivered a
counterpart original of the Guaranty to the Agent.
(b) Certificates of Secretaries of the Borrower and Guarantors. The
Agent shall have received a certificate of the Secretary or an Assistant
Secretary of each entity comprising the Borrower and of each Guarantor,
certifying (a) with respect to each such Guarantor, that attached thereto
is a true and complete copy of (i) the Bylaws for such Guarantor as in
effect on the date of such certification and (ii) resolutions adopted by
the Board of Directors and sole shareholder of such Guarantor authorizing
the execution, delivery and performance by such Guarantor of the Guaranty
and the other Loan Documents to which such Guarantor is a party; (b) that
attached thereto is a true and complete copy of resolutions adopted by
the Board of Directors of each entity comprising the Borrower authorizing
the execution, delivery and performance of this First Modification by
such entity; and (c) as to the incumbency and genuineness of the
signature of each officer of the Borrower and each Guarantor executing
this First Modification, each Guaranty and each of the other Loan
Documents, as the case may be.
(c) Articles of Incorporation. The Agent shall have received copies of
the Articles of Incorporation for each Guarantor, and all amendments
thereto, each certified by the Secretary of State of such Guarantor's
jurisdiction of incorporation.
(d) Certificates of Status. The Agent shall have received good
standing certificates for each of the Guarantors attesting to each
guarantor's good standing under the laws of the jurisdiction of its
incorporation and of each other jurisdiction where a Guarantor is
authorized to transact business.
(e) Certificates of Guarantors. The Agent shall have received a
certificate from each Guarantor, signed by the Chief Executive Officer
and Secretary of each Guarantor, in form and substance satisfactory to
the Agent and its special counsel, to the effect that all representations
and warranties of the such Guarantor contained in its Guaranty are true,
correct and complete as of the Effective Date; that such Guarantor is not
in violation of any of the covenants contained in its Guaranty.
<PAGE> 8
(f) Certificate of Borrower. The Agent shall have received a
certificate from each entity comprising the Borrower, signed by the Chief
Executive Officer and Secretary of such entity, in form and substance
satisfactory to the Agent and its special counsel, to the effect that all
representations and warranties of the Borrower contained in this First
Modification are true, correct and complete as of the Effective Date;
that the Borrower is not in violation of any of the covenants contained
in any of the Loan Documents to which it is a party; that, giving effect
to the transactions contemplated by this First Modification, no Event of
Default or any event or condition which with notice, lapse of time, or
both would constitute such an Event of Default, has occurred and is
continuing; and that the Borrower has satisfied each of the closing
conditions set forth in this Section 8.
(g) Opinion of Counsel to the Borrower. The Agent shall have received
the opinion of counsel for the Borrower dated the Effective Date, as to
the transactions contemplated by this First Modification, in form and
substance satisfactory to the Agent and its special counsel.
SECTION 9: Payment of Expenses. Borrower agrees to pay, upon receipt
of an invoice therefor, all fees and expenses of separate legal counsel for
the Agent and the Lenders in connection with the preparation, negotiation or
execution of this First Modification.
SECTION 10: Counterparts. This First Modification may be executed in
any number of counterparts which, when taken together, shall constitute one
original.
SECTION 11: Governing Law; Severability. This First Modification shall
be governed by, and construed and interpreted in accordance with, the law of
the State of Florida. Wherever possible, each provision of this First
Modification shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this First
Modification shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and without invalidating the remaining provisions of this
First Modification.
SECTION 12: WAIVER OF TRIAL BY JURY. Each of the Borrower, the Agent
and the Lenders hereby knowingly, voluntarily, irrevocably and intentionally
waives the right it may have to a trial by jury in respect to any action,
proceeding, counterclaim or other litigation based hereon, or arising out
of, under or in connection with this First Modification, the Loan Agree-
ments or any other Loan Document, or any course of conduct, course of
dealing, statements (whether oral or written) or actions of any party
hereto. This provision is a material inducement of the parties to enter
into this First Modification.
SECTION 13: Titles. The section titles contained in this First
Modification are and shall be without substantive meaning or content of any
kind whatsoever and are not part of this First Modification.
IN WITNESS WHEREOF, the parties hereto have caused this
First Modification to be executed as of the date first above written.
BORROWER:
DIXON TICONDEROGA COMPANY,
a Delaware corporation
By: /s/ Gino N. Pala
------------------------------
Gino N. Pala, President and CEO
<PAGE> 9
DIXON TICONDEROGA INC.,
an Ontario corporation
By: /s/ Gino N. Pala
------------------------------
Gino N. Pala, President and CEO
AGENT:
FIRST UNION COMMERCIAL CORPORATION,
a North Carolina corporation, as Agent
By: /s/ Roanne Disalvatore
----------------------------------
Roanne Disalvatore, Vice President
LENDERS:
FIRST UNION COMMERCIAL CORPORATION,
a North Carolina corporation,
as Agent
By: /s/ Roanne Disalvatore
--------------------------------
Roanne Disalvatore, Vice President
THE FIRST NATIONAL BANK OF BOSTON,
a national banking association
By: /s/ Katherine S. Steiger
---------------------------------
Katherine S. Steiger, Vice President
NATIONAL BANK OF CANADA,
a Canadian chartered bank
By: /s/ Jean Page
---------------------------------
Jean Page, Vice President
<PAGE>
=========================================================================
DIXON TICONDEROGA COMPANY
$16,500,000
12.00% Senior Subordinated Notes due 2003
----------------------
NOTE AND WARRANT
PURCHASE AGREEMENT
----------------------
Dated as of September 26, 1996
=========================================================================
<PAGE> i
TABLE OF CONTENTS
1. Authorization of Notes and Warrants. . . . . . . . . . . . .1
2. Sale and Purchase of Notes and Warrants. . . . . . . . . . .1
3. Closing; Fees. . . . . . . . . . . . . . . . . . . . . . . .1
3.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . .1
3.2. Transaction Fees. . . . . . . . . . . . . . . . . . . . .2
3.3. Legal Fees. . . . . . . . . . . . . . . . . . . . . . . .2
4. Conditions to Closing. . . . . . . . . . . . . . . . . . . .2
4.1. Representations and Warranties. . . . . . . . . . . . . .2
4.2. Performance; No Default . . . . . . . . . . . . . . . . .2
4.3. Compliance Certificate. . . . . . . . . . . . . . . . . .2
4.4. Opinions of Counsel . . . . . . . . . . . . . . . . . . .3
4.5. Guaranties. . . . . . . . . . . . . . . . . . . . . . . .3
4.6. Credit Agreement. . . . . . . . . . . . . . . . . . . . .3
4.7. Satisfaction of Company Obligations . . . . . . . . . . .3
4.8. Consents, Agreements. . . . . . . . . . . . . . . . . . .3
4.9. Compliance with Securities Laws . . . . . . . . . . . . .3
4.10. No Adverse U.S. Legislation, Action or
Decision, etc.. . . . . . . . . . . . . . . . . . . . . .4
4.11. No Actions Pending. . . . . . . . . . . . . . . . . . . .4
4.12. Purchase Permitted By Applicable Law, etc . . . . . . . .4
4.13. Proceedings and Documents . . . . . . . . . . . . . . . .4
4.14. Sale of Other Notes . . . . . . . . . . . . . . . . . . .4
4.15. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . .4
5. Representations and Warranties, etc. . . . . . . . . . . . .4
5.1. Organization, Standing, etc . . . . . . . . . . . . . . .4
5.2. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . .5
5.3. Qualification . . . . . . . . . . . . . . . . . . . . . .5
5.4. Business; Financial Statements. . . . . . . . . . . . . .5
5.5. Changes, etc. . . . . . . . . . . . . . . . . . . . . . .6
5.6. Tax Returns and Payments. . . . . . . . . . . . . . . . .6
5.7. Debt. . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.8. Capital Stock and Related Matters . . . . . . . . . . . .6
5.9. Title to Properties; Liens. . . . . . . . . . . . . . . .7
5.10. Litigation, etc . . . . . . . . . . . . . . . . . . . . .7
5.11. Compliance with Other Instruments, etc. . . . . . . . . .7
5.12. Governmental Consent. . . . . . . . . . . . . . . . . . .8
5.13. Patents, Trademarks, Authorizations, etc. . . . . . . . .8
5.14. Offer of Notes. . . . . . . . . . . . . . . . . . . . . .8
5.15. Use of Proceeds . . . . . . . . . . . . . . . . . . . . .8
5.16. Federal Reserve Regulations . . . . . . . . . . . . . . .8
5.17. Environmental Matters . . . . . . . . . . . . . . . . . .8
5.18. Status Under Certain Federal Statutes . . . . . . . . . .9
5.19. Foreign Assets Control Regulations, etc . . . . . . . . 10
5.20. Compliance with ERISA . . . . . . . . . . . . . . . . . 10
5.21. Certain Fees. . . . . . . . . . . . . . . . . . . . . . 11
5.22. Disclosure. . . . . . . . . . . . . . . . . . . . . . . 11
6. Purchase Intent; Source of Funds . . . . . . . . . . . . . 11
6.1. Purchase Intent . . . . . . . . . . . . . . . . . . . . 11
6.2. Source of Funds . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
<PAGE> ii
7. Accounting; Financial Statements and Other
Information. . . . . . . . . . . . . . . . . . . . . . . . 12
8. Inspection; Confidentiality. . . . . . . . . . . . . . . . 15
8.1. Inspection. . . . . . . . . . . . . . . . . . . . . . . 15
8.2. Confidentiality . . . . . . . . . . . . . . . . . . . . 15
9. Prepayment of Notes. . . . . . . . . . . . . . . . . . . . 15
9.1. Required Prepayments. . . . . . . . . . . . . . . . . . 15
9.2. Optional Prepayments with Premium . . . . . . . . . . . 15
9.3. Optional Prepayment upon Public Offering. . . . . . . . 16
9.4. Contingent Prepayments Upon Change of Control . . . . . 16
9.5. Contingent Prepayment Upon Sale of Certain
Assets. . . . . . . . . . . . . . . . . . . . . . . . . 16
9.6. Notice of Optional Prepayments; Officers'
Certificate . . . . . . . . . . . . . . . . . . . . . . 17
9.7. Allocation of Partial Prepayments . . . . . . . . . . . 17
9.8. Maturity; Surrender, etc. . . . . . . . . . . . . . . . 17
9.9. Acquisition of Notes. . . . . . . . . . . . . . . . . . 17
10. Business and Financial Covenants . . . . . . . . . . . . . 17
10.1. Debt. . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.2. Liens, etc. . . . . . . . . . . . . . . . . . . . . . . 20
10.3. Investments, Guaranties, etc. . . . . . . . . . . . . . 21
10.4. Restricted Payments and Restricted Investments. . . . . 23
10.5. Minimum Net Worth . . . . . . . . . . . . . . . . . . . 24
10.6. Interest and Dividend Coverage. . . . . . . . . . . . . 24
10.7. Transactions with Affiliates. . . . . . . . . . . . . . 25
10.8. Consolidation, Merger, Sale of Assets, etc. . . . . . . 25
10.9. Subsidiary Stock and Indebtedness . . . . . . . . . . . 27
10.10. Corporate Existence, etc.; Business . . . . . . . . . . 28
10.11. Payment of Taxes and Claims . . . . . . . . . . . . . . 28
10.12. Compliance with ERISA . . . . . . . . . . . . . . . . . 28
10.13. Maintenance of Properties; Insurance. . . . . . . . . . 29
10.14. Additional Guaranties . . . . . . . . . . . . . . . . . 30
10.15. Restrictions Affecting Subsidiaries . . . . . . . . . . 30
10.16. Amendment of Credit Agreement . . . . . . . . . . . . . 31
11. Events of Default; Acceleration. . . . . . . . . . . . . . 31
12. Remedies on Default, etc.. . . . . . . . . . . . . . . . . 33
13. Subordination of Subordinated Notes. . . . . . . . . . . . 33
13.1. General. . . . . . . . . . . . . . . . . . . . . . . . . 33
13.2. Superior Debt. . . . . . . . . . . . . . . . . . . . . . 33
13.3. Default in Respect of Superior Debt. . . . . . . . . . . 34
13.4. Insolvency, etc. . . . . . . . . . . . . . . . . . . . . 34
13.5. Payments and Distributions Received. . . . . . . . . . . 35
13.6. No Prejudice or Impairment . . . . . . . . . . . . . . . 35
13.7. Payment of Superior Debt, Subrogation, etc . . . . . . . 36
14. Definitions. . . . . . . . . . . . . . . . . . . . . . . . 36
<PAGE> iii
15. Registration, Transfer and Substitution of Notes;
Action by Noteholders. . . . . . . . . . . . . . . . . . . 45
15.1. Note Register; Ownership of Notes. . . . . . . . . . . . 45
15.2. Transfer and Exchange of Notes . . . . . . . . . . . . . 45
15.3. Replacement of Notes . . . . . . . . . . . . . . . . . . 45
15.4. Notes held by Company, etc., Deemed Not
Outstanding. . . . . . . . . . . . . . . . . . . . . . . 45
16. Payments on Notes. . . . . . . . . . . . . . . . . . . . . 45
16.1. Place of Payment . . . . . . . . . . . . . . . . . . . . 45
16.2. Home Office Payment. . . . . . . . . . . . . . . . . . . 46
17. Expenses, etc. . . . . . . . . . . . . . . . . . . . . . . 46
18. Survival of Representations and Warranties . . . . . . . . 47
19. Amendments and Waivers . . . . . . . . . . . . . . . . . . 47
20. Notices, etc . . . . . . . . . . . . . . . . . . . . . . . 47
21. Submission to Jurisdiction . . . . . . . . . . . . . . . . 48
22. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 48
SCHEDULE A. . . . . . . . . . . . . . Delivered to Purchasers Only
SCHEDULE B. . . . . . . . . . . . . . Delivered to Purhcasers Only
SCHEDULE C. . . . . . . . . . . . . . Delivered to Purchasers Only
EXHIBIT A . . . . . . . . . . . . . . Delivered to Purchasers Only
EXHIBIT B . . . . . . . . . . . . . . . . . . . . .Form of Warrant
EXHIBIT C-1 . . . . . . . . . . . . . Delviered to Purhcasers Only
EXHIBIT C-2 . . . . . . . . . . . . . Delivered to Purchasers Only
EXHIBIT C-3 . . . . . . . . . . . . . Delivered to Purchasers Only
EXHIBIT D . . . . . . . . . . . . . . Delivered to Purchasers Only
<PAGE> 1
Dixon Ticonderoga Company
195 International Parkway
Heathrow, Florida 32746
12.00% Senior Subordinated Notes due September 26, 2003
Warrants to Purchase Common Stock
Dated as of September 26, 1996
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A
Ladies and Gentlemen:
Dixon Ticonderoga Company, a Delaware corporation (the
"Company"), agrees with you as follows:
1. AUTHORIZATION OF NOTES AND WARRANTS. The Company will
authorize the issue and sale of (a) $16,500,000 aggregate principal
amount of its 12.00% Senior Subordinated Notes due September 26, 2003
(the "Notes", such term to include any such notes issued in substitution
therefor pursuant to section 15), to be substantially in the form of the
Note set out in Exhibit A, with such changes therefrom, if any, as may be
approved by you and the Company, and (b) warrants (the "Warrants", such
term to include any warrants issued in substitution therefor pursuant to
section 15) to purchase 300,000 shares of the Common Stock, par value
$1.00 per share (the "Common Stock"), of the Company at an initial
exercise price of $7.24 per share, to be substantially in the form of the
Warrant set out in Exhibit B, with such changes therefrom, if any, as may
be approved by you and the Company. Certain capitalized terms used in
this Agreement are defined in section 14; references to a "Schedule" or
an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit
attached to this Agreement.
2. SALE AND PURCHASE OF NOTES AND WARRANTS. The Company
will issue and sell to you and, subject to the terms and conditions of
this Agreement, you will purchase from the Company, at the Closing
provided for in section 3, (a) Notes in the principal amount specified
opposite your name in Schedule A and (b) Warrants for the number of
shares of Common Stock specified opposite your name in Schedule A; at the
purchase price of 100% of the principal amount of such Notes.
Contemporaneously with entering into this Agreement, the Company is
entering into separate Note Agreements (the "Other Agreements") identical
with this Agreement with the other purchasers named in Schedule A (the
"Other Purchasers"), providing for the sale to each of the Other
Purchasers, at such Closing, of Notes in the principal amount specified
opposite its name in Schedule A.
3. CLOSING; FEES. 3.1. CLOSING. The sales of the Notes
and the Warrants to be purchased by you shall take place at the offices
of Becker, Glynn, Melamed & Muffly LLP, at 10:00 a.m., New York City
time, at a closing (the "Closing") on September 26, 1996 or on such other
Business Day thereafter as may be agreed upon by the Company and you. At
the Closing the Company will deliver to you (a) the Notes to be purchased
by you in the form of a single Note (or such greater number of Notes in
<PAGE> 2
denominations of at least $500,000 as shall be set forth in Schedule A
or as you may request) dated the date of the Closing and registered
in your name (or in the name of your nominee), and (b) the Warrants
to be purchased by you in the form of a single warrant certificate
(or such greater number of warrant certificates as shall be set
forth in Schedule A or as you may request) dated the date of the
Closing and registered in your name (or in the name of your nominee);
against delivery by you to the Company or its order of immediately
available funds in the amount of the purchase price therefor. If at the
Closing the Company shall fail to tender such Notes or such Warrants to
you as provided above in this section 3, or any of the conditions
specified in section 4 shall not have been fulfilled to your
satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any other
rights you may have by reason of such failure or such nonfulfillment.
3.2. TRANSACTION FEES. On the date of the Closing, the
Company will pay to you (or to the Person designated by you for payment
in Schedule A), in immediately available funds, a transaction fee equal
to 1.0% of the aggregate purchase price for the Notes and Warrants
purchased by you on the Closing Date, by crediting the account specified
below your name in Schedule A for the payment of transaction fees.
3.3. LEGAL FEES. On the date of the Closing, the Company
will pay the reasonable fees and disbursements of your special counsel
incurred in connection with the transactions contemplated by this
Agreement and set forth in a statement delivered to the Company on or
prior to the date of the Closing, and thereafter the Company will pay,
promptly upon receipt of a supplemental statement therefor, additional
reasonable fees and disbursements of your special counsel, if any,
incurred in connection with such transactions.
4. CONDITIONS TO CLOSING. Your obligation to purchase and
pay for the Notes and Warrants to be sold to you at the Closing is
subject to the fulfillment to your satisfaction, prior to or at the
Closing, of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company contained in this Agreement and those
otherwise made in writing by or on behalf of the Company in connection
with the transactions contemplated by this Agreement shall be correct
when made and at the time of the Closing, except as affected by the
consummation of such transactions.
4.2. PERFORMANCE; NO DEFAULT. The Company shall have
performed and complied with all agreements and conditions contained in
this Agreement required to be performed or complied with by it prior to
or at the Closing and at the time of the Closing no Event of Default or
Potential Event of Default shall have occurred and be continuing.
4.3. COMPLIANCE CERTIFICATE. The Company shall have
delivered to you an Officers' Certificate, dated the date of the Closing,
certifying that the conditions specified in sections 4.1 and 4.2 have
been fulfilled and demonstrating that, after giving effect to the
issuance of all of the Notes and Warrants, the Company will be in
compliance in all material respects with the most stringent limitations
on the incurrence or maintenance of Debt contained in any instrument or
agreement applicable to or binding on the Company or certifying that a
<PAGE> 3
complete and correct copy of a waiver or waivers of compliance with
such limitations is attached to such Officers' Certificate.
4.4. OPINIONS OF COUNSEL. You shall have received (a) from
Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A., counsel for the
Company, (b) from Becker, Glynn, Melamed & Muffly LLP, your special
counsel in connection with the transactions contemplated by this
Agreement, and (c) from Richard F. Joyce, Esq., Executive Vice President
and Chief Legal Executive of the Company, favorable opinions sub-
stantially in the forms set forth in Exhibits C-1, C-2 and C-3,
respectively, and covering such other matters incident to such
transactions as you may reasonably request, each addressed to you, dated
the date of the Closing and otherwise satisfactory in substance and form
to you; and such opinions of counsel to the Company's Subsidiaries as you
may reasonably request, covering matters relating to the Guaranty
Agreement.
4.5. GUARANTIES. Each of the Company's Subsidiaries shall
have executed and delivered to you the Guaranty Agreement, substantially
in the form of Exhibit D, unconditionally and irrevocably guaranteeing to
you the full and prompt payment and performance of the Company's
obligations under the Notes.
4.6. CREDIT AGREEMENT. The Credit Agreement shall have been
executed and delivered by the Company, First Union Commercial
Corporation, as Agent, and the lenders named therein, and shall be
satisfactory in form and substance to you. You shall have received a
copy of the Credit Agreement, certified as a true and complete copy
thereof by an officer of the Company.
4.7. SATISFACTION OF COMPANY OBLIGATIONS. All of the
obligations of the Company shown on Schedule B as obligations that are
required or intended to be satisfied on or prior to the Closing Date
shall have been satisfied in full and all Liens securing any of such
obligations shall have been released. The Company shall have received a
payoff letter, reasonably satisfactory in form and substance to you, from
the holder of the Company's 10.59% Senior Subordinated Notes, stating
that upon the payment of the amount set forth in such letter, all of the
Company's obligations with respect to such Notes will be fully and
irrevocably discharged.
4.8. CONSENTS, AGREEMENTS. The Company shall have obtained
all consents and waivers, under any term of any agreement or instrument
to which it is a party or by which it or any of its properties is bound,
or any term of any applicable law, ordinance, rule or regulation of any
governmental authority, or any term of any applicable order, judgment or
decree of any court, arbitrator or governmental authority, necessary or
appropriate in connection with the transactions contemplated by this
Agreement, and such consents and waivers shall be in full force and
effect on the Closing Date. A complete and correct copy of each of such
consents and waivers shall have been delivered to you.
4.9. COMPLIANCE WITH SECURITIES LAWS. The offering and sale
of the Notes and Warrants to you and the Other Purchaser shall have
complied with all applicable requirements of federal and state securities
laws and you shall have received evidence thereof in form and substance
reasonably satisfactory to you.
<PAGE> 4
4.10. NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION, ETC.
No legislation shall have been enacted by either house of Congress or
favorably reported by any committee thereof, no other action shall have
been taken by any governmental authority, whether by order, regulation,
rule, ruling or otherwise, and no decision shall have been rendered by
any court of competent jurisdiction, which would materially and adversely
affect the Notes or the Warrants being purchased by you hereunder.
4.11. NO ACTIONS PENDING. There shall be no suit, action,
investigation, inquiry or other proceeding by any governmental body or
any other Person or any other legal or administrative proceeding pending
or, to the Company's knowledge, threatened which questions the validity
or legality of the transactions contemplated by this Agreement or the
other Operative Agreements or which seeks damages or injunctive or other
equitable relief in connection therewith.
4.12. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the
date of the Closing your purchase of Notes and Warrants (a) shall be
permitted by the laws and regulations of each jurisdiction to which you
are subject and (b) shall not subject you to any tax, penalty or, in your
reasonable judgment, other onerous condition by reason of any change
after the date of this Agreement in any applicable law or governmental
regulation. If requested by you, you shall have received, at least five
Business Days prior to the Closing, an Officers' Certificate certifying
as to such matters of fact as you may reasonably specify to enable you to
determine whether such purchase is so permitted.
4.13. PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated by this
Agreement and all documents and instruments incident to such transactions
shall be satisfactory to you and your special counsel, and you and your
special counsel shall have received all such counterpart originals or
certified or other copies of such documents as you or they may reasonably
request.
4.14. SALE OF OTHER NOTES. Contemporaneously with the
Closing the Company shall sell to the Other Purchasers the Notes and
Warrants to be purchased by them at the Closing as specified in
Schedule A.
4.15. FEES. The fees required to be paid by sections 3.2
and 3.3 shall have been paid as therein provided.
5. REPRESENTATIONS AND WARRANTIES, ETC. The Company
represents and warrants that:
5.1. ORGANIZATION, STANDING, ETC. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate power
and authority to own and operate its properties, to carry on its business
as now conducted and as proposed to be conducted, to enter into this
Agreement, to issue and sell the Notes and the Warrants and to carry out
the terms of this Agreement, the Notes and the Warrants.
<PAGE> 5
5.2. SUBSIDIARIES. Schedule C correctly lists as to each
Subsidiary on the date of this Agreement (a) its name, (b) the
jurisdiction of its incorporation and (c) the percentage of its issued
and outstanding shares owned by the Company or another Subsidiary
(specifying such other Subsidiary). Each Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has all requisite corporate
power and authority to own and operate its properties, to carry on its
business as now conducted and as proposed to be conducted, to enter into
the Guaranty Agreement and to carry out the terms of the Guaranty
Agreement. All the outstanding shares of capital stock of each
Subsidiary are validly issued, fully paid and non-assessable, and all
such shares indicated in Schedule C as owned by the Company or by any
other Subsidiary are so owned beneficially and of record by the Company
or by such other Subsidiary free and clear of any Lien, other than Liens
permitted by subdivision (f) of section 10.2.
5.3. QUALIFICATION. Each of the Company and its
Subsidiaries is duly qualified and in good standing as a foreign
corporation authorized to do business in each jurisdiction (other than
the jurisdiction of its incorporation) in which the nature of its
activities or the character of the properties it owns or leases makes
such qualification necessary and in which the failure so to qualify would
have a materially adverse effect on the Company.
5.4. BUSINESS; FINANCIAL STATEMENTS. The Company has
delivered to you complete and correct copies of (a) its annual reports on
Form 10-K for the fiscal years ended September 30, 1993 through 1995, as
filed with the Securities and Exchange Commission (the "Forms 10-K") and
(b) the Private Placement Memorandum. The Forms 10-K and the Private
Placement Memorandum correctly describe, in all material respects, as of
their respective dates, the business then conducted and proposed to be
conducted by the Company. There are included in the Forms 10-K financial
statements of the Company for each of the fiscal years ended September
30, 1993 through 1995, accompanied in each case by the opinion thereon of
Coopers & Lybrand L.L.P., independent public accountants. The Company
has also delivered to you complete and correct copies of its quarterly
reports to stockholders sent or made available to stockholders, and its
quarterly reports on Form 10-Q filed with the Securities and Exchange
Commission, in each case for fiscal periods subsequent to September 30,
1995, and current reports on Form 8-K, proxy statements, registration
statements and prospectuses, if any, filed by the Company with the
Securities and Exchange Commission since such date. All financial
statements included in the foregoing materials delivered to you (except
as otherwise specified therein) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods specified and present fairly the financial posi-
tion of the Company and its Subsidiaries as of the respective dates
specified and the results of their operations and cash flows for the
respective periods specified.
<PAGE> 6
5.5. CHANGES, ETC. Since September 30, 1995, (a) other than
the ECRA Decision, there has been no change in the assets, liabilities or
financial condition of the Company or any of its Subsidiaries, other than
changes in the ordinary course of business which have not been, either in
any case or in the aggregate, materially adverse to the Company or any of
its Subsidiaries, (b) neither the business, operations or affairs nor any
of the properties or assets of the Company or its Subsidiaries have been
affected by any occurrence or development (whether or not insured
against) which has been, either in any case or in the aggregate,
materially adverse to the Company or any of its Subsidiaries and (c) the
Company has not as of the date of this Agreement directly or indirectly
declared, ordered, paid, made or set apart any sum or property for any
Restricted Payment or agreed to do so.
5.6. TAX RETURNS AND PAYMENTS. The Company and its
Subsidiaries have filed all tax returns required by law to be filed by
them and have paid all taxes, assessments and other governmental charges
levied upon the Company and its Subsidiaries, and any of their respective
properties, assets, income or franchises which are due and payable, other
than those presently payable without penalty or interest and those
presently being contested in good faith by appropriate proceedings
diligently conducted for which such reserves or other appropriate
provision, if any, as shall be required by generally accepted accounting
principles shall have been made. The Federal income tax liabilities of
the Company and its Subsidiaries have been finally determined by the
Internal Revenue Service and satisfied, or the time for audit has
expired, for all fiscal periods through September 30, 1992. The charges,
accruals and reserves on the books of the Company and its Subsidiaries in
respect of Federal, state and foreign income taxes for all fiscal periods
are adequate in the opinion of the Company, and the Company knows of no
unpaid assessment for additional Federal, state or foreign income taxes
for any period or any basis for any such assessment.
5.7. DEBT. Schedule B-1 correctly describes all secured and
unsecured Debt of the Company and its Subsidiaries outstanding, or for
which the Company or any of its Subsidiaries has commitments, on the date
of this Agreement, and identifies the collateral securing any secured
Debt. Schedule B-2 correctly describes all such Debt that, on the
Closing Date and after giving effect to the transactions contemplated by
this Agreement, will remain outstanding. Neither the Company nor any of
its Subsidiaries is in default with respect to any Debt or any instrument
or agreement relating thereto.
5.8. CAPITAL STOCK AND RELATED MATTERS. As of the Closing
Date, the authorized capital stock of the Company will consist of
8,000,000 shares of Common Stock and 100,000 shares of Preferred Stock,
par value $1.00 per share. On the Closing Date after giving effect to
the transactions contemplated by this Agreement and the Operative
Agreements, 3,293,778 shares of the Common Stock and no shares of such
Preferred Stock will be issued and outstanding. The shares of Common
Stock issuable upon exercise of the Warrants have been duly authorized
and validly reserved for issuance upon such exercise and, when so issued,
will be validly issued, fully paid and non-assessable. As of the Closing
Date, the Company will not have outstanding securities convertible into
or exchangeable for any shares of its capital stock, nor will it have
outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
<PAGE> 7
character relating to, any shares of its capital stock or any
securities convertible into or exchangeable for any shares of its capital
stock, other than (a) the Warrants and (b) options issued and to be
issued to certain employees of the Company and its Subsidiaries from time
to time in the manner contemplated by the Option Plan.
5.9. TITLE TO PROPERTIES; LIENS. Each of the Company and
its Subsidiaries has good and sufficient title to its properties and
assets, including the properties and assets reflected in the financial
statements referred to in section 5.4 (except properties and assets
disposed of since such date in the ordinary course of business and
properties and assets held under Capital Leases referred to in Schedule
B), and none of such properties or assets is subject to any Liens except
such as are of the character permitted by section 10.2. The Company and
its Subsidiaries enjoy peaceful and undisturbed possession under all
leases necessary in any material respect for the operation of their
respective properties and assets, and all such leases are valid and
subsisting and are in full force and effect. Except to perfect and
protect security interests of the character permitted by section 10.2, no
presently effective financing statement under the Uniform Commercial Code
which names the Company or any Subsidiary as debtor is on file in any
jurisdiction and neither the Company nor any Subsidiary has signed any
presently effective financing statement or any presently effective
security agreement authorizing any secured party thereunder to file any
such financing statement.
5.10. LITIGATION, ETC. Other than the ECRA Decision, there
is no action, proceeding or investigation pending or threatened (or any
basis therefor known to the Company) which questions the validity of this
Agreement, the Notes or the Warrants or any action taken or to be taken
pursuant to this Agreement, the Notes or the Warrants, or which might
result, either in any case or in the aggregate, in any adverse change in
the business, operations, affairs, condition (financial or otherwise),
properties or assets of the Company or any of its Subsidiaries, or in any
liability on the part of the Company or any of its Subsidiaries, which
would be material to the Company or any of its Subsidiaries.
5.11. COMPLIANCE WITH OTHER INSTRUMENTS, ETC. Neither the
Company nor any of its Subsidiaries is in violation of any term of its
certificate or articles of incorporation or by-laws, and neither the
Company nor any of its Subsidiaries is in violation of any term of any
agreement or instrument to which it is a party or by which it is bound or
any term of any applicable law, ordinance, rule or regulation of any
governmental authority or any term of any applicable order, judgment or
decree of any court, arbitrator or governmental authority, the
consequences of which violation might have a materially adverse effect on
the business, operations, affairs, condition (financial or otherwise),
properties or assets of the Company or any of its Subsidiaries; the
execution, delivery and performance of this Agreement, the Notes and the
Warrants will not result in any violation of or be in conflict with or
constitute a default under any such term or result in the creation of (or
impose any obligation on the Company or any of its Subsidiaries to
create) any Lien upon any of the properties or assets of the Company or
any of its Subsidiaries pursuant to any such term; and there is no such
term which materially adversely affects or in the future may (so far as
the Company can now foresee) materially adversely affect the business,
operations, affairs, condition (financial or otherwise), properties or
assets of the Company or any of its Subsidiaries.
<PAGE> 8
5.12. GOVERNMENTAL CONSENT. No consent, approval or
authorization of, or declaration or filing with, any governmental
authority on the part of the Company or any of its Subsidiaries is
required for the valid execution and delivery of this Agreement or the
valid offer, issue, sale and delivery of the Notes or the Warrants pur-
suant to this Agreement.
5.13. PATENTS, TRADEMARKS, AUTHORIZATIONS, ETC. The Company
and its Subsidiaries own or possess all patents, trademarks, service
marks, trade names, copyrights, licenses and authorizations, and all
rights with respect to the foregoing, necessary for the conduct of their
respective businesses as now conducted, without any known material
conflict with the rights of others.
5.14. OFFER OF NOTES. Neither the Company nor Alex. Brown &
Sons Incorporated (the only Person authorized or employed by the Company
as financial adviser or otherwise as agent in connection with the
offering or sale of the Notes or Warrants or any similar securities of
the Company) has directly or indirectly offered the Notes or the Warrants
or any part thereof or any similar securities for sale to, or solicited
any offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof with, anyone other than you and not more
than 30 other institutional investors. Neither the Company nor anyone
acting on its behalf has taken or will take any action which would
subject the issuance and sale of the Notes or the Warrants to the
registration and prospectus delivery provisions of the Securities Act.
5.15. USE OF PROCEEDS. The Company will apply the proceeds
of the sale of the Notes and Warrants, simultaneously with the Closing,
to (a) the repayment in full of the Company's 10.59% Senior Subordinated
Notes due 1999, in the principal amount of $7,025,000, plus a premium
thereon equal to $355,807.43, plus accrued interest, (b) the repayment of
$8,228,641.92 principal amount of the revolving credit portion of the
Debt of the Company outstanding under the Credit Agreement and (c) the
payment of fees and expenses incurred in connection with the offering and
sale of the Notes and Warrants.
5.16. FEDERAL RESERVE REGULATIONS. The Company will not,
directly or indirectly, use any of the proceeds of the sale of the Notes
and Warrants for the purpose, whether immediate, incidental or ultimate,
of buying a "margin stock" or of maintaining, reducing or retiring any
indebtedness originally incurred to purchase a stock that is currently a
"margin stock", or for any other purpose which might constitute this
transaction a "purpose credit", in each case within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System (12
C.F.R. 207, as amended) or Regulation U of such Board (12 C.F.R. 221, as
amended), or otherwise take or permit to be taken any action which would
involve a violation of such Regulation G or Regulation U or of Regulation
T (12 C.F.R. 220, as amended) or Regulation X (12 C.F.R. 224, as amended)
or any other regulation of such Board. No Debt being reduced or retired
out of the proceeds of the sale of the Notes and Warrants was incurred
for the purpose of purchasing or carrying any such "margin stock", and
neither the Company nor any of its Subsidiaries either owns or has any
present intention of acquiring any such "margin stock".
5.17. ENVIRONMENTAL MATTERS. Except as set forth in the
ECRA Decision:
<PAGE> 9
(a) Each of the Company and its Subsidiaries has complied and
is in compliance with all Environmental Laws in all material respects.
(b) Each of the Company and its Subsidiaries has obtained
and complied with, and is in compliance with, all permits, licenses and
other authorizations that are required pursuant to Environmental Laws for
the occupation of its facilities and the operation of its business,
without transfer, reissuance, or other governmental approval or action.
(c) Neither the Company nor any of its Subsidiaries has
received any written claim, complaint, citation, report or other written
or oral notice regarding any liabilities or potential liabilities,
including any investigatory, remedial or corrective obligations, arising
under Environmental Laws.
(d) No underground storage tanks or surface impoundments or
asbestos-containing material in any form or condition exists at any
property owned or occupied by the Company or any of its Subsidiaries.
(e) Neither the Company nor any of its Subsidiaries has
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any facility or
property, in a manner that would reasonably be expected to give rise to
liabilities of the Company or any of its Subsidiaries for response costs,
natural resource damages or attorneys' fees pursuant to CERCLA or other
Environmental Laws.
(f) No facts, events or conditions relating to the past or
present facilities, properties or operations of the Company or its
Subsidiaries will prevent, hinder or limit continued compliance with
Environmental Laws, give rise to any investigatory, remedial or
corrective obligations pursuant to Environmental Laws, or give rise to
any other liabilities pursuant to Environmental Laws, including without
limitation any relating to onsite or offsite Releases (as defined in
CERCLA) or threatened Releases of hazardous or otherwise regulated
materials, substances or wastes, personal injury, property damage or
natural resources damage.
(g) Neither the Company nor any of its Subsidiaries has,
either expressly or by operation of law, assumed or undertaken any
liability or corrective or remedial obligation of any other Person
relating to Environmental Laws.
5.18. STATUS UNDER CERTAIN FEDERAL STATUTES. The Company is
not (a) an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of
1940, as amended; (b) a "holding company" or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", as such terms are defined in
the Public Utility Holding Company Act of 1935, as amended; (c) a "public
utility" as such term is defined in the Federal Power Act, as amended; or
(d) a "rail carrier or a person controlled by or affiliated with a rail
carrier", within the meaning of Title 49, U.S.C., or a "carrier" to which
49 U.S.C. Section 11301(b)(1) is applicable.
<PAGE> 10
5.19. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the
issue and sale of the Notes and Warrants by the Company nor its use of
the proceeds thereof as contemplated by this Agreement will violate the
Foreign Assets Control Regulations, the Transaction Control Regulations,
the Cuban Assets Control Regulations, the Foreign Funds Control
Regulations, the Iranian Assets Control Regulations, the Iranian
Transactions Regulations, the Iraqi Sanctions Regulations, the Libyan
Sanctions Regulations, or any similar foreign assets control or export
control regulations of the United States Treasury Department (31 C.F.R.,
Subtitle B, Chapter V as amended) or the restrictions set forth in Execu-
tive Orders No. 8389, 9193, 12543 (Libya), 12544 (Libya), 12801 (Libya),
12722 (Iraq) or 12724 (Iraq), as amended, of the President of the United
States of America or of any rules or regulations issued thereunder.
5.20. COMPLIANCE WITH ERISA. (a) Neither the Company nor
any of its Subsidiaries has breached the fiduciary rules of ERISA or
engaged in any prohibited transaction in connection with which the
Company or any of its Subsidiaries could be subjected to (in the case of
any such breach) a suit for damages or (in the case of any such
prohibited transaction) either a civil penalty assessed under section
502(i) of ERISA or a tax imposed by section 4975 of the Code, which suit,
penalty or tax, in any case, would be materially adverse to the Company
or any of its Subsidiaries.
(b) No Plan (other than a Multiemployer Plan) or any trust
created under any such Plan has been terminated since September 2, 1974.
Neither the Company nor any Related Person has within the past six years
contributed to a single employer plan which has at least two contributing
sponsors not under common control or ceased operations at a facility in a
manner which could result in liability under section 4062(f) of ERISA.
No liability to the PBGC has been or is expected by the Company to be
incurred with respect to any Plan (other than a Multiemployer Plan) by
the Company or any Subsidiary which is or would be materially adverse to
the Company or such Subsidiary. There has been no reportable event
(within the meaning of section 4043(b) of ERISA) or any other event or
condition with respect to any Plan (other than a Multiemployer Plan)
which presents a risk of termination of any such Plan by the PBGC under
circumstances which in any case could result in liability which would be
materially adverse to the Company or any of its Subsidiaries.
(c) Full payment has been made of all amounts which the
Company or any Related Person is required under the terms of each Plan to
have paid as contributions to such Plan as of the last day of the most
recent fiscal year of such Plan ended prior to the date hereof, and no
accumulated funding deficiency (as defined in section 302 of ERISA and
section 412 of the Code), whether or not waived, exists with respect to
any Plan (other than a Multiemployer Plan).
(d) The present value of all vested accrued benefits under
all Plans (other than Multiemployer Plans), determined as of the end of
the Company's most recently ended fiscal year on the basis of reasonable
actuarial assumptions, did not exceed the current value of the assets of
such Plans allocable to such vested accrued benefits by more than
$1,500,000. The terms "present value", "current value", and "accrued
benefit" have the meanings specified in section 3 of ERISA.
<PAGE> 11
(e) The Company is not and has never been obligated to
contribute to any "multiemployer plan" (as such term is defined in
section 4001(a)(3) of ERISA).
(f) The execution and delivery of this Agreement and the
issue and sale of the Notes hereunder will not involve any transaction
which is subject to the prohibitions of section 406 of ERISA or in
connection with which a tax could be imposed pursuant to section 4975 of
the Code. The representation by the Company in the preceding sentence is
made in reliance upon and subject to the accuracy of your representation
in section 6.2 of this Agreement as to the source of the funds used to
pay the purchase price of the Notes purchased by you. The Company has
delivered to you, if requested by you, a complete and correct list of all
employee benefit plans with respect to which the Company is a party in
interest and with respect to which its securities are employer
securities. As used in this section 5.20(f), the terms "employee
benefit plans" and "party in interest" have the respective meanings
specified in section 3 of ERISA and the term "employer securities" has
the meaning specified in section 407(d)(1) of ERISA.
5.21. CERTAIN FEES. Except for the fees referred to in sec-
tion 3 and except for a placement fee payable to Alex. Brown & Sons
Incorporated in the amount of $577,500, no broker's or finder's fee or
commission has been paid or will be payable by the Company with respect
to the offer, issue and sale of the Notes or the Warrants, and the
Company hereby indemnifies you against, and will hold you harmless from,
any claim, demand or liability asserted against you for broker's or
finder's fees alleged to have been incurred by the Company or any other
Person (other than you or your affiliates) in connection with any such
offer, issue and sale or any of the other transactions contemplated by
this Agreement or any of the other Operative Agreements.
5.22. DISCLOSURE. Neither this Agreement, the Memorandum,
the Forms 10-K nor any other document, certificate or instrument
delivered to you by or on behalf of the Company in connection with the
transactions contemplated by this Agreement contains (in each case, as of
its date) any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in this
Agreement and in such other documents, certificates or instruments not
misleading. There is no fact (other than matters of a general economic
or political nature which do not affect the Company uniquely) known to
the Company which materially adversely affects or in the future may (so
far as the Company can now foresee) materially adversely affect the
business, operations, affairs, condition (financial or otherwise),
properties or assets of the Company which has not been set forth in this
Agreement or in the other documents, certificates and instruments
delivered to you by or on behalf of the Company specifically for use in
connection with the transactions contemplated by this Agreement.
6. PURCHASE INTENT; SOURCE OF FUNDS. 6.1. PURCHASE INTENT.
You represent that you are purchasing the Notes and Warrants hereunder
for your own account, not with a view to the distribution thereof or with
any present intention of distributing or selling any of such Notes or
Warrants except in compliance with the Securities Act and any applicable
state securities laws, provided that the disposition of your property
shall at all times be within your control.
<PAGE> 12
6.2. SOURCE OF FUNDS. You represent that all or a portion
of the funds to be used by you to pay the purchase price of the Notes and
Warrants consists of funds which do not constitute assets of any employee
benefit plan (other than a governmental plan exempt from the coverage of
ERISA) and the remaining portion, if any, of such funds consists of funds
which may be deemed to constitute assets of one or more specific employee
benefit plans, complete and accurate information as to the identity of
each of which you have delivered to the Company. As used in this sec-
tion 6.2, the terms "employee benefit plan" and "government plan" shall
have the respective meanings assigned to such terms in section 3 of
ERISA.
7. ACCOUNTING; FINANCIAL STATEMENTS AND OTHER INFORMATION.
The Company will maintain, and will cause each of its Subsidiaries to
maintain, a system of accounting established and administered in
accordance with generally accepted accounting principles, and will
accrue, and will cause each of its Subsidiaries to accrue, all such
liabilities as shall be required by generally accepted accounting
principles. The Company will deliver (in duplicate) to you, so long as
you shall be entitled to purchase Notes under this Agreement or you or
your nominee shall be the holder of any Notes, and to each other holder
of any Notes:
(a) not later than the earlier to occur of (i) the fiftieth
day after the end of each of the first three quarterly fiscal
periods in each fiscal year of the Company and (ii) the date of the
filing thereof with the Securities and Exchange Commission, (x)
consolidated balance sheets of the Company and its Subsidiaries as
at the end of such period and the related consolidated statements
of income, stockholders' equity and cash flows of the Company and
its Subsidiaries for such period and (in the case of the second and
third quarterly periods) for the period from the beginning of the
current fiscal year to the end of such quarterly period, setting
forth in each case in comparative form the consolidated figures for
the corresponding periods of the previous fiscal year, all in
reasonable detail and certified by a principal financial officer of
the Company as presenting fairly, in accordance with generally
accepted accounting principles (except for the absence of notes
thereto) applied (except as specifically set forth therein) on a
basis consistent with such prior fiscal periods, the information
contained therein, subject to changes resulting from normal
year-end audit adjustments, and (y) such supplemental profit and
loss and balance sheet information by division and department in
such detail as the holders of the Notes may request; provided that
so long as the Company is subject to the reporting provisions of
the Exchange Act, delivery of copies of the Company's quarterly
report on Form 10-Q for such period will satisfy the requirements
of this paragraph (a);
(b) not later than the earlier to occur of (i) the 105th
day after the end of each fiscal year of the Company and (ii) the
date of the filing thereof with the Securities and Exchange
Commission, (x) consolidated balance sheets of the Company and its
Subsidiaries as at the end of such year and the related
consolidated statements of income, stockholders' equity and cash
flows of the Company and its Subsidiaries for such fiscal year,
setting forth in each case in comparative form the consolidated
figures for the previous fiscal year, all in reasonable detail, and
accompanied by a report thereon of Coopers & Lybrand L.L.P or other
<PAGE> 13
"Big Six" independent public accountants, which report shall state that
such consolidated financial statements present fairly the financial
position of the Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows
for the periods indicated in conformity with generally accepted
accounting principles applied on a basis consistent with prior
years (except as otherwise specified in such report) and that the
audit by such accountants in connection with such consolidated
financial statements has been made in accordance with generally
accepted auditing standards, and (y) such supplemental profit and
loss and balance sheet information by division and department in
such detail as the holders of the Notes may request; provided that
so long as the Company is subject to the reporting provisions of
the Exchange Act, delivery of copies of the Company's annual report
on Form 10-K for such period will satisfy the requirements of this
paragraph (b);
(c) together with each delivery of financial statements
pursuant to subdivisions (a) and (b) of this section 7, an
Officers' Certificate (i) stating that the signers have reviewed
the terms of this Agreement and of the Notes and have made, or
caused to be made under their supervision, a review in reasonable
detail of the transactions and condition of the Company and its
Subsidiaries during the accounting period covered by such financial
statements and that such review has not disclosed the existence
during or at the end of such accounting period, and that the
signers do not have knowledge of the existence as at the date of
the Officers' Certificate, of any condition or event which
constitutes an Event of Default or Potential Event of Default, or,
if any such condition or event existed or exists, specifying the
nature and period of existence thereof and what action the Company
has taken or is taking or proposes to take with respect thereto,
(ii) specifying the amount available at the end of such accounting
period for Restricted Payments in compliance with section 10.4 and
showing in reasonable detail all calculations required in arriving
at such amount, and (iii) demonstrating in reasonable detail
compliance during and at the end of such accounting period with the
restrictions contained in sections 10.1, 10.3, 10.4, 10.5, 10.6 and
10.9;
(d) together with each delivery of financial statements
pursuant to subdivision (b) of this section 7, a written statement
by the independent public accountants giving the report thereon (i)
stating that their audit examination has included a review of the
terms of this Agreement and of the Notes as they relate to
accounting matters and that such review is sufficient to enable
them to make the statement referred to in clause (iii) of this sub-
division (d) (it being understood that no special audit procedures,
other than those required by generally accepted auditing standards,
shall be required), (ii) stating whether, in the course of their
audit examination, they obtained knowledge (and whether, as of the
date of such written statement, they have knowledge) of the
existence of any condition or event which constitutes an Event of
Default or Potential Event of Default, and, if so, specifying the
nature and period of existence thereof, and (iii) stating that they
have examined the Officers' Certificate delivered in connection
<PAGE> 14
therewith pursuant to subdivision (c) of this section 7 and
that the matters set forth in such Officers' Certificate pursuant
to clauses (ii) and (iii) of such subdivision (c) have been
properly stated in accordance with the terms of this Agreement;
(e) concurrently with the delivery thereof to other lenders
or security holders of Dixon Mexico, quarterly and annual balance
sheets of Dixon Mexico and the related statements of income,
stockholders' equity and (annually) cash flows of Dixon Mexico for
such period, all meeting substantially the same criteria as set
forth in subdivisions (a) and (b) above.
(f) promptly upon receipt thereof, copies of all final
reports submitted to the Company by independent public accountants
in connection with each annual, interim or special audit of the
books of the Company or any Subsidiary made by such accountants,
including, without limitation, the comment letter submitted by such
accountants to management in connection with their annual audit;
(g) promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or
made available generally by the Company to its public security
holders, of all regular and periodic reports and all registration
statements and prospectuses filed by the Company or any Subsidiary
with any securities exchange or with the Securities and Exchange
Commission or any governmental authority succeeding to any of its
functions, and of all press releases and other statements made
available generally by the Company or any Subsidiary to the public
concerning material developments in the business of the Company or
its Subsidiaries;
(h) immediately upon the Company obtaining knowledge of any
condition or event which constitutes an Event of Default or
Potential Event of Default, or that the holder of any Note has
given any notice or taken any other action with respect to a
claimed Event of Default or Potential Event of Default under this
Agreement or that any Person has given any notice to the Company or
any Subsidiary or taken any other action with respect to a claimed
default or event or condition of the type referred to in section
11(f), an Officers' Certificate describing the same and the period
of existence thereof and what action the Company has taken, is
taking and proposes to take with respect thereto;
(i) immediately upon the Company obtaining knowledge of the
occurrence of any (i) "reportable event", as such term is defined
in section 4043 of ERISA, or (ii) "prohibited transaction", as such
term is defined in section 4975 of the Code, in connection with any
Plan or any trust created thereunder, a written notice specifying
the nature thereof, what action the Company has taken, is taking
and proposes to take with respect thereto, and, when known, any
action taken or threatened by the Internal Revenue Service or the
PBGC with respect thereto, provided that, with respect to the
occurrence of any "reportable event" as to which the PBGC has
waived the 30-day reporting requirement, such written notice need
be given only at the time notice is given to the PBGC; and
<PAGE> 15
(j) with reasonable promptness, such other financial reports
and information and data with respect to the Company or any of its
Subsidiaries as from time to time may be reasonably requested.
8. INSPECTION; CONFIDENTIALITY. 8.1. INSPECTION. The
Company will permit any authorized representatives designated by you, so
long as you shall be entitled to purchase Notes under this Agreement or
you or your nominee shall be the holder of any Notes, or by any other
holder of any Notes, without expense to the Company, to visit and inspect
any of the properties of the Company or any of its Subsidiaries,
including its and their books of account, and to make copies and take
extracts therefrom, and to discuss its and their affairs, finances and
accounts with its and their officers and independent public accountants,
all at such reasonable times and as often as may be reasonably requested.
8.2. CONFIDENTIALITY. You agree that you will use your best
efforts not to disclose without the prior consent of the Company (other
than to your employees, officers, directors, advisors, auditors or
counsel or to another holder of the Notes) any information with respect
to the Company or any Subsidiary which is furnished pursuant to section 7
or this section 8 and which is designated by the Company to you in
writing as confidential, provided that you may disclose any such infor-
mation (a) as has become generally available to the public, (b) as may be
required or appropriate in any report, statement or testimony submitted
to any municipal, state or Federal regulatory body having or claiming to
have jurisdiction over you or to the National Association of Insurance
Commissioners or similar organizations or their successors, (c) as may be
required or appropriate in response to any summons or subpoena or in
connection with any litigation, (d) to the extent that you believe it
appropriate in order to protect your investment in the Notes or in order
to comply with any law, order, regulation or ruling applicable to you or
(e) to the prospective transferee in connection with any contemplated
transfer of any of the Notes by you.
9. PREPAYMENT OF NOTES. 9.1. REQUIRED PREPAYMENTS. On
each of September 26, 2001 and September 26, 2002, the Company will
prepay $5,500,000 principal amount of the Notes (or such lesser principal
amount as shall then be outstanding), at the principal amount of the
Notes so prepaid, without premium, provided that, upon any prepayment
pursuant to section 9.4 or 9.5 of the Notes held by some but not all
holders, the principal amount of each required prepayment of the Notes
becoming due under this section 9.1 on and after the date of such
prepayment under section 9.4 or 9.5, as the case may be, shall be reduced
in the same proportion as the aggregate unpaid principal amount of the
Notes is reduced as a result of such prepayment under section 9.4 or 9.5.
9.2. OPTIONAL PREPAYMENTS WITH PREMIUM. The Company may, at
its option, upon notice as provided in section 9.6, prepay at any time
all, or from time to time any part (in an amount of at least $500,000 in
the aggregate or an integral multiple of $1,000 in excess thereof) of,
the Notes at the principal amount so prepaid, plus the Make-Whole
Premium.
<PAGE> 16
9.3. OPTIONAL PREPAYMENT UPON PUBLIC OFFERING. The Company
may, at its option, upon notice as provided in section 9.6, prepay at any
time on or prior to September 26, 1999, concurrently with or within five
days after the occurrence of any Public Offering, up to $4,950,000
principal amount (in an amount of at least $100,000 in the aggregate or
an integral multiple of $1,000 in excess thereof) of the Notes, at the
principal amount so prepaid, plus a premium equal to the lesser of (a)
the Make-Whole Premium and (b) 9.0% of the principal amount of the Notes
so prepaid, provided that no prepayment shall be made pursuant to this
section 9.2 unless, immediately after giving effect to such prepayment,
the aggregate principal amount of the Notes remaining outstanding shall
be not less than $11,550,000.
9.4. CONTINGENT PREPAYMENTS UPON CHANGE OF CONTROL. In the
event of the occurrence of a Change of Control, then the Company shall
give prompt written notice thereof to each holder of the Notes, by
registered mail (and shall confirm such notice by prompt telephonic
advice to an investment officer of each such holder), which notice shall
contain a written, irrevocable offer by the Company to prepay, on a date
specified in such notice (which date shall be not less than 30 days and
not more than 60 days after the date of such notice), the Notes held by
such holder in full (and not in part). Upon the acceptance of such offer
by such holder mailed to the Company at least 10 days prior to the date
of prepayment specified in the Company's offer, such prepayment shall be
made at the principal amount of the Notes so prepaid, plus a premium
equal to 1.0% of the principal amount of the Notes so prepaid. Any offer
by the Company to prepay the Notes pursuant to this section 9.4 shall be
accompanied by an Officers' Certificate certifying that the conditions of
this section 9.4 have been fulfilled and specifying the particulars of
such fulfillment. If the holder of any Notes shall accept such offer,
the principal amount of such Notes shall become due and payable on the
date specified in such offer. In the event that there shall have been a
partial prepayment of the Notes under this section 9.4, the Company shall
promptly give notice to the holders of the Notes, accompanied by an
Officers' Certificate setting forth the principal amount of each of the
Notes that was prepaid and specifying how each such amount was
determined, and setting forth the reduced amount of each required
prepayment thereafter becoming due with respect to the Notes under
section 9.1 and certifying that such reduction has been computed in
accordance with section 9.1.
9.5. CONTINGENT PREPAYMENT UPON SALE OF CERTAIN ASSETS. In
the event that at any time there shall be Excess Sale Proceeds of
$1,000,000 or more, then the Company shall give prompt written notice
thereof to each holder of the Notes, by registered mail (and shall
confirm such notice by prompt telephonic advice to an investment officer
of each such holder), which notice shall contain a written, irrevocable
offer by the Company to prepay, on a date specified in such notice (which
date shall be not less than 30 days and not more than 60 days after the
date of such notice), the Notes in an aggregate principal amount equal to
the amount of Excess Sale Proceeds. Upon the acceptance of such offer by
such holder mailed to the Company at least 10 days prior to the date of
prepayment specified in the Company's offer, such prepayment shall be
made at the principal amount of the Notes so prepaid, plus a premium
equal to (a) 6.0% of the principal amount of the Notes so prepaid, if the
date of prepayment shall be on or prior to September 26, 1998, and (b)
5.0% of the principal amount of the Notes so prepaid, if the date of
prepayment shall be after September 26, 1998 Any offer by the Company to
<PAGE> 17
prepay the Notes pursuant to this section 9.5 shall be accompanied by
an Officers' Certificate certifying that the conditions of this section
9.5 have been fulfilled and specifying the particulars of such
fulfillment. If the holder of any Notes shall accept such offer,
the principal amount of such Notes to be prepaid shall become due and
payable on the date specified in such offer. In the event that there
shall have been a partial prepayment of the Notes under this section 9.5,
the Company shall promptly give notice to the holders of the Notes,
accompanied by an Officers' Certificate setting forth the principal
amount of each of the Notes that was prepaid and specifying how each such
amount was determined, and if some but not all of the Notes were prepaid,
setting forth the reduced amount of each required prepayment thereafter
becoming due with respect to the Notes under section 9.1 and certifying
that such reduction has been computed in accordance with section 9.1.
9.6. NOTICE OF OPTIONAL PREPAYMENTS; OFFICERS' CERTIFICATE.
The Company will give each holder of any Notes written notice of each
optional prepayment under section 9.2 or 9.3 not less than 30 days and
not more than 60 days prior to the date fixed for such prepayment, in
each case specifying such date, the aggregate principal amount of the
Notes to be prepaid, the principal amount of each Note held by such
holder to be prepaid, and the premium, if any, applicable to such
prepayment. Such notice shall be accompanied by an Officers' Certificate
certifying that the conditions of such section have been fulfilled and
specifying the particulars of such fulfillment.
9.7. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each
partial prepayment paid or to be prepaid (except a prepayment pursuant to
section 9.4 or 9.5 of the Notes held by some but not all holders), the
principal amount of the Notes to be prepaid shall be allocated (in
integral multiples of $1,000) among all of the Notes at the time
outstanding in proportion, as nearly as practicable, to the respective
unpaid principal amounts thereof not theretofore called for prepayment,
with adjustments, to the extent practicable, to compensate for any prior
prepayments not made exactly in such proportion.
9.8. MATURITY; SURRENDER, ETC. In the case of each
prepayment, the principal amount of each Note to be prepaid shall mature
and become due and payable on the date fixed for such prepayment,
together with interest on such principal amount accrued to such date and
the applicable premium, if any. From and after such date, unless the
Company shall fail to pay such principal amount when so due and payable,
together with the interest and premium, if any, as aforesaid, interest on
such principal amount shall cease to accrue. Any Note paid or prepaid in
full shall be surrendered to the Company and canceled and shall not be
reissued, and no Note shall be issued in lieu of any prepaid principal
amount of any Note.
9.9. ACQUISITION OF NOTES. The Company will not, and will
not permit any Subsidiary or Affiliate to, purchase, redeem or otherwise
acquire any Note except upon the payment or prepayment thereof in
accordance with the terms of this Agreement and such Note.
10. BUSINESS AND FINANCIAL COVENANTS. The Company covenants
that from the date of this Agreement through the Closing and thereafter
so long as any of the Notes are outstanding:
<PAGE> 18
10.1. DEBT. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume, guarantee,
or otherwise become or remain directly or indirectly liable with respect
to, any Debt, or create, issue, sell, or otherwise become or remain
directly or indirectly liable with respect to, any Disqualified Stock,
except that:
(a) the Company may become and remain liable with respect to
the Debt evidenced by the Notes;
(b) the Company and its subsidiaries may become and remain
liable with respect to Debt outstanding pursuant to the Credit
Agreement in an aggregate outstanding principal amount not to
exceed at any time of determination $48,000,000;
(c) the Company may become and remain liable with respect to
Debt incurred to refund the Debt outstanding under the Credit
Agreement (which shall not include any extension or modification of
the Credit Agreement or any restructuring of the Credit Agreement
involving the same or substantially the same parties as the parties
to the Credit Agreement on the date hereof) or any previous
refunding thereof (any such Debt being referred to as "Refunding
Debt") if (i) the principal amount of such Refunding Debt does not
exceed the principal amount of the Debt being refunded, (ii) the
Weighted Average Life to Maturity of such Refunding Debt is not
shorter than that of the Debt being refunded, and (iii) the rate or
rates of interest applicable to such Refunding Debt does not exceed
by more than 2% the interest rate or rates (including the rate of
interest payable upon the occurrence of any default or event of
default thereunder) permitted to be charged under the Credit
Agreement as in effect on the date hereof;
(d) the Company and its Subsidiaries may remain liable with
respect to Debt and Disqualified Stock outstanding on the date of
this Agreement and referred to in Schedule B;
(e) any Wholly-Owned Subsidiary may become and remain liable
with respect to Debt owing to or Disqualified Stock held by the
Company;
(f) any Person that becomes a Wholly-Owned Subsidiary may
remain liable with respect to its Debt and Disqualified Stock
outstanding on the date it becomes a Wholly-Owned Subsidiary (other
than Debt and Disqualified Stock incurred or issued in
contemplation of its becoming a Wholly-Owned Subsidiary), provided
that, on the date such Person becomes a Wholly-Owned Subsidiary and
immediately after giving effect thereto, the Company could incur
$1.00 of Debt pursuant to subdivision (k) of this section 10.1;
(g) any Wholly-Owned Subsidiary may become and remain liable
with respect to Debt or Disqualified Stock incurred or issued to
refinance any Debt or Disqualified Stock outstanding pursuant to
subdivision (d) or (f) of this section 10.1, provided that with
respect to any such Debt or Disqualified Stock incurred or issued
pursuant to this subdivision (g) (a "Refinancing Instrument")(i)
the principal amount or liquidation value of the Refinancing
Instrument shall not exceed that of the Debt or Disqualified Stock
<PAGE> 19
being refinanced plus reasonable fees and expenses incurred
in connection with such refinancing; (ii) the Refinancing
Instrument shall have a final maturity later than that of the Debt
or Disqualified Stock being refinanced and a Weighted Average Life
to Maturity equal to or greater than that of the Debt or
Disqualified Stock being refinanced; (iii) Debt issued to refinance
Debt subordinate in right of payment to the Notes shall be
subordinate in right of payment to the Notes at least to the extent
of the Debt being refinanced; and (iv) Debt shall not be issued to
refinance Disqualified Stock;
(h) Dixon Mexico may become and remain liable with respect
to Debt in an aggregate principal amount outstanding not to exceed
at any time of determination $3,000,000;
(i) the Company may become and remain liable with respect to
Debt (which may be pursuant to the Credit Agreement) in addition to
that otherwise permitted by the foregoing provisions of this
section 10.1 in an aggregate principal amount outstanding not to
exceed at any time of determination $3,000,000;
(j) the Company's Subsidiaries may become and remain liable
with respect to Debt and Disqualified Stock in addition to that
otherwise permitted by the foregoing provisions of this section
10.1 in an aggregate principal amount outstanding not to exceed at
any time of determination $100,000;
(k) the Company may become and remain liable with respect to
Debt (which may be pursuant to the Credit Agreement) in addition to
that otherwise permitted by the foregoing provisions of this
section 10.1, provided that, on the date the Company becomes liable
with respect to such Debt and immediately after giving effect
thereto and to the concurrent retirement of any other Debt:
(i) the Consolidated Interest and Dividend Coverage
Ratio shall not be less than 1.85 to 1.0 (if such date occurs
on or prior to September 30, 1996), 2.0 to 1.0 (if such date
occurs after September 30, 1996 and on or prior to September
30, 1997), 2.25 to 1.0 (if such date occurs after September
30, 1997 and on or prior to September 30, 1998), and 2.50 to
1.0 (if such date occurs after September 30, 1998);
(ii) the ratio of Debt plus Disqualified Stock to
Adjusted EBIT shall not exceed 5.5 to 1.0 (if such date
occurs on or prior to September 30, 1997), 5.0 to 1.0 (if
such date occurs after September 30, 1997 and on or prior to
September 30, 1998), and 4.5 to 1.0 (if such date occurs
after September 30, 1998); and
(iii) no condition or event shall exist which
constitutes an Event of Default or Potential Event of
Default.
No Debt incurred by the Company or any Subsidiary pursuant to this
section 10.1 shall be subordinate in right of payment to any other Debt
of the Company or any Subsidiary unless such Debt is Permitted
Subordinated Debt.
<PAGE> 20
10.2. LIENS, ETC. The Company will not, and will not permit
any Subsidiary to, directly or indirectly create, incur, assume or permit
to exist any Lien on or with respect to any property or asset (including
any document or instrument in respect of goods or accounts receivable) of
the Company or any Subsidiary, whether now owned or held or hereafter
acquired, or any income or profits therefrom, except:
(a) Liens for taxes, assessments or other governmental
charges the payment of which is not at the time required by section
10.11;
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics and materialmen incurred in the ordinary
course of business for sums not yet due or the payment of which is
not at the time required by section 10.11;
(c) Liens (other than any Lien imposed by ERISA or the Code
in connection with a Plan) incurred or deposits made in the
ordinary course of business (i) in connection with workers'
compensation, unemployment insurance and other types of social
security, or (ii) to secure (or to obtain letters of credit that
secure) the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, performance bonds, purchase,
construction or sales contracts and other similar obligations, in
each case not incurred or made in connection with the borrowing of
money, the obtaining of advances or credit or the payment of the
deferred purchase price of property;
(d) any attachment or judgment Lien, unless the judgment it
secures shall not, within 60 days after the entry thereof, have
been discharged or execution thereof stayed pending appeal, or
shall not have been discharged within 60 days after the expiration
of any such stay;
(e) leases or subleases granted to others, easements,
rights-of-way, restrictions and other similar charges or
encumbrances, in each case incidental to, and not interfering with,
the ordinary conduct of the business of the Company or any Sub-
sidiary; and
(f) Liens incurred to secure the Debt (other than
subordinated Debt) of the Company outstanding in compliance with
section 10.1(b) or (c) or (if the Debt referred to in section
10.1(i) is incurred pursuant to the Credit Agreement) (i);
(g) Liens existing on the date of this Agreement and
securing the Debt of the Company and its Subsidiaries referred to
in Schedule B-2;
(h) any Lien created to secure all or any part of the
purchase price, or to secure Debt incurred or assumed to pay all or
any part of the purchase price, of property acquired by the Company
or a Subsidiary after the Closing Date, provided that (i) any such
Lien shall be confined solely to the item or items of property so
acquired and, if required by the terms of the instrument originally
creating such Lien, other property which is an improvement to or is
acquired for specific use in connection with such acquired property
<PAGE> 21
or which is real property being improved by such acquired property,
(ii) the principal amount of the Debt secured by any such Lien
shall at no time exceed an amount equal to 100% of the lesser
of (A) the cost to the Company or such Subsidiary of the property
so acquired and (B) the fair market value of such property (as
determined in good faith by the Board) at the time of such
acquisition, and (iii) any such Lien shall be created within three
months after, in the case of property, its acquisition, or, in the
case of improvements, their completion;
(i) any Lien existing on property of a Person immediately
prior to its being consolidated with or merged into the Company or
a Subsidiary or its becoming a Subsidiary, or any Lien existing on
any property acquired by the Company or any Subsidiary at the time
such property is so acquired (whether or not the Debt secured
thereby shall have been assumed), provided that no such Lien shall
have been created or assumed in contemplation of such consolidation
or merger or such Person's becoming a Subsidiary or such
acquisition of property, and provided further that each such Lien
shall at all times be confined solely to the item or items of
property so acquired and, if required by the terms of the instru-
ment originally creating such Lien, other property which is an
improvement to or is acquired for specific use in connection with
such acquired property; and
(j) any Lien renewing, extending or refunding any Lien
permitted by subdivision (f), (g), (h) or (i) of this section 10.2,
provided that the principal amount of Debt secured by such Lien
immediately prior thereto is not increased or the maturity thereof
reduced and such Lien is not extended to other property, and
provided further that each such Lien shall at all times be confined
solely to the item or items of property subject to the Lien being
renewed, extended or refunded.
For the purposes of this section 10.2, any Person becoming a Subsidiary
after the date of this Agreement shall be deemed to have incurred all of
its then outstanding Liens at the time it becomes a Subsidiary, and any
Person extending, renewing or refunding any Debt secured by any Lien
shall be deemed to have incurred such Lien at the time of such extension,
renewal or refunding.
10.3. INVESTMENTS, GUARANTIES, ETC. The Company will not,
and will not permit any Subsidiary to, directly or indirectly make or own
any Investment in any Person, or create or become or be liable with
respect to any Guaranty, except:
(a) the Company and its Subsidiaries may make and own
Investments in
(i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or
issued by any agency thereof and backed by the full faith and
credit of the United States of America, in each case maturing
within one year from the date of acquisition thereof,
<PAGE> 22
(ii) marketable direct obligations issued by any state
of the United States of America or any political subdivision
of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition thereof
and having as at any date of determination the highest rating
obtainable from either Standard & Poor's Corporation or
Moody's Investors Service, Inc.,
(iii) commercial paper maturing no more than 270 days
from the date of creation thereof and having as at any date
of determination the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service,
Inc.,
(iv) certificates of deposit maturing within one year
from the date of acquisition thereof issued by commercial
banks incorporated under the laws of the United States of
America or any state thereof or the District of Columbia,
each having as at any date of determination combined capital
and surplus of not less than $300,000,000 ("Permitted Banks")
or a foreign branch thereof,
(v) bankers' acceptances eligible for rediscount under
requirements of The Board of Governors of the Federal Reserve
System and accepted by Permitted Banks,
(vi) obligations of the type described in clauses (i)
through (iv) above purchased from a securities dealer
designated as a "primary dealer" by the Federal Reserve Bank
of New York or a Permitted Bank as counterparty pursuant to a
repurchase agreement obligating such counterparty to
repurchase such obligations not later than 14 days after the
purchase thereof and which provides that the obligations
which are the subject thereof are held for the benefit of the
Company and its Subsidiaries by a custodian which is a
Permitted Bank and which is not the counterparty to the
repurchase agreement in question, and
(vii) the securities of any investment company
registered under the Investment Company Act of 1940 which is
a "money market fund" within the meaning of regulations of
the Securities and Exchange Commission, or an interest in a
pooled fund maintained by a Permitted Bank having comparable
investment restrictions;
(b) the Company and its Wholly-Owned Subsidiaries may make
and own Investments in any Wholly-Owned Subsidiary or any Person
which simultaneously therewith becomes a Wholly-Owned Subsidiary,
if such Wholly-Owned Subsidiary or such Person is a corporation
organized under the laws of the United States or any state thereof
or the District of Columbia or Canada and substantially all of
whose assets are located and substantially all of whose business is
conducted within the United States and Canada;
(c) the Company may make and own Investments in Dixon Mexico
(subject to the limitation set forth in section 10.4(b));
<PAGE> 23
(d) any Wholly-Owned Subsidiary may make and permit to be
outstanding loans and advances to the Company;
(e) the Company may become and remain liable with respect to
Guaranties of the obligations of Subsidiaries incurred in the
ordinary course of the business of such Subsidiaries;
(f) the Company's Subsidiaries may become and remain liable
with respect to Guaranties of the Notes set forth in the Guaranty
Agreement; and
(g) the Company and its Wholly-Owned Subsidiaries may, in
addition to the Investments and Guaranties permitted by the
foregoing subdivisions of this section 10.3, make and continue to
own Investments in, and become and remain liable with respect to
Guaranties of the obligations of, any Person (other than a Wholly-
Owned Subsidiary or any Person which would simultaneously therewith
become a Wholly-Owned Subsidiary) if the Company would be permitted
to make such Investment or Guaranty pursuant to, and within the
limitations specified in, section 10.4 (any such Investment or
Guaranty made pursuant to this subdivision (g) being referred to as
a "Restricted Investment").
Notwithstanding the foregoing, no Guaranty shall be permitted by this
section 10.3 unless either the maximum dollar amount of the obligation
being guaranteed is readily ascertainable by the terms of such obligation
or the agreement or instrument evidencing such Guaranty specifically
limits the dollar amount of the maximum exposure of the guarantor
thereunder.
10.4. RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS. (a)
The Company will not directly or indirectly declare, order, pay, make or
set apart any sum or property for any Restricted Payment, and the Company
will not and will not permit any Subsidiary to make or become obligated
to make any Restricted Investment, unless, immediately after giving
effect to any such proposed action:
(i) no condition or event shall exist which constitutes an
Event of Default or Potential Event of Default; and
(ii) the sum of (x) the aggregate amount of all sums and
property included in all Restricted Payments directly or indirectly
declared, ordered, paid, made or set apart by the Company during
the period from the Closing Date to and including the date of such
proposed action plus (y) the aggregate amount of all Restricted
Investments directly or indirectly made by the Company and its
Subsidiaries, or which they have become obligated to make, during
such period in any Person (but disregarding any Investment or
Guaranty which was a Restricted Investment when made but which on
the date of determination could have been made pursuant to one of
the subdivisions of section 10.3 other than subdivision (h)) shall
not exceed the sum of:
(x) 25% (but, in the case of a deficit, 100%) of
Consolidated Net Income for such period; plus
<PAGE> 24
(y) the aggregate amount of the net cash proceeds
received during such period from the sale of its capital
stock (other than Disqualified Stock), and as consideration
for the issuance during such period of Debt of the Company
convertible into its capital stock (other than Disqualified
Stock), but only to the extent that any such Debt has been
converted into shares of such stock during such period,
provided that the aggregate amount of such net cash proceeds
to be taken into account for such period shall not exceed the
aggregate of the amounts expended by the Company during such
period for the redemption, retirement, purchase or other
acquisition, direct or indirect, of any shares of capital
stock of the Company or for the retirement, purchase or other
acquisition, direct or indirect, of any Permitted
Subordinated Debt;
provided that any dividend which could be paid in compliance with this
section 10.4 at the date of its declaration may continue to be paid
notwithstanding any subsequent change.
(b) The provisions of section 10.4(a) shall not, so long as
no condition or event shall exist which constitutes an Event of Default
of Potential Event of Default, prevent the acquisition by the Company for
consideration (other than in shares of its capital stock) of shares of
the capital stock of Dixon Mexico from Persons other than Affiliates in
an aggregate amount of not more than $3,000,000.
(c) For the purposes of this section 10.4, the amount
involved in any Restricted Payment directly or indirectly declared,
ordered, paid, made or set apart in property shall be the greater of the
fair market value of such property (as determined in good faith by the
Board) and the net book value thereof on the books of the Company
(determined in accordance with generally accepted accounting principles)
on the date such Restricted Payment is declared, ordered, paid, made or
set apart. The Company will not declare any dividend (other than a
dividend payable solely in shares of its own stock) on any shares of any
class of its stock which is payable more than 60 days after the date of
declaration thereof. The Company will not permit any Subsidiary,
directly or indirectly, to declare, order, pay or make any Restricted
Payment or to set apart any sum or property for any such purpose.
10.5. MINIMUM NET WORTH. The Company will not, as of the
end of any fiscal quarter of the Company, permit Adjusted Net Worth to be
less than the sum of $14,500,000 and 75% (but, in the case of a deficit,
100%) of Consolidated Net Income for the period from the Closing Date to
and including the date of determination.
10.6. INTEREST AND DIVIDEND COVERAGE. The Company will not
at any time permit the Consolidated Interest and Dividend Coverage Ratio
to be less than 1.70 to 1.0 (if the date of determination occurs on or
prior to September 30, 1996); 1.85 to 1.0 (if the date of determination
occurs after September 30, 1996 and on or prior to September 30, 1997);
2.25 to 1.0 (if the date of determination occurs after September 30, 1997
and on or prior to September 30, 1998); and 2.50 to 1.0 (if the date of
determination occurs after September 30, 1998).
<PAGE> 25
10.7. TRANSACTIONS WITH AFFILIATES. The Company will not,
and will not permit any Subsidiary to, directly or indirectly, engage in
any transaction (or series of related transactions) material to the
Company or any of its Subsidiaries (including, without limitation, the
purchase, sale or exchange of assets or the rendering of any service)
with any Affiliate of the Company, except in the ordinary course of and
pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than
those which might be obtained, in the good faith judgment of the Company,
in an arm's length transaction at the time from Persons which are not
such an Affiliate. In the case of any such transaction with an Affiliate
involving aggregate consideration in excess of $500,000, the Company
shall deliver to each holder of Notes an Officer's Certificate certifying
that such transaction complies with this section 10.7; and in the case of
any such transaction with an Affiliate involving aggregate consideration
in excess of $2,000,000, (a) the Company shall deliver to each holder of
Notes a favorable opinion as to the fairness to the Company or such
Subsidiary of such transaction from a financial point of view, issued by
an investment banking or accounting firm of national standing and (b)
such transaction shall have been approved by a committee of disinterested
members of the Board.
10.8. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. The
Company will not, and will not permit any Subsidiary to, directly or
indirectly,
(a) consolidate with or merge into any other Person or
permit any other Person to consolidate with or merge into it,
except that:
(i) any Subsidiary may consolidate with or merge into
the Company or a Wholly-Owned Subsidiary if the Company or
such Wholly-Owned Subsidiary, as the case may be, shall be
the surviving corporation and if, immediately after giving
effect to such transaction, no condition or event shall exist
which constitutes an Event of Default or Potential Event of
Default;
(ii) any corporation (other than a Subsidiary) may
consolidate with or merge into the Company if the Company
shall be the surviving corporation and if, immediately after
giving effect to such transaction, (x) no condition or event
shall exist which constitutes an Event of Default or
Potential Event of Default, (y) substantially all of the
assets of the Company shall be located and substantially all
of its business shall be conducted within the United States
and Canada, and (z) the Company could incur at least $1.00 of
additional Debt in compliance with section 10.1(k); and
(iii) the Company may consolidate with or merge into
any other corporation if (x) the surviving corporation is a
corporation organized and existing under the laws of the
United States of America or a state thereof or Canada, with
substantially all of its assets located and substantially all
of its business conducted within the United States and
Canada, (y) such corporation expressly assumes, by an
<PAGE> 26
agreement satisfactory in substance and form to the holders
of more than 50% of the Notes outstanding (subject to
section 15.4) (which agreement may require the delivery in
connection with such assumption of such opinions of counsel
as such holders may reasonably require), the obligations of
the Company under this Agreement and under the Notes, (z)
immediately after giving effect to such transaction (and such
assumption) (A) such corporation shall not be liable with
respect to any Debt or allow its property to be subject to
any Lien which it could not become liable with respect to or
allow its property to become subject to under this Agreement
on the date of such transaction, (B) such corporation would
have Consolidated Tangible Net Worth equal to or greater than
the Consolidated Tangible Net Worth of the Company
immediately prior to the transaction, (C) such corporation
could incur at least $1.00 of additional Debt in compliance
with section 10.1(k) and (D) no condition or event shall
exist which constitutes an Event of Default or a Potential
Event of Default; or
(b) sell, lease, abandon or otherwise dispose of all or
substantially all its assets, except that:
(i) any Subsidiary may sell, lease or otherwise dispose
of all or substantially all its assets to the Company or a
Wholly-Owned Subsidiary;
(ii) the Company may sell, lease or otherwise dispose
of all or substantially all its assets to any corporation
into which the Company could be consolidated or merged in
compliance with subdivision (a)(iii) of this section 10.8,
provided that (x) each of the conditions set forth in such
subdivision (a)(iii) shall have been fulfilled, and (y) no
such disposition shall relieve the Company from its
obligations under this Agreement or the Notes; or
(c) sell, lease, abandon or otherwise dispose of any of its
assets (except in a transaction permitted by subdivision (b) of
this section 10.8), except that
(i) the Company and its Subsidiaries may sell their
goods in the ordinary course of business;
(ii) the Company and its Subsidiaries may dispose of
obsolete inventory and equipment in the ordinary course of
business;
(iii) the Company and its Subsidiaries may sell
additional assets if such assets, together with all assets
sold during any Reference Period, shall not constitute assets
that exceed 10% of the lesser of (A) the total assets of the
Company and its Subsidiaries shown on the balance sheet of
the Company as of the most recent quarter-end prior to the
commencement of such Reference Period and (B) the total
assets of the Company and its Subsidiaries shown on the
balance sheet of the Company as of the last day of such
Reference Period; and
<PAGE> 27
(iv) the Company and its Subsidiaries may sell
additional assets, in each case for a consideration at least
85% of which is in the form of cash or cash equivalents of
the type described in section 10.3(a), if such consideration
is at least equal to the Fair Market Value of the assets to
be sold and if the proceeds thereof shall, on or prior to the
180th day following such sale, be applied either
(x) to the acquisition of assets consisting of
writing instruments, art supplies, graphite refining or
lubricants or refractories manufacturing businesses, or
similar or related businesses, or plant and equipment
to be used in such businesses; or
(y) to the prepayment of Debt of the Company,
first to Superior Debt of the Company and second to the
Notes in the manner contemplated by section 9.5;
it being agreed that if the Company shall not prior to such
180th day have performed or given notice to the holders of
the Notes of its election to perform under one of the
foregoing clauses (x) or (y), it shall be deemed to have
elected to perform the obligation set forth in the foregoing
clause (y), and the provisions of section 9.5 shall be
applicable;
provided that in no event shall the Company sell assets comprising all or
substantially all of the assets of the Consumer Products Group.
10.9. SUBSIDIARY STOCK AND INDEBTEDNESS. The Company will
not, and will not permit any Subsidiary to:
(a) directly or indirectly sell, assign, pledge or otherwise
dispose of any Debt of or any shares of stock of (or warrants,
rights or options to acquire stock of) any Subsidiary except to a
Wholly-Owned Subsidiary, or as directors' qualifying shares if
required by applicable law or as permitted by subdivision (f) of
section 10.2;
(b) permit any Subsidiary directly or indirectly to sell,
assign, pledge or otherwise dispose of any Debt of the Company or
any other Subsidiary, or any shares of stock of (or warrants,
rights or options to acquire stock of) any other Subsidiary, except
to the Company or a Wholly-Owned Subsidiary or as directors'
qualifying shares if required by applicable law;
(c) permit any Subsidiary to have outstanding any shares of
Preferred Stock other than shares of Preferred Stock which are
owned by the Company or a Wholly-Owned Subsidiary; or
(d) permit any Subsidiary directly or indirectly to issue or
sell (including, without limitation, in connection with a merger or
consolidation of a Subsidiary otherwise permitted by section
10.8(a)) any shares of its stock (or warrants, rights or options to
acquire its stock) except to the Company or a Wholly-Owned
Subsidiary or as directors' qualifying shares if required by
applicable law;
<PAGE> 28
provided that, subject to compliance with section 10.8(c), all Debt and
shares of stock of any Subsidiary of the Company may be simultaneously
sold as an entirety for a cash consideration at least equal to the Fair
Market Value thereof at the time of such sale if such Subsidiary does not
at the time own (i) any Debt of the Company or any of its Subsidiaries or
(ii) any Debt or stock of any other Subsidiary which is not also being
simultaneously sold as an entirety in compliance with this proviso and if
immediately after giving effect to such transaction (and after deducting
from Adjusted EBIT the Consolidated Net Income attributed to the assets
so disposed of) the Company could incur at least $1.00 of additional Debt
in compliance with section 10.1(k), and provided further that shares of
stock of Subsidiaries owned by the Company may be disposed of in
connection with a sale or other disposition by the Company of all or
substantially all of its assets in compliance with section 10.8(b)(ii).
10.10. CORPORATE EXISTENCE, ETC.; BUSINESS. The Company
will at all times preserve and keep in full force and effect its
corporate existence, and rights and franchises deemed material to its
business, and those of each of its Subsidiaries, except as otherwise
specifically permitted by section 10.8 and except that the corporate
existence of any Subsidiary may be terminated if, in the good faith
judgment of the Board, such termination is in the best interest of the
Company and is not disadvantageous to the holders of the Notes. The
Company will not, and will not permit any Subsidiary to, engage in any
business other than the business of manufacturing writing instruments or
art supplies, graphite refining or lubricants or refractories
manufacturing and other activities incidental or related to such
business.
10.11. PAYMENT OF TAXES AND CLAIMS. The Company will, and
will cause each Subsidiary to, pay all taxes, assessments and other
governmental charges imposed upon it or any of its properties or assets
or in respect of any of its franchises, business, income or profits
before any penalty or interest accrues thereon, and all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law
have or might become a Lien upon any of its properties or assets, -
provided that no such charge or claim need be paid if being contested in
good faith by appropriate proceedings promptly initiated and diligently
conducted and if such reserves or other appropriate provision, if any, as
shall be required by generally accepted accounting principles shall have
been made therefor.
10.12. COMPLIANCE WITH ERISA. The Company will not, and
will not permit any Subsidiary to,
(a) engage in any transaction in connection with which the
Company or any Subsidiary could be subject to either a civil
penalty assessed pursuant to section 502(i) of ERISA or a tax
imposed by section 4975 of the Code, terminate or withdraw from any
Plan (other than a Multiemployer Plan) in a manner, or take any
other action with respect to any such Plan (including, without
limitation, a substantial cessation of operations within the
meaning of section 4062(f) of ERISA), which could result in any
liability of the Company or any Subsidiary to the PBGC, to a trust
established pursuant to section 4041(c)(3)(B)(ii) or (iii) or
4042(i) of ERISA, or to a trustee appointed under section 4042(b)
<PAGE> 29
or (c) of ERISA, incur any liability to the PBGC on account
of a termination of a Plan under section 4064 of ERISA, fail to
make full payment when due of all amounts which, under the
provisions of any Plan, the Company or any Subsidiary is required
to pay as contributions thereto, or permit to exist any accumulated
funding deficiency, whether or not waived, with respect to any Plan
(other than a Multiemployer Plan), if, in any such case, such
penalty or tax or such liability, or the failure to make such
payment, or the existence of such deficiency, as the case may be,
could have a material adverse effect on the Company or any of its
Subsidiaries;
(b) permit the present value of all vested accrued benefits
under all Plans maintained at such time by the Company and any
Subsidiary (other than Multiemployer Plans) guaranteed under Title
IV of ERISA to exceed the current value of the assets of such Plans
allocable to such vested accrued benefits by more than $2,000,000;
(c) permit the aggregate complete or partial withdrawal
liability under Title IV of ERISA with respect to Multiemployer
Plans incurred by the Company and its Subsidiaries to exceed
$1,000,000; or
(d) permit the sum of (i) the amount by which the current
value of all vested accrued benefits referred to in subdivision (b)
of this section 10.12 exceeds the current value of the assets
referred to in such subdivision (b) and (ii) the amount of the
aggregate incurred withdrawal liability referred to in subdivision
(c) of this section 10.12 to exceed $2,000,000.
For the purposes of subdivisions (c) and (d) of this section 10.12, the
amount of the withdrawal liability of the Company and its Subsidiaries at
any date shall be the aggregate present value of the amount claimed to
have been incurred less any portion thereof as to which the Company
reasonably believes, after appropriate consideration of possible
adjustments arising under sections 4219 and 4221 of ERISA, it and its
Subsidiaries will have no liability, provided that the Company shall
obtain prompt written advice from independent actuarial consultants
supporting such determination. The Company agrees (i) once in each
calendar year to request and obtain a current statement of withdrawal
liability from each Multiemployer Plan and (ii) to transmit a copy of
such statement to each holder of any Notes, within 15 days after the
Company receives the same. As used in this section 10.12, the term
"accumulated funding deficiency" has the meaning specified in section 302
of ERISA and section 412 of the Code, and the terms "present value",
"current value" and "accrued benefit" have the meanings specified in
section 3 of ERISA.
10.13. MAINTENANCE OF PROPERTIES; INSURANCE. The Company
will maintain or cause to be maintained in good repair, working order and
condition all properties used or useful in the business of the Company
and its Subsidiaries and from time to time will make or cause to be made
all appropriate repairs, renewals and replacements thereof. The Company
will maintain or cause to be maintained, with financially sound and
reputable insurers, insurance with respect to its properties and business
and the properties and business of its Subsidiaries against loss or
damage of the kinds customarily insured against by corporations of
<PAGE> 30
established reputation engaged in the same or similar business and
similarly situated, of such types and in such amounts as are customarily
carried under similar circumstances by such other corporations. Such
insurance may be subject to co-insurance, deductibility or similar
clauses which, in effect, result in self-insurance of certain losses,
provided that such self-insurance is in accord with the approved
practices of corporations similarly situated and adequate insurance
reserves are maintained in connection with such self-insurance.
10.14. ADDITIONAL GUARANTIES. The Company shall cause any
Person that hereafter becomes a Subsidiary of the Company to execute and
deliver to the holders of the Notes a Guaranty Agreement with respect to
the obligations of the Company hereunder and under the Notes,
substantially in the form of Exhibit D, with such changes to such form as
may be appropriate to reflect the identity and circumstances of the
guarantor.
10.15. RESTRICTIONS AFFECTING SUBSIDIARIES. The Company
will not, and will not permit any Subsidiary to, create or otherwise
permit to exist any restriction on the ability of any Subsidiary (a) to
pay dividends or make any other distributions on its capital stock or any
other interest in its profits owned by the Company or any other
Subsidiary, or pay any Debt owed to the Company or any other Subsidiary;
(b) make any loan or advance to the Company or any other Subsidiary; or
(c) transfer any of its properties or assets to the Company or any other
Subsidiary; other than
(i) any such restriction in effect pursuant to Debt
outstanding on the date of this Agreement and described in Schedule
B-2;
(ii) any such restriction in effect pursuant to Debt of a
Person outstanding at the time such Person becomes a Wholly-Owned
Subsidiary (other than Debt incurred in contemplation of its
becoming a Wholly-Owned Subsidiary), provided that such restriction
shall at all times be confined solely to the Person or the assets
and properties of the Person so acquired;
(iii) any such restriction in effect pursuant to Debt
incurred to renew, extend or refund any Debt referred to in
paragraph (i) or (ii) of this section 10.15, provided that the
restrictions in effect under such Debt shall be no less favorable
to the holders of the Notes than those in effect prior thereto;
(iv) any such restriction contained in security agreements
permitted by section 10.2, provided that such restriction shall at
all times be confined solely to the item or items of property
covered by such security agreement; and
(v) restrictions consisting of customary non-assignment
provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of such leasehold interests.
<PAGE> 31
10.16. AMENDMENT OF CREDIT AGREEMENT. The Company will not
enter into any amendment or modification of Section 8.8 of the Credit
Agreement or any amendment or modification of the Credit Agreement which
would materially shorten the maturity date of any required payment of any
of the Loans thereunder.
11. EVENTS OF DEFAULT; ACCELERATION. If any of the
following conditions or events ("Events of Default") shall occur and be
continuing:
(a) if the Company shall default in the payment of any
principal of or premium, if any, on any Note when the same becomes
due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise; or
(b) if the Company shall default in the payment of any
interest on any Note for more than 10 days after the same becomes
due and payable; or
(c) if the Company shall default in the performance of or
compliance with any term contained in section 7(h) or section 10.1
through 10.9, inclusive, or section 10.14; or
(d) if the Company shall default in the performance of or
compliance with any term contained in this Agreement other than
those referred to above in this section 11 and such default shall
not have been remedied within 30 days after such failure shall
first have become known to any officer of the Company or written
notice thereof shall have been received by the Company from any
holder of any Note; or
(e) if any representation or warranty made in writing by or
on behalf of the Company in this Agreement or in any instrument
furnished in compliance with or in reference to this Agreement or
otherwise in connection with the transactions contemplated by this
Agreement shall prove to have been false or incorrect in any
material respect on the date as of which made; or
(f) if the Company or any Subsidiary shall default (as
principal or guarantor or other surety) in the payment of any
principal of or premium or interest on any Debt which is
outstanding in a principal amount of at least $1,000,000 (other
than the Notes), or if any event shall occur or condition shall
exist in respect of any such Debt which is outstanding in a
principal amount of at least $1,000,000 or under any evidence of
any such Debt or of any mortgage, indenture or other agreement
relating thereto, the effect of which default, event or condition
is to cause the acceleration of the payment of such Debt before its
stated maturity or before its regularly scheduled dates of payment;
or
(g) if a final judgment or judgments (other than any
judgment associated with the ECRA Decision) shall be rendered
against the Company or any Subsidiary for the payment of money in
excess of $1,000,000 (in excess of insurance coverage) in the
aggregate and any one of such judgments shall not be discharged or
execution thereon stayed pending appeal, within 60 days after entry
<PAGE> 32
thereof, or, in the event of such a stay, such judgment shall
not be discharged within 60 days after such stay expires; or
(h) if the Company or any Subsidiary shall (i) be generally
not paying its debts as they become due, (ii) file, or consent by
answer or otherwise to the filing against it of, a petition for
relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy
or insolvency law of any jurisdiction, (iii) make an assignment for
the benefit of its creditors, (iv) consent to the appointment of a
custodian, receiver, trustee or other officer with similar powers
with respect to it or with respect to any substantial part of its
property, (v) be adjudicated insolvent or (vi) take corporate
action for the purpose of any of the foregoing; or
(i) if a court or governmental authority of competent
jurisdiction shall enter an order appointing, without consent by
the Company or any Subsidiary, a custodian, receiver, trustee or
other officer with similar powers with respect to it or with
respect to any substantial part of its property, or if an order for
relief shall be entered in any case or proceeding for liquidation
or reorganization or otherwise to take advantage of any bankruptcy
or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any Subsidiary, or if
any petition for any such relief shall be filed against the Company
or a Subsidiary and such petition shall not be dismissed within 30
days;
then, (x) upon the occurrence of any Event of Default described in
subdivision (h) or (i) of this section 11 with respect to the Company
(other than such an Event of Default described in clause (i) of
subdivision (h) or described in clause (vi) of subdivision (h) by virtue
of the reference in such clause (vi) to such clause (i)), the unpaid
principal amount of and accrued interest on the Notes shall automatically
become due and payable or (y) upon the occurrence of any other Event of
Default, any holder or holders of 25% or more (in the case of any Event
of Default described in subdivision (a) or (b) of this section 11) or any
holder or holders of more than 35% (in the case of any Event of Default
described in any other subdivision of this section 11), in principal
amount of the Notes at the time outstanding (subject to section 15.4) may
at any time (unless all defaults shall theretofore have been remedied) at
its or their option, by written notice or notices to the Company, declare
all the Notes to be due and payable, whereupon (A) if at the time there
shall be no Superior Debt outstanding, the Notes shall forthwith mature
and become due and payable, and (B) if at the time there shall be
Superior Debt outstanding, the Notes shall mature and become due and
payable upon the earlier to occur of (1) the acceleration of the maturity
of any Superior Debt by the holder or holders thereof and (2) the forty-
fifth day following notice of such declaration by such holder or holders
of 25% or more in principal amount of the Notes to the Company (and the
Company shall forward such notice to the holders of the Superior Debt),
in each case together with interest accrued thereon; and, in the case of
any Event of Default described in this section 11, there shall also be
due and payable, to the extent permitted by applicable law, a premium
equal to the Make-Whole Premium, all without presentment, demand, protest
or (other than as specifically provided for in this Agreement) notice,
which are hereby waived.
<PAGE> 33
At any time after the principal of, and interest accrued on,
any or all of the Notes are declared due and payable, the holders of not
less than 75% in aggregate principal amount of the Notes then outstanding
(subject to section 15.4), by written notice to the Company may rescind
and annul any such declaration and its consequences if (x) the Company
has paid all overdue interest on the Notes, the principal of and premium,
if any, on any Notes which have become due otherwise than by reason of
such declaration, and interest on such overdue principal and premium and
(to the extent permitted by applicable law) any overdue interest in
respect of the Notes at the rate of 14% per annum, (y) all Events of
Default, other than non-payment of amounts which have become due solely
by reason of such declaration, and all conditions and events which
constitute Events of Default or Potential Events of Default have been
cured or waived pursuant to section 19, and (z) no judgment or decree has
been entered for the payment of any monies due pursuant to the Notes or
this Agreement; but no such rescission and annulment shall extend to or
affect any subsequent Event of Default or Potential Event of Default or
impair any right consequent thereon.
12. REMEDIES ON DEFAULT, ETC. In case any one or more
Events of Default or Potential Events of Default shall occur and be
continuing, the holder of any Note at the time outstanding may proceed to
protect and enforce the rights of such holder by an action at law, suit
in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in such Note, or for an
injunction against a violation of any of the terms hereof or thereof, or
in aid of the exercise of any power granted hereby or thereby or by law
or otherwise. In case of a default in the payment of any principal of or
premium, if any, or interest on any Note, the Company will pay to the
holder thereof such further amount as shall be sufficient to cover the
cost and expenses of collection, including, without limitation,
reasonable attorneys' fees, expenses and disbursements. No course of
dealing and no delay on the part of any holder of any Note in exercising
any right, power or remedy shall operate as a waiver thereof or otherwise
prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof
shall be exclusive of any other right, power or remedy referred to herein
or therein or now or hereafter available at law, in equity, by statute or
otherwise.
13. SUBORDINATION OF SUBORDINATED NOTES. 13.1. GENERAL.
The Notes (the "Subordinated Debt") shall be subordinate and junior in
right of payment to all Superior Debt (as defined in section 13.2) to the
extent and in the manner provided in this section 13. The provisions of
this section 13 are intended to be for the benefit of the holders from
time to time of the Superior Debt.
13.2. SUPERIOR DEBT. As used in this section 13, the term
"Superior Debt" shall mean (a) all principal of and premium, if any, and
interest on Debt of the Company outstanding from time to time under the
Credit Agreement and all fees and expenses payable under the Credit
Agreement and (b) other Debt of the Company outstanding in compliance
with section 10.1 other than (i) Debt which by its terms is subordinated
to any other Debt of the Company and (ii) Debt outstanding between the
Company and any Affiliate of the Company or between any Subsidiary and
another Subsidiary or Affiliate of the Company). The Superior Debt shall
continue to be Superior Debt and entitled to the benefits of these
<PAGE> 34
subordination provisions irrespective of any restatement, amendment,
modification or waiver of any term of the Credit Agreement or the Superior
Debt or extension or renewal of the Credit Agreement or the Superior Debt.
13.3. DEFAULT IN RESPECT OF SUPERIOR DEBT. (a) In the
event the Company shall default in the payment of any principal of, or
premium, if any, or interest on any Superior Debt when the same becomes
due and payable, whether at maturity or at a date fixed for payment or
prepayment thereof or by declaration or otherwise, then, unless and until
such default shall have been remedied or waived in writing or shall have
ceased to exist, no direct or indirect payment (in cash, property or
securities or by set-off or otherwise, except securities which are subor-
dinate and junior in right of payment to the payment of Superior Debt at
least to the extent provided in this section 13) shall be made on account
of the principal of, or premium, if any, or interest on any Subordinated
Debt, or as a sinking fund for Subordinated Debt, or in respect of any
redemption, retirement, purchase or other acquisition of any Subordinated
Debt.
(b) Upon the happening of an event of default with respect
to any Superior Debt, as defined therein or in the instrument under which
the same is outstanding, permitting the holders thereof to accelerate the
maturity thereof (other than under circumstances when the terms of sec-
tion 13.3(a) are applicable), then, unless and until such event of
default shall have been remedied or waived in writing or shall have
ceased to exist, no direct or indirect payment (in cash, property or
securities or by set-off or otherwise, except securities which are subor-
dinate and junior in right of payment to the payment of Superior Debt at
least to the extent provided in this section 13) shall be made on account
of the principal of or premium, if any, or interest on any Subordinated
Debt or as a sinking fund for the Subordinated Debt, or in respect of any
redemption, retirement, purchase or other acquisition of any Subordinated
Debt, during any period:
(i) during any period of up to 179 days after written
notice of such default shall have been given to the Company
and each holder of Subordinated Debt by any holder of
Superior Debt, provided that only one such notice may be
given by the holders of the Superior Debt in any 360-day
period; or
(ii) in which any judicial proceeding shall be pending
in respect of such default or an effective notice of
acceleration of the maturity of the Superior Debt shall have
been transmitted to the Company in respect of such default.
13.4. INSOLVENCY, ETC. In the event of:
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar
proceeding relating to the Company, its creditors as such or its
property,
(b) any proceeding for the liquidation, dissolution or other
winding-up of the Company, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings,
<PAGE> 35
(c) any assignment by the Company for the benefit of
creditors, or
(d) any other marshaling of the assets of the Company,
all Superior Debt shall first be paid in full in cash or cash equivalents
(or with other assets acceptable to the holders of the Superior Debt)
before payment or distribution, whether in cash, securities or other
property, shall be made to any holder of any Subordinated Debt on account
of any Subordinated Debt. Any payment or distribution, whether in cash,
securities or other property (other than securities of the Company or any
other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this section 13 with respect to the Subordinated Debt, to the
payment of all Superior Debt at the time outstanding and to any securi-
ties issued in respect thereof under any such plan of reorganization or
readjustment), which would otherwise (but for these subordination
provisions) be payable or deliverable in respect of Subordinated Debt
shall be paid or delivered directly to the holders of Superior Debt in
accordance with the priorities then existing among such holders until all
Superior Debt shall have been paid in full in cash or cash equivalents
(or with other assets acceptable to the holders of the Superior Debt).
13.5. PAYMENTS AND DISTRIBUTIONS RECEIVED. If any payment
or distribution of any character or any security, whether in cash,
securities or other property (other than securities of the Company or any
other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this section 13 with respect to Subordinated Debt, to the
payment of all Superior Debt at the time outstanding and to any
securities issued in respect thereof under any such plan of
reorganization or readjustment), shall be received by any holder of any
Subordinated Debt in contravention of any of the terms hereof and before
all the Superior Debt shall have been paid in full in cash or cash
equivalents (or with other assets acceptable to the holders of the
Superior Debt), such payment or distribution or security shall be
received in trust for the benefit of, and shall be paid over or delivered
and transferred to, the holders of the Superior Debt at the time
outstanding in accordance with the priorities then existing among such
holders for application to the payment of all Superior Debt remaining
unpaid, to the extent necessary to pay all such Superior Debt in full in
cash (or with other assets acceptable to the holders of the Superior
Debt).
13.6. NO PREJUDICE OR IMPAIRMENT. No present or future
holder of any Superior Debt shall be prejudiced in the right to enforce
subordination of the Subordinated Debt by any act or failure to act on
the part of the Company or the holders of the Subordinated Debt. Nothing
contained herein shall impair, as between the Company and the holder of
any Subordinated Debt, the obligation of the Company to pay to the holder
thereof the principal thereof and interest thereon as and when the same
shall become due and payable in accordance with the terms thereof and of
this Agreement, or prevent the holder of any Subordinated Debt from
exercising all rights, powers and remedies otherwise permitted by ap-
plicable law or hereunder upon a Potential Event of Default or Event of
Default hereunder, all subject to the terms of this section 13 and the
rights of the holders of the Superior Debt to receive cash, securities or
<PAGE> 36
other property otherwise payable or deliverable to the holders of
Subordinated Debt.
13.7. PAYMENT OF SUPERIOR DEBT, SUBROGATION, ETC. Upon the
payment in full of all Superior Debt in cash (or with other assets
acceptable to the holders of the Superior Debt), the holders of
Subordinated Debt shall be subrogated to all rights of any holders of
Superior Debt to receive any further payments or distributions applicable
to the Superior Debt until the Subordinated Debt shall have been paid in
full, and, for the purposes of such subrogation, no payment or
distribution received by the holders of Superior Debt of cash,
securities, or other property to which the holders of Subordinated Debt
would have been entitled except for this section 13 shall, as between the
Company and its creditors other than the holders of Superior Debt, on the
one hand, and the holders of Subordinated Debt, on the other, be deemed
to be a payment or distribution by the Company on account of Superior
Debt.
14. DEFINITIONS. As used herein the following terms have
the following respective meanings:
Adjusted EBIT: for any Reference Period, Consolidated Net
Income before dividends, (a) adjusted by adding thereto (i) Consolidated
Interest Expense, (ii) "minority interests" related to Dixon Mexico, and
(iii) income taxes, all to the extent deducted in arriving at the
calculation of Consolidated Net Income for such Reference Period; (b)
further adjusted by excluding therefrom all extraordinary gains and
losses and all other extraordinary or non-recurring items (in each case
as determined in accordance with generally accepted accounting
principles), and (c) further adjusted by deducting therefrom Minority
EBIT for such Reference Period.
Adjusted Net Worth: at any date of determination, the
stockholders' equity (including amounts attributable to Preferred Stock)
shown on the balance sheet of the Company and its consolidated
Subsidiaries delivered pursuant to section 7 most recently prior to such
date, adjusted to exclude (to the extent included in calculating such
equity), (a) amounts attributable to Disqualified Stock or treasury stock
of the Company and its consolidated Subsidiaries, (b) all upward
revaluations and other write-ups in the book value of any asset of the
Company or a Subsidiary subsequent to the Closing Date, and (c) the
amount of the "Cumulative Translation Adjustment" (as shown on such
consolidated balance sheet), provided, however, that the amount of the
"Cumulative Translation Adjustment" excluded from the calculation of
Adjusted Net Worth shall not be less than $3,250,000.
Affiliate: any Person directly or indirectly controlling or
controlled by or under common control with the Company or any Subsidiary,
including (without limitation) any Person beneficially owning or holding
5% or more of any class of voting securities of the Company or any
Subsidiary or any other corporation of which the Company or any
Subsidiary owns or holds 5% or more of any class of voting securities,
provided that, for purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common
control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
<PAGE> 37
the ownership of voting securities or by contract or otherwise, and
provided further that neither you nor any other Person which is an
institution shall be deemed to be an Affiliate of the Company or any of
its Subsidiaries solely by reason of ownership of the Notes or other
securities issued in exchange for the Notes or by reason of having
the benefits of any agreements or covenants of the Company contained in
this Agreement.
Board: the Board of Directors of the Company or a committee
of three or more directors lawfully exercising the relevant powers of the
Board.
Business Day: any day except a Saturday, a Sunday or other
day on which commercial banks in New York City are required or authorized
by law to be closed.
Capital Lease: as applied to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee which
would, in accordance with generally accepted accounting principles, be
required to be classified and accounted for as a capital lease on a
balance sheet of such Person, other than, in the case of the Company or a
Subsidiary, any such lease under which the Company or a Wholly-Owned
Subsidiary is the lessor.
Capital Lease Obligation: with respect to any Capital Lease,
the amount of the obligation of the lessee thereunder which would, in
accordance with generally accepted accounting principles, appear on a
balance sheet of such lessee in respect of such Capital Lease.
CERCLA: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time.
Change of Control: (a) the sale, lease or transfer of all or
substantially all of the Company's assets to any Person or "group"
(within the meaning of Section 13(d) of the Exchange Act, hereinafter a
"Group") together with any Affiliates thereof, (b) the liquidation of the
Company, (c) the acquisition after the date hereof by any Person or
Group, together with any Affiliates thereof, of in excess of 30% of the
Voting Stock of the Company, or (d) the success by any Person or Group,
together with any Affiliates thereof, in causing its or their nominees to
be elected to the Board such that such nominees, when added to any
director remaining on the Board who is an Affiliate or Related Person of
such Person or Group, shall constitute 50% or more of the Board.
Code: the Internal Revenue Code of 1986, as amended from
time to time.
Common Stock: the meaning specified in section 1.
Consolidated Interest and Dividend Coverage Ratio: for any
Reference Period, the ratio of (a) Adjusted EBIT for such Reference
Period to (b) the sum of (i) Consolidated Interest Expense for such
Reference Period, plus (ii) Capitalized Interest for such Reference
Period, plus (iii) all cash dividends accrued or paid on capital stock,
including Disqualified Stock, of the Company during such Reference
Period.
<PAGE> 38
Consolidated Interest Expense: for any Reference Period,
Interest Expense of the Company and its consolidated Subsidiaries for
such Reference Period.
Consolidated Net Income: for any Reference Period, (a) the
net income (or deficit) of the Company and its Subsidiaries for such
period (taken as a cumulative whole), after deducting all operating
expenses, provisions for all taxes and reserves and all other proper
deductions, all determined in accordance with generally accepted
accounting principles on a consolidated basis, less (b) the net income
(or deficit) of any Subsidiary that is less than Wholly-Owned (other than
Dixon Mexico).
Consolidated Tangible Net Worth: Adjusted Net Worth,
adjusted by (a) adding thereto the amount of the "Cumulative Translation
Adjustment" excluded in the computation of Adjusted Net Worth and (b)
deducting therefrom the net book amount of all assets, after deducting
any reserves applicable thereto, which would be treated as intangible
under generally accepted accounting principles.
Consumer Products Group: the Consumer Products Group of the
Company, consisting of its business of manufacturing and marketing
writing supplies and art supplies.
Credit Agreement: collectively, (a) the Amended and Restated
Revolving Credit Loan and Security Agreement, dated July 10, 1996, (b)
the Amended and Restated Term Loan Agreement, dated July 10, 1996, in
each case among the Company, First Union Commercial Corporation, as
Agent, and the lenders named therein, as amended or restated on the
Closing Date and as amended or restated from time to time thereafter and
(c) the "Letter of Credit Agreements" as such term is defined in the
agreement referred to in the foregoing clause (a).
Debt: as applied to any Person (without duplication):
(a) any indebtedness for borrowed money which such Person
has directly or indirectly created, incurred or assumed; and
(b) any indebtedness secured by any Lien in respect of
property owned by such Person, whether or not such Person has
assumed or become liable for the payment of such indebtedness; and
(c) any indebtedness with respect to which such Person has
become directly or indirectly liable and which represents or has
been incurred to finance the purchase price (or a portion thereof)
of any property or services or business acquired by such Person,
whether by purchase, consolidation, merger or otherwise; and
(d) any indebtedness of any other Person of the character
referred to in subdivision (a), (b) or (c) of this definition with
respect to which the Person whose Debt is being determined has
become liable by way of a Guaranty.
<PAGE> 39
Disqualified Stock: (a) any capital stock of the Company or
any Subsidiary that, by its terms, matures, or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at
the option of the holder or holders thereof, in whole or in part on or
prior to the date of final maturity of the Notes, (b) any Preferred Stock
of any Subsidiary, and (c) any capital stock of the Company or any
Subsidiary which is convertible into or exchangeable for any stock
described in clauses (a) and (b) above.
Dixon Mexico: Dixon Ticonderoga Company de Mexico, S.A. de
C.V., a corporation organized under the laws of Mexico.
ECRA Decision: the decision, dated April 24, 1996, of the
Superior Court of New Jersey in Hudson County finding the Company
responsible for certain environmental clean-up costs and related
obligations aggregating approximately $3,300,000.
Environmental Laws: Federal, state, provincial, local and
foreign laws, rules and regulations relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes into the environment
(including, without limitation, air, surface water, ground water or
land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes.
ERISA: the Employee Retirement Income Security Act of 1974,
as amended from time to time.
Exchange Act: the Securities Exchange Act of 1934, as
amended from time to time.
Excess Sale Proceeds: as of any date of determination, the
excess of (a) the proceeds of sales of assets of the Company and its
Subsidiaries which are required to be applied to the prepayment of Debt
of the Company pursuant to section 10.8(c)(iv)(y), over (b) the amount of
Superior Debt of the Company outstanding as of such date and required to
be prepaid pursuant to a provision of the agreement or instrument
evidencing such Superior Debt similar in effect to section 10.8 hereof.
Event of Default: the meaning specified in section 11.
Fair Market Value: with respect to any sale of assets of the
Company or any of its Subsidiaries pursuant to section 10.8(c), the fair
market value of the assets to be sold (a) in the case of any asset sale
involving consideration of $5,000,000 or less, as determined in good
faith by the Board and evidenced by a resolution filed with the minutes
of the meeting of the Board and (b) in the case of any asset sale
involving consideration of more than $5,000,000, as determined by an
investment banking or accounting firm of national standing selected by
the Company.
<PAGE> 40
Guaranty: as applied to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaran-
teed, endorsed (otherwise than for collection or deposit in the ordinary
course of business) or discounted or sold with recourse by such Person,
or in respect of which such Person is otherwise directly or indirectly
liable, including, without limitation, any such obligation in effect
guaranteed by such Person through any agreement (contingent or otherwise)
to purchase, repurchase or otherwise acquire such obligation or any
security therefor, or to provide funds for the payment or discharge of
such obligation (whether in the form of loans, advances, stock purchases,
capital contributions or otherwise), or to maintain the solvency or any
balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or
for any transportation or services regardless of the non-delivery or
nonfurnishing thereof, in any such case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied
with, or that the holders of such obligation will be protected against
loss in respect thereof. The amount of any Guaranty shall be equal to
the outstanding principal amount of the obligation guaranteed. For the
purposes of section 10.4, the amount involved in any Guaranty which con-
stitutes a Restricted Investment made during any period shall be the
aggregate amount of the obligation guaranteed, less any amount by which
the guarantor may have been discharged with respect thereto (including
any discharge by way of a reduction in the amount of the obligation
guaranteed), provided that the guarantor shall not be deemed to have been
discharged with respect to any Guaranty to the extent the guarantor shall
have been required to perform such Guaranty (except to the extent that
any loss on such Guaranty has been recognized in reducing Consolidated
Net Income).
Guaranty Agreement: the Guaranty Agreement, dated as of
September 26, 1996, executed and delivered by the Subsidiaries of the
Company, substantially in the form of Exhibit D.
Interest Expense: as applied to any Person with reference to
any period, interest expense of such Person for such period, including
amortization of debt discount and expense and imputed interest on Capital
Lease Obligations properly chargeable to income during such period in
accordance with generally accepted accounting principles.
Investment: as applied to any Person, any direct or indirect
purchase or other acquisition by such Person of stock or other securities
of any other Person, or any direct or indirect loan, advance (other than
advances to employees for moving and travel expenses, drawing accounts
and similar expenditures in the ordinary course of business) or capital
contribution by such Person to any other Person, including all Debt and
accounts receivable from such other Person which are not current assets
or did not arise from sales to such other Person in the ordinary course
of business. In computing the amount involved in any Investment at the
time outstanding, (a) undistributed earnings of, and interest accrued in
respect of Debt owing by, such other Person accrued after the date of
such Investment shall not be included, (b) there shall not be deducted
from the amounts invested in such other Person any amounts received as
earnings (in the form of dividends, interest or otherwise) on such
<PAGE> 41
Investment or as loans from such other Person, and (c) unrealized
increases or decreases in value, or write-ups, write-downs or write-offs,
of Investments in such other Person shall be disregarded.
Lien: as to any Person, any mortgage, lien, pledge, adverse
claim, charge, security interest or other encumbrance in or on, or any
interest or title of any vendor, lessor, lender or other secured party to
or of such Person under any conditional sale or other title retention
agreement or Capital Lease with respect to, any property or asset owned
or held by such Person, or the signing or filing of a financing statement
which names such Person as debtor, or the signing of any security
agreement authorizing any other party as the secured party thereunder to
file any financing statement.
Make-Whole Premium: with respect to any Note, a premium
equal to the excess, if any, of the Discounted Value of the Called
Principal of such Note over the sum of (a) such Called Principal plus (b)
interest accrued thereon as of (including interest due on) the Settlement
Date with respect to such Called Principal. The Make-Whole Premium shall
in no event be less than zero. As used in this definition, the following
terms have the following meanings:
Called Principal: with respect to any Note, the principal of
such Note that is to be prepaid, subject to a Make-Whole Premium,
pursuant to section 9.2 or 9.3 or is declared to be immediately due
and payable pursuant to section 11, as the context requires.
Discounted Value: with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining
Scheduled Payments with respect to such Called Principal from their
respective scheduled due dates to the Settlement Date with respect
to such Called Principal, in accordance with accepted financial
practice and at a discount factor (applied on a semiannual basis)
equal to the Reinvestment Yield with respect to such Called
Principal.
Reinvestment Yield: with respect to the Called Principal of
any Note, the sum of (a) 1.0% plus (b) the yield to maturity
determined by reference to the Treasury Constant Maturity Series
yields reported, for the latest day for which such yields shall
have been reported as of the Business Day next preceding the
Settlement Date with respect to such Called Principal, in Federal
Reserve Statistical Release H.15 (519) (or, if such Statistical
Release is not published, any publicly available source of similar
market data acceptable to the holders of more than 50% in principal
amount of the Notes being prepaid or accelerated) for actively
traded U.S. Treasury securities having a constant maturity equal to
the Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield shall be determined, if
necessary, (x) by converting U.S. Treasury bill quotations to bond-
equivalent yields in accordance with accepted financial practice
and (y) by linear interpolation between reported yields.
<PAGE> 42
Remaining Average Life: with respect to the Called Principal
of any Note, the number of years (calculated to the nearest one-
twelfth year) obtained by dividing (a) such Called Principal into
(b) the sum of the products obtained by multiplying (i) each
Remaining Scheduled Payment of such Called Principal (but not of
interest thereon) by (ii) the number of years (calculated to the
nearest one-twelfth year) which will elapse between the Settlement
Date with respect to such Called Principal and the scheduled due
date of such Remaining Scheduled Payment.
Remaining Scheduled Payments: with respect to the Called
Principal of any Note, all payments of such Called Principal and
interest thereon that would be due on or after the Settlement Date
with respect to such Called Principal if no payment of such Called
Principal were made prior to its scheduled due date.
Settlement Date: with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid
pursuant to section 9.2 or 9.3 or is declared to be immediately due
and payable pursuant to section 11, as the context requires.
Minority EBIT: for any Reference Period, the product of (a)
the ownership percentage of all Persons, other than the Company and any
Subsidiary, of the outstanding shares of Dixon Mexico times (b) the net
income (or deficit) of Dixon Mexico for such Reference Period (taken as a
cumulative whole), after deducting all operating expenses, provisions for
all taxes and reserves and all other proper deductions, all determined in
accordance with generally accepted accounting principles on a
consolidated basis, (i) adjusted by adding thereto Interest Expense and
income taxes deducted in the calculation of the net income of Dixon
Mexico for such Reference Period, and (ii) further adjusted by excluding
therefrom all extraordinary gains and losses and all other extraordinary
or non-recurring items (in each case as determined in accordance with
generally accepted accounting principles), provided, that all items under
clause (b) above shall be determined in accordance with United States
generally accepted accounting principles and shall be denominated in U.S.
dollars.
Multiemployer Plan: any Plan which is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
Officers' Certificate: a certificate executed on behalf of
the Company by the Chairman of the Board of Directors (if an officer) or
its President or one of its Vice Presidents.
Operative Agreements: the Warrants and the Guaranty
Agreement.
Option Plan: the employee stock option plan adopted by the
Company providing for the grant to employees of the Company and its
Subsidiaries from time to time of options to purchase shares of Common
Stock not in excess of 20% of the number of shares of Common Stock issued
and outstanding on the Closing Date.
PBGC: the Pension Benefit Guaranty Corporation or any
governmental authority succeeding to any of its functions.
<PAGE> 43
Permitted Subordinated Debt: unsecured Debt of the Company
or a Subsidiary which (a) does not permit any holder of such Debt to
declare all or any part of such Debt to be due and payable, or to require
(upon the occurrence of any contingency or otherwise) all or any part of
such Debt to be paid, before its expressed maturity for any reason other
than the occurrence of a default in respect thereof; and (b) is created
under or evidenced by an instrument containing provisions for the
subordination of such Debt either (i) on a parity with the Notes or (ii)
on a basis that is junior and subordinate to the Notes at least to the
extent the Notes are junior and subordinate in right of payment to
Superior Debt.
Person: a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
government or political subdivision thereof or a governmental agency.
Plan: an "employee pension benefit plan" (as defined in
section 3 of ERISA) which is or has been established or maintained, or to
which contributions are or have been made, by the Company or any of its
Related Persons, or an employee pension benefit plan as to which the
Company or any of its Related Persons would be treated as a contributory
sponsor under section 4069 of ERISA if it were to be terminated.
Potential Event of Default: any condition or event which,
with notice or lapse of time or both, would become an Event of Default.
Preferred Stock: as applied to any corporation, shares of
such corporation which shall be entitled to preference or priority over
any other shares of such corporation in respect of either the payment of
dividends or the distribution of assets upon liquidation or both.
Private Placement Memorandum: the Private Placement
Memorandum prepared by Alex. Brown & Sons Incorporated for use in
connection with the Company's private placement of the Notes and Warrants
Public Offering: an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration
statement under the Securities Act such that, after giving effect to such
offering, the Company shall have received gross proceeds from such public
offering or offerings of at least $12,000,000.
Reference Period: as of any date of determination, the four
consecutive full fiscal quarters ended most recently prior to such date.
Related Person: any trade or business, whether or not
incorporated, which, together with the Company, is under common control,
as described in section 414(b) or (c) of the Code.
Restricted Investment: the meaning specified in section
10.3(h).
Restricted Payment: (a) any declaration or payment of any
dividend or other distribution, direct or indirect, on account of any
shares of any class of stock of the Company or any of its subsidiaries,
now or hereafter outstanding, except a dividend payable solely in shares
of stock of the Company; (b) any redemption, retirement, purchase or
other acquisition, direct or indirect, of any shares of any class of
<PAGE> 44
stock of the Company now or hereafter outstanding, or of any warrants,
rights or options to acquire any such shares, except to the extent that
the consideration therefor consists of shares of stock of the Company;
(c) any payment, direct or indirect, of or on account of any principal
of or premium on any Permitted Subordinated Debt now or hereafter
outstanding or any redemption, retirement, purchase or other
acquisition, direct or indirect, of any Permitted Subordinated Debt
(except for any sinking fund, other required prepayment or mandatory
installment or final payment at maturity pursuant to the provisions
thereof and except for any payment consisting solely of shares of stock
of the Company or of other Permitted Subordinated Debt).
Securities Act: the Securities Act of 1933, as amended from
time to time.
Subordinated Debt: the meaning specified therefor in section
13.1.
Subsidiary: any corporation or other business entity at
least 50% (by number of votes) of the Voting Stock of which is at the
time owned by the Company or by one or more Subsidiaries or by the
Company and one or more Subsidiaries.
Superior Debt: the meaning specified therefor in section
13.2.
Voting Stock: with reference to any corporation, stock of
any class or classes (or equivalent interests), if the holders of the
stock of such class or classes (or equivalent interests) are ordinarily,
in the absence of contingencies, entitled to vote for the election of the
directors (or Persons performing similar functions) of such corporation,
even though the right so to vote has been suspended by the happening of
such a contingency.
Warrants: the meaning specified in section 1.
Weighted Average Life to Maturity: as applied to any Debt at
any date, the number of years obtained by dividing (a) the then
outstanding principal amount of such Debt into (b) the total of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other regularly scheduled
required payment, including payment at final maturity, in respect
thereof, by (ii) the number of years (calculated to the nearest
one-twelfth) which will elapse between such date and the date on which
such payment is to be made; as applied to any Preferred Stock at any
date, the number of years obtained by dividing (x) the then liquidation
value of such Preferred Stock into (y) the total of the products obtained
by multiplying (A) the amount of each then remaining installment, sinking
fund or other required redemption, including redemption at final
maturity, in respect thereof, by (B) the number of years (calculated to
the nearest one-twelfth) which will elapse between such date and the
making of such redemption.
Wholly-Owned: as applied to any Subsidiary, a Subsidiary all
the outstanding shares (other than directors' qualifying shares, if
required by law) of every class of stock of which are at the time owned
by the Company or by one or more Wholly-Owned Subsidiaries or by the
Company and one or more Wholly-Owned Subsidiaries.
<PAGE> 45
15. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTES; ACTION
BY NOTEHOLDERS.
15.1. NOTE REGISTER; OWNERSHIP OF NOTES. The Company will
keep at its principal office a register in which the Company will provide
for the registration of Notes and the registration of transfers of Notes.
The Company may treat the Person in whose name any Note is registered on
such register as the owner thereof for the purpose of receiving payment
of the principal of and the premium, if any, and interest on such Note
and for all other purposes, whether or not such Note shall be overdue,
and the Company shall not be affected by any notice to the contrary. All
references in this Agreement to a "holder" of any Note shall mean the
Person in whose name such Note is at the time registered on such
register.
15.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any
Note for registration of transfer or for exchange to the Company at its
principal office, the Company at its expense will execute and deliver in
exchange therefor a new Note or Notes in denominations of at least
$500,000 (except one Note may be issued in a lesser principal amount if
the unpaid principal amount of the surrendered Note is not evenly
divisible by, or is less than $500,000), as requested by the holder or
transferee, which aggregate the unpaid principal amount of such sur-
rendered Note, registered as such holder or transferee may request, dated
so that there will be no loss of interest on such surrendered Note and
otherwise of like tenor.
15.3. REPLACEMENT OF NOTES. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Note and, in the case of any such loss, theft or
destruction of any Note, upon delivery of an indemnity bond in such
reasonable amount as the Company may determine (or, in the case of any
Note held by you or another institutional holder or your or its nominee,
of an indemnity agreement from you or such other holder) or, in the case
of any such mutilation, upon the surrender of such Note for cancellation
to the Company at its principal office, the Company at its expense will
execute and deliver, in lieu thereof, a new Note in the unpaid principal
amount of such lost, stolen, destroyed or mutilated Note, dated so that
there will be no loss of interest on such Note and otherwise of like
tenor. Any Note in lieu of which any such new Note has been so executed
and delivered by the Company shall not be deemed to be an outstanding
Note for any purpose of this Agreement.
15.4. NOTES HELD BY COMPANY, ETC., DEEMED NOT OUTSTANDING.
For the purposes of determining whether the holders of the Notes of the
requisite principal amount at the time outstanding have taken any action
authorized by this Agreement with respect to the giving of consents or
approvals or with respect to acceleration upon an Event of Default, any
Notes directly or indirectly owned by the Company or any of its
Subsidiaries or Affiliates shall be disregarded and deemed not to be
outstanding.
16. PAYMENTS ON NOTES. 16.1. PLACE OF PAYMENT. Payments of
principal, premium, if any, and interest becoming due and payable on the
Notes shall be made at the principal office of The Chase Manhattan Bank,
N.A., in the Borough of Manhattan, the City and State of New York, unless
the Company, by written notice to each holder of any Notes, shall
<PAGE> 46
designate the principal office of another bank or trust company in such
Borough as such place of payment, in which case the principal office of
such other bank or trust company shall thereafter be such place of payment.
16.2. HOME OFFICE PAYMENT. So long as you or your nominee
shall be the holder of any Note, and notwithstanding anything contained
in section 16.1 or in such Note to the contrary, the Company will pay all
sums becoming due on such Note for principal, premium, if any, and
interest by the method and at the address specified for such purpose in
Schedule A, or by such other method or at such other address as you shall
have from time to time specified to the Company in writing for such
purpose, without the presentation or surrender of such Note or the making
of any notation thereon, except that any Note paid or prepaid in full
shall be surrendered to the Company at its principal office or at the
place of payment maintained by the Company pursuant to section 16.1 for
cancellation. Prior to any sale or other disposition of any Note held by
you or your nominee you will, at your election, either endorse thereon
the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender such Note to the Company in exchange
for a new Note or Notes pursuant to section 15.2. The Company will
afford the benefits of this section 16.2 to any institutional investor
which is the direct or indirect transferee of any Note purchased by you
under this Agreement and which has made the same agreement relating to
such Note as you have made in this section 16.2.
17. EXPENSES, ETC. Whether or not the transactions
contemplated by this Agreement shall be consummated, the Company will pay
all expenses in connection with such transactions and in connection with
any amendments or waivers (whether or not the same become effective)
under or in respect of this Agreement or the Notes, including, without
limitation: (a) the cost and expenses of preparing and reproducing this
Agreement and the Notes, of furnishing all opinions by counsel for the
Company (including any opinions requested by your special counsel as to
any legal matter arising hereunder) and all certificates on behalf of the
Company, and of the Company's performance of and compliance with all
agreements and conditions contained herein on its part to be performed or
complied with; (b) the cost of delivering to your principal office,
insured to your satisfaction, the Notes sold to you hereunder and any
Notes delivered to you upon any substitution of Notes pursuant to section
15 and of your delivering any Notes, insured to your satisfaction, upon
any such substitution; (c) the reasonable fees, expenses and
disbursements of one special counsel for the holders of the Notes (and,
in addition, any local counsel determined by the holders of the Notes to
be necessary in the circumstances) in connection with such transactions
and any such amendments or waivers; and (d) the reasonable out-of-pocket
expenses incurred by you in connection with such transactions and any
such amendments or waivers. The Company also will pay, and will save you
and each holder of any Notes harmless from, all claims in respect of the
fees, if any, of brokers and finders and any and all liabilities with
respect to any taxes (including interest and penalties) which may be
payable in respect of the execution and delivery of this Agreement, the
issue of the Notes and any amendment or waiver under or in respect of
this Agreement or the Notes. The obligation of the Company under this
section 17 shall survive any disposition or payment of the Notes and the
termination of this Agreement.
<PAGE> 47
18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Agreement or made in
writing by or on behalf of the Company in connection with the
transactions contemplated by this Agreement shall survive the execution
and delivery of this Agreement, any investigation at any time made by you
or on your behalf, the purchase of the Notes by you under this Agreement
and any disposition or payment of the Notes. All statements contained in
any certificate or other instrument delivered by or on behalf of the
Company pursuant to this Agreement or in connection with the transactions
contemplated by this Agreement shall be deemed representations and
warranties of the Company under this Agreement.
19. AMENDMENTS AND WAIVERS. Any term of this Agreement or
of the Notes may be amended and the observance of any term of this
Agreement or of the Notes may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with
the written consent of the Company and the holders of at least 66.7% in
principal amount of the Notes at the time outstanding (subject to section
15.4), provided that, without the prior written consent of the holders of
all the Notes at the time outstanding (subject to section 15.4), no such
amendment or waiver shall (a) change the maturity or the principal amount
of, or reduce the rate or change the time of payment of interest on, or
change the amount or the time of payment of any principal or premium
payable on any prepayment of, any Note, (b) reduce the aforesaid
percentages of the principal amount of the Notes the holders of which are
required to consent to any such amendment or waiver, (c) change the
percentage of the principal amount of the Notes the holders of which may
declare the Notes to be due and payable as provided in section 11,
(d) modify the proviso to the first sentence of section 11, or
(e) decrease the percentage of the principal amount of the Notes the
holders of which may rescind and annul any such declaration as provided
in section 11. Any amendment or waiver effected in accordance with this
section 19 shall be binding upon each holder of any Note at the time
outstanding, each future holder of any Note and the Company.
20. NOTICES, ETC. Except as otherwise provided in this
Agreement, notices and other communications under this Agreement shall be
in writing and shall be delivered by hand or courier service, or mailed
by registered or certified mail, return receipt requested, addressed,
(a) if to you, at the address set forth in Schedule A or at such other
address as you shall have furnished to the Company in writing, except as
otherwise provided in section 16.2 with respect to payments on Notes held
by you or your nominee, or (b) if to any other holder of any Note, at
such address as such other holder shall have furnished to the Company in
writing, or, until any such other holder so furnishes to the Company an
address, then to and at the address of the last holder of such Note who
has furnished an address to the Company, or (c) if to the Company, at its
address set forth at the beginning of this Agreement, to the attention of
Chief Financial Officer, or at such other address, or to the attention of
such other officer, as the Company shall have furnished to you and each
such other holder in writing. Any notice so addressed and delivered by
hand or courier shall be deemed to be given when received, and any notice
so addressed and mailed by registered or certified mail shall be deemed
to be given three business days after being so mailed.
<PAGE> 48
21. SUBMISSION TO JURISDICTION. The Company, for itself and
its successors and assigns, hereby irrevocably (a) agrees that any legal
or equitable action, suit or proceeding against the Company arising out
of or relating to this Agreement or any transaction contemplated hereby
or the subject matter of any of the foregoing may be instituted in any
state or federal court in the State of New York, (b) waives any objection
which it may now or hereafter have to the venue of any action, suit or
proceeding, and (c) irrevocably submits itself to the nonexclusive
jurisdiction of any state or federal court of competent jurisdiction in
the State of New York for purposes of any such action, suit or
proceeding. Nothing contained in this section 21 shall be deemed to
affect the rights of the Purchasers or any subsequent holder of a Note to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Company in any jurisdiction.
22. MISCELLANEOUS. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto, whether so expressed or not, and, in
particular, shall inure to the benefit of and be enforceable by any
holder or holders at the time of the Notes or any part thereof. Except
as stated in section 18, this Agreement embodies the entire agreement and
understanding between you and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof.
This Agreement and the Notes shall be construed and enforced in
accordance with and governed by the law of the State of New York. The
headings in this Agreement are for purposes of reference only and shall
not limit or otherwise affect the meaning hereof. This Agreement may be
executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.If
you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this letter and return one
of the same to the Company, whereupon this letter shall become a binding
agreement between you and the Company.
Very truly yours,
DIXON TICONDEROGA COMPANY
By: /s/ Richard A. Asta
----------------------------
Richard A. Asta
Title: EVP & Chief Financial
Officer
<PAGE> 49
The foregoing Agreement is
hereby agreed to as of the
date thereof.
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By: /s/ U. Peter Gummeson
-------------------------
U. Peter Gummeson
Title: Investment Officer
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: /s/ Dana Donovan
-------------------------
Dana Donovan
Title: Senior Investment
Officer
SIGNATURE 1A (CAYMAN), LTD.
By: John Hancock Mutual Life Insurance Company,
Portfolio Advisor
By: /s/ Dana Donovan
-------------------------
Dana Donovan
Title: Senior Investment
Officer
<PAGE>
=========================================================================
DIXON TICONDEROGA COMPANY
------------------------------
COMMON STOCK PURCHASE WARRANT
------------------------------
Expiring September 26, 2003
==========================================================================
<PAGE> i
TABLE OF CONTENTS
1. Exercise of Warrant . . . . . . . . . . . . . . . . . . . . .1
1.1. Manner of Exercise . . . . . . . . . . . . . . . . . . . .1
1.2. When Exercise Deemed Effected. . . . . . . . . . . . . . .2
1.3. Delivery of Stock Certificates, etc. . . . . . . . . . . .2
1.4. Company to Reaffirm Obligations. . . . . . . . . . . . . .2
1.5. Payment by Application of the Notes. . . . . . . . . . . .3
2. Adjustment of Common Stock Issuable Upon Exercise.. . . . . .3
2.1. Number of Shares; Warrant Price. . . . . . . . . . . . . .3
2.2. Adjustment of Warrant Price. . . . . . . . . . . . . . . .3
2.2.1. Issuance of Additional Shares of Common Stock. . . . .3
2.2.2. Extraordinary Dividends and Distributions . . . . . . .4
2.3. Treatment of Options and Convertible Securities. . . . . .4
2.4. Treatment of Stock Dividends, Stock Splits, etc. . . . . .6
2.5. Computation of Consideration . . . . . . . . . . . . . . .6
2.6. Adjustments for Combinations, etc. . . . . . . . . . . . .8
2.7. Dilution in Case of Other Securities . . . . . . . . . . .8
2.8. Minimum Adjustment of Warrant Price. . . . . . . . . . . .8
2.9. Special Adjustment of Warrant Price. . . . . . . . . . . .8
3. Consolidation, Merger, Sale of Assets,
Reorganization, etc.. . . . . . . . . . . . . . . . . . . . .9
3.1. General Provisions . . . . . . . . . . . . . . . . . . . .9
3.2. Assumption of Obligations. . . . . . . . . . . . . . . . 10
4. Other Dilutive Events . . . . . . . . . . . . . . . . . . . 11
5. No Dilution or Impairment . . . . . . . . . . . . . . . . . 11
6. Accountants' Report as to Adjustments . . . . . . . . . . . 12
7. Notices of Corporate Action . . . . . . . . . . . . . . . . 12
8. Restrictions on Transfer. . . . . . . . . . . . . . . . . . 13
8.1. Restrictive Legends. . . . . . . . . . . . . . . . . . . 13
8.2. Notice of Proposed Transfer; Opinions of Counsel . . . . 13
8.3. Termination of Restrictions. . . . . . . . . . . . . . . 14
9. Registration under Securities Act, etc. . . . . . . . . . . 14
9.1. Maintenance of Effective Registration. . . . . . . . . . 14
9.2. Incidental Registration. . . . . . . . . . . . . . . . . 15
9.3. Registration Procedures. . . . . . . . . . . . . . . . . 16
9.4. Underwritten Offerings . . . . . . . . . . . . . . . . . 19
9.5. Preparation; Reasonable Investigation. . . . . . . . . . 21
9.6. Certain Rights of Holders. . . . . . . . . . . . . . . . 21
9.7. Indemnification. . . . . . . . . . . . . . . . . . . . . 21
9.8. Adjustments Affecting Registrable Securities . . . . . . 23
9.10. Covenants Relating to Rule 144 . . . . . . . . . . . . . 24
10. Availability of Information. . . . . . . . . . . . . . . . 24
11. Reservation of Stock, etc. . . . . . . . . . . . . . . . . 24
<PAGE> ii
12. Listing on Securities Exchange . . . . . . . . . . . . . . 24
13. Ownership, Transfer and Substitution of Warrants . . . . . 25
13.1. Ownership of Warrants. . . . . . . . . . . . . . . . . . 25
13.2. Transfer and Exchange of Warrants. . . . . . . . . . . . 25
13.3. Replacement of Warrants. . . . . . . . . . . . . . . . . 25
14. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 25
15. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . 30
16. No Rights or Liabilities as Stockholder . . . . . . . . . . 30
17. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 30
18. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 31
19. Expiration. . . . . . . . . . . . . . . . . . . . . . . . . 31
Form of Subscription
Form of Notice
<PAGE> 1
Common Stock Purchase Warrant
Expiring September 26, 2003
New York, New York
____________, 19__
PPN#255860 2#4
No. W-
DIXON TICONDEROGA COMPANY, a Delaware corporation (the
"Company"), for value received, hereby certifies that ___________________
or registered assigns, is entitled to purchase from the Company ______
duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock, par value $1.00 per share, of the Company (the "Common
Stock") at the purchase price per share of $7.24, at any time or from
time to time on or after the Initial Exercise Date and prior to 3 P.M.,
New York City time, on September 26, 2003 (or such later date as may be
determined pursuant to section 20), all subject to the terms, conditions
and adjustments set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants
(the "Warrants", such term to include all Warrants issued in substitution
therefor) originally issued in connection with the issue and sale by the
Company of $16,500,000 aggregate principal amount of its 12.00% Notes due
September 26, 2003 (together with all notes issued in substitution
therefor, the "Notes"), pursuant to the Note and Warrant Purchase
Agreements (collectively, the "Purchase Agreement"), each dated as of
September 26, 1996, between the Company and the institutional investors
named therein. The Warrants originally so issued evidence rights to
purchase an aggregate of 300,000 shares of Common Stock, subject to
adjustment as provided herein. Certain capitalized terms used in this
Warrant are defined in section 14.
1. EXERCISE OF WARRANT. 1.1. MANNER OF EXERICSE. This
Warrant may be exercised by the holder hereof, in whole or in part,
during normal business hours on any Business Day by surrender of this
Warrant, with the form of subscription at the end hereof (or a reasonable
facsimile thereof) duly executed by such holder, to the Company at its
principal office (or, if such exercise shall be in connection with an
underwritten Public Offering of shares of Common Stock (or Other
Securities) subject to this Warrant, at the location at which the Company
shall have agreed to deliver the shares of Common Stock (or Other
Securities) subject to such offering), accompanied by payment, in cash or
by certified or official bank check payable to the order of the company
or by the application of Notes in the manner provided in section 1.5 (or
by any combination of such methods), in the amount obtained by
multiplying (a) the number of shares of Common Stock (without giving
effect to any adjustment therein) designated in such form of subscription
by (b) $7.24 and such holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock (or Other Securities) determined as provided in
sections 2 through 4.
<PAGE> 2
1.2. WHEN EXERCISE DEEMED EFFECTED. Each exercise of this
Warrant shall be deemed to have been effected immediately prior to the
close of business on the Business Day on which this Warrant shall have
been surrendered to the Company as provided in section 1.1, and at such
time the person or persons in whose name or names any certificate or
certificates for shares of Common Stock (or Other Securities) shall be
issuable upon such exercise as provided in section 1.3 shall be deemed to
have become the holder or holders of record thereof.
1.3. DELIVERY OF STOCK CERTIFICATES, ETC. As soon as
practicable after the exercise of this Warrant, in whole or in part, and
in any event within ten Business Days thereafter (unless such exercise
shall be in connection with an underwritten Public Offering of shares of
Common Stock (or Other Securities) subject to this Warrant, in which
event concurrently with such exercise), the Company at its expense
(including the payment by it of any applicable stamp or document taxes)
will cause to be issued in the name of and delivered to the holder hereof
or, subject to section 8, as such holder (upon payment by such holder of
any applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share
to which such holder would otherwise be entitled, cash in an amount
equal to the same fraction of the Market Price per share of such
Common Stock (or Other Securities) on the Business Day next
preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock equal
(without giving effect to any adjustment therein) to the number of
such shares called for on the face of this Warrant minus the number
of such shares designated by the holder upon such exercise as
provided in section 1.1.
1.4. COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at
the time of or at any time after each exercise of this Warrant, upon the
request of the holder hereof or of any shares of Common Stock (or Other
Securities) issued upon such exercise, acknowledge in writing its
continuing obligation to afford to such holder all rights (including,
without limitation, any right of registration of any shares of Common
Stock (or Other Securities) issuable upon exercise of this Warrant pur-
suant to section 9) to which such holder shall continue to be entitled
after such exercise in accordance with the terms of this Warrant,
provided that if any such holder shall fail to make any such request, the
failure shall not affect the continuing obligation of the Company to
afford such rights to such holder.
<PAGE> 3
1.5. PAYMENT BY APPLICATION OF THE NOTES. Upon any exercise
of this Warrant, the holder hereof may, at its option, instruct the
Company, by so specifying in the form of subscription submitted therewith
as provided in section 1.1, to apply to the payment required by section
1.1 all or any part of the principal amount then due and of the interest
on such principal amount then due on any one or more Notes at the time
held by such holder, in which case the Company will accept the aggregate
amount of principal and interest on such principal specified in such form
of subscription in satisfaction of a like amount of such payment. In
case less than the entire unpaid principal amount of any Note shall be so
specified, the principal amount so specified shall be credited, as of the
date of such exercise, against the installments of principal then
remaining unpaid on such Note either in the inverse order of their
maturity dates or in the direct order of their maturity dates as such
holder shall instruct in such form of subscription. Within five days
after receipt of any such notice, the Company will pay to the holder of
the Notes submitting such form of subscription, in the manner provided in
such Notes and the Purchase Agreement, all unpaid interest accrued to the
date of exercise of such Warrant on the principal amount so specified in
such form of subscription that is not applied to the payment required by
section 1.1 under this section 1.5.
2. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERICSE. 2.1.
NUMBER OF SHARES; WARRANT PRICE. The number of shares of Common Stock
which the holder of this Warrant shall be entitled to receive upon each
exercise hereof shall be determined by multiplying the number of shares
of Common Stock which would otherwise (but for the provisions of this
section 2) be issuable upon such exercise, as designated by the holder
hereof pursuant to section 1.1, by a fraction of which (i) the numerator
is $7.24 and (ii) the denominator is the Warrant Price in effect on the
date of such exercise. The "Warrant Price" shall initially be $7.24 per
share, shall be adjusted and readjusted from time to time as provided in
this section 2 and, as so adjusted or readjusted, shall remain in effect
until a further adjustment or readjustment thereof is required by this
section 2.
2.2. ADJUSTMENT OF WARRANT PRICE. 2.2.1. ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In case the Company, at any time or
from time to time after September 26, 1996 (the "Initial Date"), shall
issue or sell Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to section 2.3 or
2.4) without consideration or for a consideration per share less than the
Base Price in effect, in each case, on the date of and immediately prior
to such issue or sale, then, and in each such case, subject to section
2.8, such Warrant Price shall be reduced, concurrently with such issue or
sale, to a price (calculated to the nearest .001 of a cent) determined by
multiplying such Warrant Price by a fraction,
(a) the numerator of which shall be (i) the number of shares
of Common Stock outstanding immediately prior to such issue or sale
plus (ii) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase
at the Base Price, and
(b) the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such issue or sale,
<PAGE> 4
PROVIDED that, for the purposes of this section 2.2.1, (x) immediately
after any Additional Shares of Common Stock are deemed to have been
issued pursuant to section 2.3 or 2.4, such Additional Shares shall be
deemed to be outstanding, and (y) treasury shares shall not be deemed to
be outstanding.
2.2.2. EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case
the Company at any time or from time to time after the Initial Date shall
declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of other or additional stock or
other securities or property or Options by way of dividend or spin-off,
reclassification, recapitalization or similar corporate rearrangement) on
any Common Stock, other than (a) a dividend payable in Additional Shares
of Common Stock or in Options for Common Stock or (b) a regular, periodic
dividend payable in cash and declared out of the earned surplus of the
Company as at the date thereof as increased by any credits (other than
credits resulting from a revaluation of property) and decreased by any
debits made thereto after such date, then, and in each such case, subject
to section 2.8, the Warrant Price in effect immediately prior to the
close of business on the record date fixed for the determination of
holders of any class of securities entitled to receive such dividend or
distribution shall be reduced, effective as of the close of business on
such record date, to a price (calculated to the nearest .001 of a cent)
determined by multiplying such Warrant Price by a fraction,
(i) the numerator of which shall be the Current Market Price
in effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-
dividend trading, less the value of such dividend or distribution
(as determined in good faith by the Board of Directors of the
Company) applicable to one share of Common Stock, and
(ii) the denominator of which shall be such Current Market
Price.
2.3. TREATMENT OF OPTIONS AND COVERTIBLE SECURITIES. In
case the Company at any time or from time to time after the Initial Date
shall issue, sell, grant or assume, or shall fix a record date for the
determination of holders of any class of securities entitled to receive,
any Options or Convertible Securities, then, and in each such case, the
maximum number of Additional Shares of Common Stock (as set forth in the
instrument relating thereto, without regard to, any provisions contained
therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be issued for purposes of section 2.2.1 as
of the time of such issue, sale, grant or assumption or, in case such a
record date shall have been fixed, as of the close of business on such
record date (or, if the Common Stock trades on an ex-dividend basis, on
the date prior to the commencement of ex-dividend trading), provided that
such Additional Shares of Common Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to section
2.5) of such shares would be less than the Base Price in effect, in each
case, on the date of and immediately prior to such issue, sale, grant or
assumption or immediately prior to the close of business on such record
date (or, if the Common Stock trades on an ex-dividend basis, on the date
prior to the commencement of ex-dividend trading), as the case may be,
<PAGE> 5
and provided, further, that in any such case in which Additional Shares of
Common Stock are deemed to be issued,
(a) no further adjustment of the Warrant Price shall be made
upon the subsequent issue or sale of Additional Shares of Common
Stock or Convertible Securities upon the exercise of such Options
or the conversion or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Company, or decrease in the number
of Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise),
the Warrant Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or
date prior to the commencement of ex-dividend trading, as the case
may be, with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effec-
tive, be recomputed to reflect such increase or decrease insofar as
it affects such Options, or the rights of conversion or exchange
under such Convertible Securities, which are outstanding at such
time;
(c) upon the expiration of any such Options or of the rights
of conversion or exchange under any such Convertible Securities
which shall not have been exercised (or upon purchase by the
Company and cancellation or retirement of any such Options which
shall not have been exercised or of any such Convertible Securities
the rights of conversion or exchange under which shall not have
been exercised), the Warrant Price computed upon the original
issue, sale, grant or assumption thereof (or upon the occurrence of
the record date, or date prior to the commencement of ex-dividend
trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration
(or such cancellation or retirement, as the case may be), be
recomputed as if:
(i) in the case of Options for Common Stock or of
Convertible Securities, the only Additional Shares of Common
Stock issued or sold were the Additional Shares of Common
Stock, if any, actually issued or sold upon the exercise of
such Options or the conversion or exchange of such
Convertible Securities and the consideration received
therefor was (x) an amount equal to (A) the consideration
actually received by the Company for the issue, sale, grant
or assumption of all such Options, whether or not exercised,
plus (B) the consideration actually received by the Company
upon such exercise, minus (C) the consideration paid by the
Company for any purchase of such Options which were not
exercised, or (y) an amount equal to (A) the consideration
actually received by the Company for the issue, sale, grant
or assumption of all such Convertible Securities which were
actually converted or exchanged, plus (B) the additional
consideration, if any, actually received by the Company upon
such conversion or exchange, minus (C) the consideration paid
by the Company for any purchase of such Convertible
Securities the rights of conversion or exchange under which
were not exercised, and
<PAGE> 6
(ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually
issued or sold upon the exercise of such Options were issued
at the time of the issue, sale, grant or assumption of such
Options, and the consideration received by the Company for
the Additional Shares of Common Stock deemed to have then
been issued was an amount equal to (x) the consideration
actually received by the Company for the issue, sale, grant
or assumption of all such Options, whether or not exercised,
plus (y) the consideration deemed to have been received by
the Company (pursuant to section 2.5) upon the issue or sale
of the Convertible Securities with respect to which such
Options were actually exercised, minus (z) the consideration
paid by the Company for any purchase of such Options which
were not exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of increasing the Warrant Price by an amount
in excess of the amount of the adjustment thereof originally made
in respect of the issue, sale, grant or assumption of such Options
or Convertible Securities; and
(e) in the case of any such Options which expire by their
terms not more than 30 days after the date of issue, sale, grant or
assumption thereof, no adjustment of the Warrant Price shall be
made until the expiration or exercise of all such Options,
whereupon such adjustment shall be made in the manner provided in
subdivision (c) above.
In case at any time after the Initial Date the Company shall
be required to increase the number of Additional Shares of Common Stock
subject to any Option or into which any Convertible Securities (other
than the Warrants) are convertible or exchangeable pursuant to the
operation of anti-dilution provisions applicable thereto, such Additional
Shares shall be deemed to be issued for purposes of section 2.1 as of the
time of such increase.
2.4. TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In
case the Company at any time or from time to time after the Initial Date
shall declare or pay any dividend or other distribution on any class of
stock of the Company payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in Common Stock), then, and in each such case,
Additional Shares of Common Stock shall be deemed to have been issued (a)
in the case of any such dividend, immediately after the close of business
on the record date for the determination of holders of any class of
securities entitled to receive such dividend, or (b) in the case of any
such subdivision, at the close of business on the day immediately prior
to the day upon which such corporate action becomes effective.
2.5. COMPUTATION OF CONSIDERATION. For the purposes of this
section 2:
(a) The consideration for the issue or sale of any
Additional Shares of Common Stock or for the issue, sale, grant or
assumption of any Options or Convertible Securities, irrespective
of the accounting treatment of such consideration, shall
<PAGE> 7
(i) insofar as it consists of cash, be computed at the
amount of cash received by the company, after deducting any
expenses paid or incurred by the Company or any commissions
or compensation paid or concessions or discounts allowed to
underwriters, dealers or others performing similar services
and any accrued interest or dividends in connection with such
issue or sale,
(ii) insofar as it consists of consideration
(including securities) other than cash, be computed at the
Fair Value thereof at the time of such issue or sale, after
deducting any expenses paid or incurred by the Company for
any commissions or compensation paid or concessions or
discounts allowed to underwriters, dealers or others
performing similar services and any accrued interest or
dividends in connection with such issue or sale, and
(iii) in case Additional Shares of Common Stock are
issued or sold or Convertible Securities are issued, sold,
granted or assumed together with other stock or securities or
other assets of the Company for a consideration which covers
both, be the proportion of such consideration so received,
computed as provided in subdivisions (i) and (ii) above,
allocable to such Additional Shares of Common Stock or
Convertible Securities, as the case may be, all as determined
in good faith by the Board of Directors of the Company.
(b) All Options issued, sold, granted or assumed together
with other stock or securities or other assets of the Company for a
consideration which covers both, all Additional Shares of Common
Stock, Options or Convertible Securities issued in payment of any
dividend or other distribution on any class of stock of the Company
and all Additional Shares of Common Stock issued to effect a
subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock) shall be
deemed to have been issued without consideration.
(c) Additional Shares of Common Stock deemed to have been
issued for consideration pursuant to section 2.3, relating to
Options and Convertible Securities, shall be deemed to have been
issued for a consideration per share determined by dividing
(i) the total amount, if any, received and receivable
by the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in
question, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein
for a subsequent adjustment of such consideration) payable to
the Company upon the exercise in full of such Options or the
conversion or exchange of such Convertible Securities or, in
the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, in each case
computing such consideration as provided in the foregoing
subdivision (a),
<PAGE> 8
by
(ii) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjust-
ment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible
Securities.
(d) Additional Shares of Common Stock issued or deemed to
have been issued pursuant to the operation of anti-dilution
provisions applicable to Convertible Securities (other than the
Warrants), Options or other securities of the Company (either as a
result of the adjustments provided for by the Warrants or
otherwise) shall be deemed to have been issued without
consideration.
2.6. ADJUSTMENTS FOR COMBINATIONS, ETC. In case the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common
Stock, the Warrant Price in effect immediately prior to such combination
or consolidation shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased.
2.7. DILUTION IN CASE OF OTHER SECURITIES. In case any
Other Securities shall be issued or sold or shall become subject to issue
or sale upon the conversion or exchange of any stock (or Other
Securities) of the Company (or any issuer of Other Securities or any
other Person referred to in section 3) or to subscription, purchase or
other acquisition pursuant to any Options issued or granted by the
Company (or any such other issuer or Person) for a consideration such as
to dilute, on a basis consistent with the standards established in the
other provisions of this section 2, the purchase rights granted by this
Warrant, then, and in each such case, the computations, adjustments and
readjustments provided for in this section 2 with respect to the Warrant
Price shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time
receivable upon the exercise of the Warrants, so as to protect the
holders of the Warrants against the effect of such dilution.
2.8. MINIMUM ADJUSTMENT OF WARRANT PRICE. If the amount of
any adjustment of the Warrant Price required pursuant to this section 2
would be less than one one-hundredth (.01) of a cent, such amount shall
be carried forward and adjustment with respect thereto made at the time
of and together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall
aggregate at least one one-hundredth (.01) of a cent.
2.9. SPECIAL ADJUSTMENT OF WARRANT PRICE. If the Company
shall fail to maintain the effective registration of Registrable
Securities in accordance with section 9.1 of this Warrant (other than for
reasons outside the Company's control), and such failure shall continue
for a period of 30 days from (a) in the case of the registration required
to be effected pursuant to section 9.1(a), November 15, 1997, or (b) in
the case of such registration ceasing to remain in effect, the date
thereof, the Warrant Price in effect at the time of such failure will,
<PAGE> 9
effective on such 30th day, be reduced to an amount equal to 85% of the
Warrant Price in effect on such 30th day. Thereafter, on each anniversary
of such 30th day, if the Company's failure to comply with section 9.1
shall not have been cured, the Warrant Price shall be further reduced
to an amount equal to 85% of the Warrant Price in effect on such anniversary
date. The Warrant Price Adjustments provided for in this section 2.9
shall be without prejudice to any other right, power or remedy referred
to herein or in the Purchase Agreement or now or hereafter available at
law, in equity, by statute or otherwise.
3. CONSOLIDATION, MERGER, SALE OF ASSETS, REORGANIZATION,
ETC. 3.1. GENERAL PROVISIONS. In case the Company, after the Initial
Date, (a) shall consolidate with or merge into any other Person and shall
not be the continuing or surviving corporation of such consolidation or
merger, or (b) shall permit any other Person to consolidate with or merge
into the Company and the Company shall be the continuing or surviving
Person but, in connection with such consolidation or merger, Common Stock
or Other Securities shall be changed into or exchanged for cash, stock or
other securities of any other Person or any other property, or (c) shall
transfer all or substantially all of its properties and assets to any
other Person, or (d) shall effect a capital reorganization or
reclassification of Common Stock or Other Securities (other than a
capital reorganization or reclassification resulting in the issue of
Additional Shares of Common Stock for which adjustment in the Warrant
Price is provided in section 2.2.1 or 2.2.2), then, and in the case of
each such transaction, the Company shall give written notice thereof to
each holder of any Warrant not less than 30 days prior to the
consummation thereof and proper provision shall be made so that, upon the
basis and the terms and in the manner provided in this section 3, the
holder of this Warrant, upon the exercise hereof at any time after the
consummation of such transaction, shall be entitled to receive, at the
aggregate Warrant Price in effect at the time of such consummation for
all Common Stock (or Other Securities) issuable upon such exercise
immediately prior to such consummation, in lieu of the Common Stock (or
Other Securities) issuable upon such exercise prior to such consummation,
either of the following, as such holder shall elect by written notice to
the Company on or before the date immediately preceding the date of the
consummation of such transaction (and, in the absence of such notice, the
provisions of subdivision (ii) below shall be deemed to have been elected
by such holder):
(i) the highest amount of cash, securities or other property
to which such holder would actually have been entitled as a
shareholder upon such consummation if such holder had exercised
this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible
to the adjustments provided for in section 2 and this section 3,
provided that if a purchase, tender or exchange offer shall have
been made to and accepted by the holders of Common Stock under
circumstances in which, upon completion of such purchase, tender or
exchange offer, the maker thereof, together with members of any
group (within the meaning of Rule 13d-5(b)(1) under the Exchange
Act) of which such maker is a part, and together with any affiliate
or associate of such maker (within the meaning of Rule 12b-2 under
the Exchange Act) and any members of any such group of which any
such affiliate or associate is a part, own beneficially (within the
meaning of Rule 13d-3 under the Exchange Act) more than 50% of the
<PAGE> 10
outstanding shares of Common Stock, and if the holder of this
Warrant so designates in such notice given to the Company, the
holder of this Warrant shall be entitled to receive the highest
amount of cash, securities or other property to which such holder
would actually have been entitled as a shareholder if the holder of
this Warrant had exercised this Warrant prior to the expiration of
such purchase, tender or exchange offer, accepted such offer and
all of the Common Stock held by such holder had been purchased
pursuant to such purchase, tender or exchange offer, subject to
adjustments (from and after the consummation of such purchase,
tender or exchange offer) as nearly equivalent as possible to the
adjustments provided for in section 2 and this section 3; or
(ii) the number of shares of Voting Common Stock (or
equivalent equity interests) of the Acquiring Person or, if the
Acquiring Person fails to meet, but its Parent meets, the
requirements set forth in the proviso below, of its Parent, subject
to adjustments (subsequent to such corporate action) as nearly
equivalent as possible to the adjustments provided for in section 2
and this section 3, determined by dividing (x) the product obtained
by multiplying (A) the number of shares of Common Stock (or Other
Securities) to which the holder of this Warrant would have been
entitled had such holder exercised this Warrant immediately prior
to the consummation of such transaction, times (B) the greater of
the Acquisition Price and the Warrant Price in effect on the date
immediately preceding the date of such consummation, by (y) the
Current Market Price per share of the Voting Common Stock (or
equivalent equity interests) of the Acquiring Person or its Parent,
as the case may be, on the date immediately preceding the date of
such consummation;
provided that the Company shall not effect any of the transactions
described in subdivisions (a) through (d) above unless, immediately after
the date of the consummation of such transaction, the Acquiring Person or
its Parent is required to file, by virtue of having an outstanding class
of Voting Common Stock (or equivalent equity interests), reports with the
Commission pursuant to section 13 or section 15(d) of the Exchange Act,
and such Voting Stock (or equivalent equity interest) is listed or
admitted to trading on a national securities exchange or is quoted in the
NASD automated quotation system. In the event that the Acquiring Person
fulfills the requirements contained in the immediately preceding proviso,
then, if the holder of this Warrant shall elect (or shall be deemed to
elect) to receive Voting Common Stock (or equivalent equity interests)
pursuant to subdivision (ii) above, such holder shall be entitled to
receive, upon the basis stated in such subdivision (ii), only the Voting
Common Stock (or equivalent equity interests) of the Acquiring Person.
3.2. ASSUMPTION OF OBLIGATIONS. Notwithstanding anything
contained in this Warrant or the Purchase Agreement to the contrary, the
Company will not effect any of the transactions described in subdivisions
(a) through (d) of section 3.1 unless, prior to the consummation thereof,
each Person (other than the Company) which may be required to deliver any
cash, stock or other securities or other property upon the exercise of
this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the holder of this Warrant,
(a) the obligations of the Company under this Warrant (and if the Company
shall survive the consummation of such transaction, such assumption shall
<PAGE> 11
be in addition to, and shall not release the Company from,
any continuing obligations of the Company under this Warrant) and (b) the
obligation to deliver to such holder such cash, stock or other securities
or other property as, in accordance with the foregoing provisions of this
section 3, such holder may be entitled to receive, and such Person shall
have similarly delivered to such holder an opinion of counsel for such
Person, which counsel shall be reasonably satisfactory to such holder,
stating that this Warrant shall thereafter continue in full force and
effect and the terms hereof (including, without limitation, all of the
provisions of section 2 and this section 3) shall be applicable to the
cash, stock or other securities or other property which such Person may
be required to deliver upon any exercise of this Warrant or the exercise
of any rights pursuant hereto. Nothing in this section 3 or in section 7
shall be deemed to authorize the Company to enter into any transaction
not otherwise permitted by the Purchase Agreement.
4. OTHER DILUTIVE EVENTS. In case any event shall occur as
to which the provisions of section 2 or section 3 are not strictly
applicable but the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant in accordance
with the essential intent and principles of such sections, then, in each
such case, the Company shall appoint a firm of independent public
accountants of recognized national standing (which may be the regular
auditors of the Company), which shall give their opinion upon the
adjustment, if any, on a basis consistent with the essential intent and
principles established in sections 2 and 3, necessary to preserve,
without dilution, the purchase rights represented by this Warrant. Upon
receipt of such opinion the Company will promptly mail a copy thereof to
the holder of this Warrant and shall make the adjustments described
therein.
5. NO DILUTION OF IMPAIRMENT. The Company will not, by
amendment of its certificate of incorporation or through any
consolidation, merger, reorganization, transfer of assets, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of
this Warrant against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) will not permit the par
value of any shares of stock receivable upon the exercise of this Warrant
to exceed the amount payable therefor upon such exercise, and, if the
Warrant Price in effect at any time shall be reduced to such par value,
the Company will promptly cause the par value of such shares to be
reduced to $0.01, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of stock upon the exercise of all of the
Warrants from time to time outstanding, (c) will not take any action
which results in any adjustment of the Warrant Price if the total number
of shares of Common Stock (or Other Securities) issuable after the action
upon the exercise of all of the Warrants would exceed the total number of
shares of Common Stock (or other Securities) then authorized by the
Company's certificate of incorporation and available for the purpose of
issue upon such exercise and, (d) will not issue any capital stock of any
class which has the right to more than one vote per share or which is
preferred as to dividends or as to the distribution of assets upon
<PAGE> 12
voluntary or involuntary dissolution, liquidation or winding-
up, unless such stock is sold for a cash consideration at least equal to
the amount of its preference upon voluntary or involuntary dissolution,
liquidation or winding-up and the rights of the holders thereof shall be
limited to a fixed percentage (not exceeding 15%) of such cash
consideration in respect of participation in dividends.
6. ACCOUNTANTS' REPORT AS TO ADJUSTMENTS. (a) In each case
of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable upon the exercise of the Warrants, the Company at
its expense will promptly compute such adjustment or readjustment in
accordance with the terms of the Warrants and prepare a report setting
forth such adjustment or readjustment and showing in reasonable detail
the method of calculation thereof and the facts upon which such adjust-
ment or readjustment is based, including without limitation a statement
of (i) the consideration received or to be received by the Company for
any Additional Shares of Common Stock issued or sold or deemed to have
been issued, (ii) the number of shares of Common Stock outstanding or
deemed to be outstanding, and (iii) the Warrant Price in effect
immediately prior to such issue or sale and as adjusted and readjusted
(if required by section 2) on account thereof. The Company will
forthwith mail a copy of each such report to each holder of a Warrant.
Any holder of a Warrant may notify the Company in writing within ten days
following receipt of any such report that it disagrees with the Company's
computation of such adjustment or readjustment, and may request the
Company to cause independent public accountants of recognized national
standing selected by the Company (which may be the regular auditors of
the Company), at the Company's expense, to verify such computation and
prepare a report setting forth the information required to be set forth
in the Company's report.
(b) The Company will, upon the written request at any time
of any holder of a Warrant, furnish to such holder a report setting forth
the Warrant Price at the time in effect and showing in reasonable detail
how it was calculated. The Company will also keep copies of all reports
prepared pursuant to subdivision (a) and (b) of this section 6 at its
principal office and will cause the same to be available for inspection
at such office during normal business hours by any holder of a Warrant or
any prospective purchaser of a Warrant designated by the holder thereof.
7. NOTICES OF CORPORATE ACTION. In the event of
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a
regular periodic dividend payable in cash out of earned surplus) or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger involving the Company and
any other Person or any transfer of all or substantially all the
assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
<PAGE> 13
the Company will mail to each holder of a Warrant a notice specifying (i)
the date or expected date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right, and (ii) the date or
expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution,
liquidation or winding-up is to take place and the time, if any such time
is to be fixed, as of which the holders of record of Common Stock (or
Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding-up.
Such notice shall be mailed at least 20 days prior to the date therein
specified, in the case of any date referred to in the foregoing
subdivision (i), and at least 90 days prior to the date therein
specified, in the case of the date referred to in the foregoing
subdivision (ii).
8. RESTRICTIONS ON TRANSFER. 8.1. RESTRICTIVE LEGENDS.
Except as otherwise permitted by this section 8, each Warrant originally
issued pursuant to the Purchase Agreement and each Warrant issued upon
direct or indirect transfer or in substitution for any Warrant pursuant
to section 13 shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"This Warrant and any shares acquired upon the exercise of
this Warrant have not been registered under the Securities Act of
1933 and may not be transferred in the absence of such registration
or an exemption therefrom under such Act."
Except as otherwise permitted by this section 8, each certificate for
Common Stock (or Other Securities) issued upon the exercise of any
Warrant and each certificate issued upon the direct or indirect transfer
of any such Common Stock (or Other Securities) shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be
transferred in the absence of such registration or an exemption
therefrom under such Act. Such shares are also subject to certain
restrictions on transferability imposed by Common Stock Purchase
Warrants expiring September 26, 2003, a copy of which is on file at
the offices of the Company."
8.2. NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL. Prior
to any transfer of any Restricted Securities which are not registered
under an effective registration statement under the Securities Act (other
than a transfer pursuant to Rule 144 or any comparable rule under such
Act), the holder thereof will give written notice to the Company of such
holder's intention to effect such transfer and to comply in all other
respects with this section 8.2. Each such notice (a) shall describe the
manner and circumstances of the proposed transfer in sufficient detail to
enable counsel to render the opinions referred to below, and (b) shall
designate counsel for the holder giving such notice (who may be in-house
counsel for such holder). The holder giving such notice will submit a
copy thereof to the counsel designated in such notice. The following
provisions shall then apply:
<PAGE> 14
(i) If in the opinion of counsel for the holder the proposed
transfer may be effected without registration, such holder shall
thereupon be entitled to transfer such Restricted Securities in
accordance with the terms of the notice delivered by such holder to
the Company. Each Warrant or certificate, if any, issued upon or
in connection with such transfer shall bear the appropriate
restrictive legend set forth in section 8.1 unless, in the opinion
of such counsel, such legend is no longer required to insure
compliance with the Securities Act.
(ii) If the opinion of such counsel for the holder is not to
the effect that the proposed transfer may legally be effected
without registration of such Restricted Securities under the
Securities Act, such holder shall not be entitled to transfer such
Restricted Securities (other than in a transfer pursuant to Rule
144 or any comparable rule under the Securities Act) until the
conditions specified in subdivision (i) above shall be satisfied or
until registration of such Restricted Securities under the
Securities Act has become effective.
Notwithstanding the foregoing provisions of this section 8.2, the holder
of any Restricted Securities shall be permitted to transfer any such
Restricted Securities pursuant to Rule 144A under the Securities Act,
provided that each transferee agrees in writing to be bound by all the
restrictions on transfer of such Restricted Securities contained in this
section 8.2. The Company will pay the reasonable fees and disbursements
of counsel (other than in-house counsel) for any holder of Restricted
Securities and of counsel for the Company in connection with all opinions
rendered by them pursuant to this section 8.2 and pursuant to section
8.3.
8.3. TERMINATION OF RESTRICTIONS. The restrictions imposed
by this section 8 upon the transferability of Restricted Securities shall
cease and terminate as to any particular Restricted Securities (a) when
such securities shall have been effectively registered under the
Securities Act and disposed of in accordance with the registration
statement covering such Restricted Securities, (b) when, in the opinions
of both counsel for the holder thereof and counsel for the Company, such
restrictions are no longer required in order to insure compliance with
the Securities Act, or (c) when such securities have been beneficially
owned, by a person who has not been an affiliate of the Company for at
least three months, for a period of at least three years, all as
determined under Rule 144 under the Securities Act. Whenever such
restrictions shall terminate as to any Restricted Securities, as soon as
practicable thereafter and in any event within five days, the holder
thereof shall be entitled to receive from the Company, without expense
(other than transfer taxes, if any), new securities of like tenor not
bearing the applicable legend set forth in section 8.1 hereof.
9. REGISTRATION UNDER SECURITIES ACT, ETC. 9.1. MAINTENANCE
OF EFFECTIVE REGISTRATION. (a) General. The Company agrees to prepare
and file with the Commission not later than February 15, 1997, and upon
the effectiveness thereof to maintain on a current basis and until the
expiration of the Warrants in accordance with the terms thereof, a
registration under the Securities Act of Registrable Securities so as to
permit an offering thereof at other than a fixed price into an existing
trading market on or through the facilities of a national securities
<PAGE> 15
exchange or from time to time through one or more underwriters, including
by means of a shelf registration pursuant to Rule 415 under the Securities
Act.
(b) Expenses. The Company will pay all Registration
Expenses in connection with any registration effected pursuant to this
section 9.1, except that the Company will pay the expense of obtaining
"comfort" letters pursuant to subdivision (f)(ii) of section 9.3 only in
the case of such letters delivered (i) on the effective date of any
registration statement, (ii) on the closing date of any underwritten
Public Offering and (iii) on the date of the first sale of Registrable
Securities other than in an underwritten Public Offering.
(c) Selection of Underwriters. If, in the discretion of the
holders of a majority (by number of shares) of the Registrable
Securities, any offering pursuant to this section 9.1 shall constitute an
underwritten offering, the underwriter or underwriters thereof shall be
selected, after consultation with the Company, by such holders and shall
be acceptable to the Company, which shall not unreasonably withhold its
acceptance of such underwriter or underwriters.
9.2. INCIDENTAL REGISTRATION. (a) Right to Include
Registrable Securities. Notwithstanding any limitation contained in
section 9.1, if the Company at any time proposes to register any of its
securities under the Securities Act (other than by a registration on Form
S-4 or S-8 or any successor or similar forms), whether or not for sale
for its own account, in a manner which would permit registration of
Registrable Securities for sale to the public under the Securities Act,
it will each such time give prompt written notice to all holders of
Registrable Securities of its intention to do so and of such holders'
rights under this section 9.2. Upon the written request of any such
holder made within 20 days after receipt of any such notice (which
request shall specify the Registrable Securities intended to be disposed
of by such holder and the intended method of disposition thereof), the
Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which the Company has been
so requested to register by the holders thereof, to the extent requisite
to permit the disposition (in accordance with the intended methods
thereof as aforesaid) of the Registrable Securities so to be registered,
by inclusion of such Registrable Securities in the registration statement
which covers the securities which the Company proposes to register,
provided that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of
the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election, give
written notice of such determination to each holder of Registrable
Securities and, thereupon, (a) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection therewith),
without prejudice, however, to the Company's obligation to maintain
registration under section 9.2, and (b) in the case of a determination to
delay registering, shall be permitted to delay registering any
Registrable Securities for the same period as the delay in registering
such other securities. No registration effected under this section 9.2
shall relieve the Company of its obligation to maintain the registration
<PAGE> 16
required under section 9.1 except that the Company may de-register any
Registrable Securities from the registration maintained pursuant to
section 9.1 upon the disposal thereof in accordance with any such
registration statement effected under this section 9.2. The Company
will pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to this section 9.2.
(b) Priority in Incidental Registrations. If a registration
pursuant to this section 9.2 involves an underwritten offering and the
managing underwriter advises the Company in writing that, in its opinion,
the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering, the Company will
include in such registration to the extent of the number which the
Company is so advised can be sold in such offering securities determined
as follows:
(i) if such registration as initially proposed by the
Company was solely a primary registration of its securities, (x)
first, the securities proposed by the Company to be sold for its
own account, (y) second, any Registrable Securities requested to be
included in such registration, pro rata among the holders thereof
requesting such registration on the basis of the number of shares
of such securities requested to be included by such holders, and
(z) third, any other securities of the Company proposed to be
included in such registration, in accordance with the priorities,
if any, then existing among the Company and the holders of such
other securities, and
(ii) if such registration as initially proposed by the
Company was in whole or in part requested by holders of securities
of the Company, other than holders of Registrable Securities,
pursuant to demand registration rights, (x) first, such securities
held by the holders initiating such registration, pro rata among
the holders thereof, on the basis of the number of shares of such
securities requested to be included by such holders, (y) second,
any Registrable Securities requested to be included in such
registration, pro rata among the holders thereof requesting such
registration on the basis of the number of shares of such
securities requested to be included by such holders and (z) third,
any other securities of the Company proposed to be included in such
registration, in accordance with the priorities, if any, then
existing among the Company and the holders of such other
securities.
9.3. REGISTRATION PROCEDURES. If and whenever the Company
is required to maintain effective on a current basis a registration
statement under the Securities Act pertaining to any Registrable
Securities as provided in sections 9.1 and 9.2, the Company will as
expeditiously as possible:
(a) prepare and file with the Commission the requisite
registration statement (including such audited financial statements
as may be required by the Securities Act or the rules and
regulations promulgated thereunder) to effect such registration and
use its best efforts to cause such registration statement to become
effective, provided that before filing such registration statement
or any amendments thereto, the Company will furnish to the counsel
<PAGE> 17
selected by the holders of Registrable Securities whose
Registrable Securities are to be included in such registration
copies of all such documents proposed to be filed, which documents
will be subject to the review of such counsel, and provided,
further, that the Company may discontinue any registration of its
securities which are not Registrable Securities at any time prior
to the effective date of the registration statement relating
thereto;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to maintain the effec-
tiveness of such registration statement and to comply with the
provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement until the
earlier of such time as all of such securities have been disposed
of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement
or, in the case of any registration maintained pursuant to section
9.1, the expiration of the Warrants in accordance with the terms
thereof or, in the case of any registration pursuant to section
9.2, 90 days after such registration statement becomes effective,
provided that if less than all the Registrable Securities are
withdrawn from registration after the relevant period, the shares
to be so withdrawn shall be allocated pro rata among the holders
thereof on the basis of the respective numbers of Registrable
Securities held by them included in such registration;
(c) furnish to each seller of Registrable Securities
covered by such registration statement (and each Requesting Holder)
such number of conformed copies of such registration statement and
of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such
other documents, as such seller may reasonably request;
(d) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws
of such jurisdictions as each seller thereof shall reasonably
request, to keep such registration or qualification in effect for
so long as such registration statement remains in effect, and take
any other action which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that
the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this
subdivision (d) be obligated to be so qualified or to consent to
general service of process in any such jurisdiction;
<PAGE> 18
(e) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may
be necessary to enable the seller or sellers thereof to consummate
the disposition of such Registrable Securities;
(f) furnish to each seller of Registrable Securities a
signed counterpart, addressed to such seller (and the underwriters,
if any), of
(i) an opinion of counsel for the Company, dated the
effective date of such registration statement and dated the
date of any closing of any sale of Registrable Securities,
reasonably satisfactory in form and substance to such seller,
and
(ii) a "comfort" letter, dated the effective date of
such registration statement and dated the date of any closing
of any sale of Registrable Securities, signed by the
independent public accountants who have certified the
Company's financial statements included in such registration
statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and,
in the case of the accountants' letter, with respect to events
subsequent to the date of such financial statements, as are cus-
tomarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in underwritten
Public Offerings of securities and, in the case of the accountants'
letter, such other financial matters, as such seller (or the under-
writers, if any) may reasonably request;
(g) notify each holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of any
such holder promptly prepare and furnish to such holder a
reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made;
(h) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least
twelve months, but not more than eighteen months, beginning with
the first full calendar month after the effective date of such
<PAGE> 19
registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act, and
not file any amendment or supplement to such registration statement
or prospectus to which any such seller shall have reasonably
objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the
Securities Act or of the rules or regulations thereunder, having
been furnished with a copy thereof at least five business days
prior to the filing thereof;
(i) provide a transfer agent and registrar for all
Registrable Securities covered by such registration statement not
later than the effective date of such registration statement; and
(j) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange
on which any of the securities of the same class as the Registrable
Securities are then listed.
The Company may require each holder of Registrable Securities
as to which any registration is being effected to furnish the Company
such information regarding such holder and the distribution of such
securities as the Company may from time to time reasonably request in
writing.
Each holder of Registrable Securities agrees by the
acquisition of such Registrable Securities that upon receipt of any
notice from the Company of the happening of any event of the kind
described in subdivision (g) of this section 9.3, such holder will
forthwith discontinue such holder's disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable
Securities until such holder's receipt of the copies of the supplemented
or amended prospectus contemplated by subdivision (g) of this section 9.3
and, if so directed by the Company, will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice. In the event
the Company shall give any such notice, the periods referred to in sub-
division (b) of this section 9.3 shall be extended by a number of days
equal to the number of days during the period from and including the
giving of notice pursuant to subdivision (g) of this section 9.3 and
including the date when each seller of any Registrable Securities covered
by such registration statement shall receive the copies of the
supplemented or amended prospectus contemplated by subdivision (g) of
this section 9.3.
9.4. UNDERWRITTEN OFFERINGS. (a) Requested Underwritten
Offerings. If requested by the underwriters for any underwritten
offering by holders of Registrable Securities pursuant to the
registration maintained under section 9.1, the Company will enter into an
underwriting agreement with such underwriters for such offering, such
agreement to be satisfactory in substance and form to each such holder,
the underwriters and the Company and to contain such representations and
warranties by the Company and such other terms as are customarily
contained in agreements of this type, including, without limitation,
indemnities to the effect and to the extent provided in section 9.7. The
holders of Registrable Securities to be distributed by such underwriters
<PAGE> 20
shall be parties to such underwriting agreement and may, at
their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to
and for the benefit of such underwriters shall also be made to and for
the benefit of such holders of Registrable Securities and that any or all
of the conditions precedent to the obligations of such underwriters under
such underwriting agreement be conditions precedent to the obligations of
such holders of Registrable Securities. No holder of Registrable
Securities shall be required to make any representations or warranties to
or agreements with the Company or the underwriters other than representa-
tions, warranties or agreements regarding such holder and such holder's
intended method of distribution and any other representation required by
law.
(b) Incidental Underwritten offerings. If the Company at
any time proposes to register any of its securities under the Securities
Act as contemplated by section 9.2 and such securities are to be
distributed by or through one or more underwriters, the Company will,
subject to the provisions of section 9.2(b), use its best efforts, if
requested by any holder of Registrable Securities, to arrange for such
underwriters to include the Registrable Securities to be offered and sold
by such holder among the securities to be distributed by such
underwriters. The holders of Registrable Securities to be distributed by
such underwriters shall be parties to the underwriting agreement between
the Company and such underwriters and may, at their option, require that
any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to
the obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable
Securities. No holder of Registrable Securities shall be required to
make any representations or warranties to or agreements with the Company
or the underwriters other than representations, warranties or agreements
regarding such holder and such holder's intended method of distribution
and any other representation required by law.
(c) Holdback Agreements. (i) Each holder of Registrable
Securities agrees by acquisition of such Registrable Securities, if so
required by the managing underwriter, not to effect any public sale or
distribution of such securities during the seven days prior to and the 90
days after the closing of any underwritten registration pursuant to
section 9.1 or any underwritten registration pursuant to section 9.2 has
become effective, or, if the managing underwriter advises the Company in
writing that, in its opinion, no such public sale or distribution should
be effected for a specified period longer than 90 days after such
underwritten registration in order to complete the sale and distribution
of securities included in such registration and the Company gives notice
to such holder of Registrable Securities of such advice, during a
reasonable longer period after such underwritten registration, except as
part of such underwritten registration, whether or not such holder par-
ticipates in such registration.
<PAGE> 21
(ii) The Company agrees (x) not to effect any public sale or
distribution of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during the seven
days prior to and the 90 days after the closing of any underwritten
registration pursuant to section 9.2 or any underwritten registration
pursuant to section 9.2 has become effective, except as part of such
underwritten registration and except pursuant to registrations on Form S-
4 or S-8 or any successor or similar forms thereto, and (y) to cause each
holder of its equity securities or of any securities convertible into or
exchangeable or exercisable for any of such securities, in each case
purchased from the Company at any time after the date of this Agreement
(other than in a Public Offering), to agree not to effect any such public
sale or distribution of such securities, during such period, or, in
either case, if the managing underwriter advises the Company in writing
that, in its opinion, no such public sale or distribution should be
effected for a specified period longer than 90 days after such
underwritten registration in order to complete the sale and distribution
of securities included in such registration, during a reasonable longer
period after such underwritten registration, except as part of such
underwritten registration.
9.5. PREPARATION; REASONABLE INVESTIGATION. In connection
with the preparation and filing of each registration statement under the
Securities Act, the Company will give the holders of Registrable
Securities registered under such registration statement, their
underwriters, if any, and their respective counsel and accountants, the
opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission,
and each amendment thereof or supplement thereto, and will give each of
them such access to its books and records and such opportunities to
discuss the business of the Company with its officers and the independent
public accountants who have certified its financial statements as shall
be necessary, in the opinion of such holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act.
9.6. CERTAIN RIGHTS OF HOLDERS. The Company will not file
any registration statement under the Securities Act which refers to any
holder of any Notes or Registrable Securities by name or otherwise as the
holder of any securities of the Company, unless it shall first have given
to such holder the right to require (a) the insertion therein of
language, in form and substance satisfactory to such holder, to the
effect that the holding by such holder of such securities does not make
such holder a "controlling person" of the Company within the meaning of
the Securities Act and is not to be construed as a recommendation by such
holder of the investment quality of the Company's debt or equity
securities covered thereby and that such holding does not imply that such
holder will assist in meeting any future financial requirements of the
Company, or (b) in the event that such reference to such holder by name
or otherwise is not required by the Securities Act or any rules and
regulations promulgated thereunder, the deletion of the reference to such
holder.
9.7. INDEMNIFICATION. (a) Indemnification by the Company.
In the event of any registration of any securities of the Company under
the Securities Act, the Company will, and hereby does, indemnify and hold
harmless the seller of Registrable Securities covered by any registration
<PAGE> 22
statement filed pursuant to section 9.1 or 9.2, its directors and
officers, each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who
controls any such seller or any such underwriter within the meaning of
the Securities Act, against any losses, claims, damages or liabilities,
joint or several, to which such seller or any such director or officer or
underwriter or controlling Person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration
statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and the Company will reimburse such seller and each such
director, officer, underwriter and controlling person for any legal or
any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding, provided that with respect to any seller the Company shall
not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company through an instrument
duly executed by such seller specifically stating that it is for use in
the preparation thereof, and, provided, further, that the Company shall
not be liable to any Person who participates as an underwriter, in the
offering or sale of Registrable Securities or any other Person, if any,
who controls such underwriter within the meaning of the Securities Act,
in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final
prospectus to the Person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if such
statement or omission was corrected in such final prospectus. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director,
officer, underwriter or controlling person and shall survive the transfer
of such securities by such seller.
(b) Indemnification by the Sellers. The Company may
require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to section 9.3, that the Company
shall have received an undertaking satisfactory to it from the
prospective seller of such securities, to indemnify and hold harmless (in
the same manner and to the same extent as set forth in subdivision (a) of
this section 9.7) the Company, each director of the Company, each officer
of the Company and each other person, if any, who controls the company
within the meaning of the Securities Act, with respect to any statement
or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement
<PAGE> 23
thereto, if such statement or alleged statement or omission
or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly
executed by such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement, provided that
such seller's obligations hereunder shall be limited to an amount equal
to the proceeds to such holder of the Registrable Securities sold
pursuant to such registration statement.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or
proceeding involving a claim referred to in the preceding subdivisions of
this section 9.7, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice
to the latter of the commencement of such action, provided that the
failure of any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under the preceding
subdivisions of this section 9.7, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice.
In case any such action is brought against an indemnified party, unless
in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of
such claim, the indemnifying party shall be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying
party similarly notified to the extent that it may wish, with counsel
reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall consent
to entry of any judgment or enter into any settlement without the consent
of the indemnified party which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this section 9.7 (with
appropriate modifications) shall be given by the Company and each seller
of Registrable Securities with respect to any required registration or
other qualification of securities under any Federal or state law or
regulation of any governmental authority, other than the Securities Act.
(e) Indemnification Payments. The indemnification required
by this section 9.7 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred.
9.8. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The
Company will not effect or permit to occur any combination or subdivision
of shares which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in any
registration of its securities contemplated by this section 9 or the
marketability of such Registrable Securities under any such registration.
<PAGE> 24
9.10. COVENANTS RELATING TO RULE 144. The Company will file
reports in compliance with the Exchange Act and will, at its expense,
forthwith upon the request of any holder of Restricted Securities,
deliver to such holder a certificate, signed by the Company's principal
financial officer, stating (a) the Company's name, address and telephone
number, (b) the Company's Internal Revenue Service identification number,
(c) the Company's Commission file number, (d) the number of shares of
Common Stock of the Company outstanding as shown by the most recent
report or statement published by the Company, and (e) whether the Company
has filed the reports required to be filed under the Exchange Act for a
period of at least 90 days prior to the date of such certificate and in
addition has filed the most recent annual report required to be filed
thereunder. If at any time the Company is not required to file reports
in compliance with either section 13 or section 15(d) of the Exchange
Act, the Company at its expense will, forthwith upon the written request
of the holder of any Restricted securities, make available adequate
current public information with respect to the Company within the meaning
of paragraph (c)(2) of Rule 144 of the General Rules and Regulations
promulgated under the Securities Act.
10. AVAILABILITY OF INFORMATION. The Company will cooperate
with each holder of any Restricted Securities in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Restricted Securities. The Company
will furnish to each holder of any Warrants, promptly upon their becoming
available, copies of all financial statements, reports, notices and proxy
statements sent or made available generally by the Company to its
stockholders, and copies of all regular and periodic reports and all
registration statements and prospectuses filed by the Company with any
securities exchange or with the commission.
11. RESERVATION OF STOCK, ETC. The Company will at all
times reserve and keep available, solely for issuance and delivery upon
exercise of the Warrants, the number of shares of Common Stock (or Other
Securities) from time to time issuable upon exercise of all Warrants at
the time outstanding. All shares of Common Stock (or Other Securities)
shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable
with no liability on the part of the holders thereof.
12. LISTING ON SECURITIES EXCHANGE. The Company will list
on each national securities exchange on which any Common Stock may at any
time be listed, subject to official notice of issuance upon exercise of
the Warrants, and will maintain such listing of, all shares of Common
Stock from time to time issuable upon exercise of the Warrants. The
Company will also so list on each national securities exchange, and will
maintain such listing of, any other securities if at the time any
securities of the same class shall be listed on such national securities
exchange by the Company.
<PAGE> 25
13. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS. 13.1.
OWNERSHIP OF WARRANTS. The Company may treat the person in whose name
any Warrant is registered on the register kept at the principal office of
the Company as the owner and holder thereof for all purposes,
notwithstanding any notice to the contrary, except that, if and when any
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of such Warrant for
all purposes, notwithstanding any notice to the contrary. Subject to
section 8, a Warrant, if properly assigned, may be exercised by a new
holder without first having a new Warrant issued.
13.2. TRANSFER AND EXCHANGE OF WARRANTS. Upon the surrender
of any Warrant, properly endorsed, for registration of transfer or for
exchange at the principal office of the Company, the Company at its
expense will (subject to compliance with section 8, if applicable)
execute and deliver to or upon the order of the holder thereof a new
Warrant or Warrants of like tenor, in the name of such holder or as such
holder (upon payment by such holder of any applicable transfer taxes) may
direct, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the
Warrant or Warrants so surrendered.
13.3. REPLACEMENT OF WARRANTS. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction of any Warrant held by a Person other than any institutional
investor, upon delivery of indemnity reasonably satisfactory to the
Company in form and amount or, in the case of any such mutilation, upon
surrender of such Warrant for cancellation at the principal office of the
Company, the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
14. DEFINITIONS. As used herein, unless the context
otherwise requires, the following terms have the following respective
meanings:
Acquiring Person: the continuing or surviving corporation of
a consolidation or merger with the Company (if other than the Company),
the transferee of substantially all of the properties and assets of the
Company, the corporation consolidating with or merging into the Company
in a consolidation or merger in connection with which the Common Stock is
changed into or exchanged for stock or other securities of any other
Person or cash or any other property, or, in the case of a capital reor-
ganization or reclassification, the Company.
Acquisition Price: as applied to the Common Stock, with
respect to any transaction to which section 3 applies, (a) the price per
share equal to the greater of the following, determined in each case as
of the date immediately preceding the date of consummation of such
transaction: (i) the Market Price of the Common Stock and (ii) the
highest amount of cash plus the Fair Value of the highest amount of
securities or other property which the holder of this Warrant would have
been entitled as a shareholder to receive upon such consummation if such
holder had exercised this Warrant immediately prior thereto, or (b) if a
purchase, tender or an exchange offer is made by the Acquiring Person (or
by any of its affiliates) to the holders of the Common Stock and such
offer is accepted by the holders of more than 50% of the outstanding
<PAGE> 26
shares of Common Stock, the greater of (i) the price determined in
accordance with the foregoing, subdivision (a) and (ii) the price per
share equal to the greater of the following, determined in each case
as of the date immediately preceding the acceptance of such offer by
the holders of more than 50% of the outstanding shares of Common Stock:
(x) the Market Price of the Common Stock and (y) the highest amount of
cash plus the Fair Value of the highest amount of securities or other
property which the holder of this Warrant would be entitled as a
shareholder to receive pursuant to such offer if such holder had
exercised this Warrant immediately prior to the expiration of such offer
and accepted the same.
Additional Shares of Common Stock: all shares (including
treasury shares) of Common Stock issued or sold (or, pursuant to section
2.3 or 2.4, deemed to be issued) by the Company after the Initial Date
hereof, whether or not subsequently reacquired or retired by the Company,
other than (a) shares of Common Stock issued upon the exercise of
Warrants and (b) shares of Common Stock, not in excess of 20% the number
of shares of Common Stock issued and outstanding on the Initial Date,
issued upon the exercise of certain stock options granted from time to
time to certain directors, officers and other employees of the Company
and its Subsidiaries.
Base Price: on any date specified herein, the greater of (i)
the Current Market Price and (ii) the Warrant Price.
Business Day: any day other than a Saturday or a Sunday or a
day on which commercial banking institutions in the City of New York are
authorized by law to be closed, provided that, in determining the period
within which certificates or Warrants are to be issued and delivered
pursuant to section 1.3 at a time when shares of Common Stock (or Other
Securities) are listed or admitted to trading on any national securities
exchange or in the over-the-counter market and in determining the Market
Price of any securities listed or admitted to trading on any national
securities exchange or in the over-the-counter market, "Business Day"
shall mean any day when the principal exchange in which securities are
then listed or admitted to trading is open for trading or, if such
securities are traded in the over-the-counter market in the United
States, such market is open for trading, and provided, further, that any
reference to "days" (unless Business Days are specified) shall mean
calendar days.
Commission: the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act or the
Exchange Act, whichever is the relevant statute for the particular
purpose.
Common Stock: the Company's Common Stock, par value $1.00
per share, as constituted on the date hereof, any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any class
or classes (however designated) of the Company the holders of which have
the right, without limitation as to amount, either to all or to a share
of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to
preference.
<PAGE> 27
Company: Dixon Ticonderoga Company, a Delaware corporation.
Convertible Securities: any evidences of indebtedness,
shares of stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Additional Shares of
Common Stock.
Current Market Price: on any date specified herein, (a) with
respect to Common Stock or to Voting Common Stock (or equivalent equity
interests) of an Acquiring Person or its Parent, (i) the average daily
Market Price during the period of the most recent 20 consecutive Business
Days ending on such date, or (ii) if shares of Common Stock or such
Voting Common Stock (or equivalent equity interests), as the case may be,
are not then listed or admitted to trading on any national securities
exchange and if the closing bid and asked prices thereof are not then
quoted or published in the over-the-counter market, the Market Price on
such date; and (b) with respect to any other securities, the Market Price
on such date.
Exchange Act: the Securities Exchange Act of 1934, or any
similar Federal statute, and the rules and regulations of the commission
thereunder, all as the same shall be in effect at the time. Reference to
a particular section of the Securities Exchange Act of 1934 shall include
a reference to the comparable section, if any, of any such similar
Federal statute.
Fair Value: with respect to any securities or other
property, the Fair Value thereof as of a date which is within 15 days of
the date as of which the determination is to be made (a) determined by an
agreement between the Company and the Requisite Holders of Warrants or
(b) if the Company and the Requisite Holders of Warrants fail to agree,
determined jointly by an independent investment banking firm retained by
the Company and by an independent investment banking firm retained by the
Requisite Holders of Warrants, either of which firms may be an
independent investment banking firm regularly retained by the Company or
any such holder or (c) if the Company or such holders shall fail so to
retain an independent investment banking firm within five Business Days
of the retention of such firm by such holders or the Company, as the case
may be, determined solely by the firm so retained or (d) if the firms so
retained by the Company and by such holders shall be unable to reach a
joint determination within 15 Business Days of the retention of the last
firm so retained, determined by another independent investment banking
firm which is not a regular investment banking firm of the Company or any
such holder chosen by the first two such firms.
Initial Date: the meaning specified in section 2.2.
Initial Exercise Date: the earlier of (a) September 26, 1997
and (b) the date of the first occurrence of an event of the type
described in clause (a), (b), (c) or (d) of section 3.1.
Market Price: on any date specified herein, (a) with respect
to Common Stock or Voting Common Stock (or equivalent equity interests)
of an Acquiring Person or its Parent, the amount per share equal to (i)
the last sale price of shares of such security, regular way, on such date
or, if no such sale takes place on such date, the average of the closing
bid and asked prices thereof on such date, in each case as officially
<PAGE> 28
reported on the principal national securities exchange on which the same
are then listed or admitted to trading, or (ii) if no shares of such
security are then listed or admitted to trading on any national securities
exchange but such security is designated as a national market system
security by the NASD, the last trading price of such security on such
date, or if such security is not so designated, the average of the
reported closing bid and asked prices thereof on such date as shown
by the NASD automated quotation system or, if no shares thereof are
then quoted in such system, as published by the National Quotation
Bureau, Incorporated or any successor organization, and in either case as
reported by any member firm of the New York Stock Exchange selected by
the Company, or (iii) if no shares of such security are then listed or
admitted to trading on any national exchange or designated as a national
market system security and if no closing bid and asked prices thereof are
then so quoted or published in the over-the-counter market, the higher of
(x) the book value thereof as determined by agreement between the Company
and the Requisite Holders of Warrants, or if the Company and the
Requisite Holders of Warrants fail to agree, by any firm of independent
public accountants of recognized standing selected by the Board of
Directors of the Company, as of the last day of any month ending within
60 days preceding the date as of which the determination is to be made or
(y) the fair value thereof determined in good faith by the Board of
Directors of the issuer thereof as of a date which is within 15 days of
the date as of which the determination is to be made; and (b) with
respect to any other securities, the fair value thereof determined in
good faith by the Board of Directors of the Company as of a date which is
within 15 days of the date as of which the determination is to be made.
NASD: the National Association of Securities Dealers.
Notes: the meaning specified in the opening paragraphs of
this Warrant.
Options: rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible securities.
Other Securities: any stock (other than Common Stock) and
other securities of the Company or any other Person (corporate or
otherwise) which the holders of the Warrants at any time shall be
entitled to receive, or shall have received, upon the exercise of the
Warrants, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to section 3 or
otherwise.
Parent: as to any Acquiring Person, any corporation which
(a) controls the Acquiring Person directly or indirectly through one or
more intermediaries, (b) is required to include the Acquiring Person in
its consolidated financial statements under generally accepted accounting
principles and (c) is not itself included in the consolidated financial
statements of any other Person (other than its consolidated
subsidiaries).
<PAGE> 29
Person: an individual, a partnership, an association, a
joint venture, a corporation, a limited liability company, a business, a
trust, an unincorporated organization or a government or any department,
agency or subdivision thereof.
Public Offering: any offering of Common Stock to the public
pursuant to an effective registration statement under the Securities Act.
Purchase Agreement: the meaning specified in the opening
paragraphs of this Warrant.
Registrable Securities: (a) the Warrants, (b) any shares of
Common Stock or other Securities issued or issuable upon exercise of the
Warrants and (c) any securities issued or issuable with respect to any
common Stock or Other Securities referred to in subdivision (b) by way of
stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization
or otherwise. As to any particular Registrable Securities, once issued
such securities shall cease to be Registrable Securities when (x) a
registration statement with respect to the sale of such securities shall
have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (y)
they shall have been distributed to the public pursuant to Rule 144 (or
any successor provision) under the Securities Act, or (z) they shall have
ceased to be outstanding.
Registration Expenses: all expenses incident to the
Company's performance of or compliance with section 9, including, without
limitation, all registration, filing and NASD fees, all fees and expenses
of complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the
fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and
compliance, the reasonable fees and disbursements of a single counsel and
single firm of accountants retained by the holders of the Registrable
Securities being registered, premiums and other costs of policies of
insurance against liabilities arising out of the public offering of the
Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but
excluding underwriting discounts and commissions and transfer taxes, if
any.
Requisite Holders of Warrants: the holders of at least 66
2/3% of all the Warrants at the time outstanding determined on the basis
of the number of shares of Common Stock or Other Securities deliverable
upon exercise thereof.
Restricted Securities: (a) any Warrants bearing the
applicable legend set forth in section 8.1, (b) any shares of Common
Stock (or Other Securities) which have been issued upon the exercise of
Warrants and which are evidenced by a certificate or certificates bearing
the applicable legend set forth in such section, and (c) unless the
context otherwise requires, any shares of Common Stock (or Other
Securities) which are at the time issuable upon the exercise of Warrants
and which, when so issued, will be evidenced by a certificate or
certificates bearing the applicable legend set forth in such section.
<PAGE> 30
Securities Act: the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to
a particular section of the Securities Act of 1933 shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
Subsidiary: any corporation, association or other business
entity at least 50% (by number of votes) of the Voting Common Stock of
which is at the time owned by the Company or by one or more Subsidiaries
or by the Company and one or more Subsidiaries.
Transfer: unless the context otherwise requires, any sale,
assignment, pledge or other disposition of any security, or of any
interest therein, which could constitute a "sale" as that term is defined
in section 2(3) of the Securities Act.
Voting Common Stock: with respect to any corporation,
association or other business entity, stock of any class or classes (or
equivalent interest) , if the holders of the stock of such class or
classes (or equivalent interests) are ordinarily, in the absence of
contingencies, entitled to vote for the election of a majority of the
directors (or persons performing similar functions) of such corporation,
association or business entity, even if the right so to vote has been
suspended by the happening of such a contingency.
Warrant Price: the meaning specified in section 2.1.
Warrants: the meaning specified in the opening paragraphs of
this Warrant.
15. REMEDIES. The Company stipulates that the remedies at
law of the holder of this Warrant in the event of any default or
threatened default by the Company in the performance of or compliance
with any of the terms of this Warrant are not and will not be adequate
and that, to the fullest extent permitted by law, such terms may be
specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.
16. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing
contained in this Warrant shall be construed as conferring upon the
holder hereof any rights as a stockholder of the Company or as imposing
any liabilities on such holder to purchase any securities or as a
stockholder of the Company, whether such liabilities are asserted by the
Company or by creditors or stockholders of the Company or otherwise.
17. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be delivered by hand or courier
service, or mailed by registered or certified mail, return receipt
requested, addressed (a) if to any holder of any Warrant or any holder of
any Common Stock (or Other Securities), at the registered address of such
holder as set forth in the register kept at the principal office of the
Company, or (b) if to the Company, to the attention of its Chief
Financial Officer, at its principal office, provided that the exercise of
any Warrant shall be effected in the manner provided in section 1.
<PAGE> 31
18. MISCELLANEOUS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of such change,
waiver, discharge or termination is sought. The agreements of the
Company contained in this Warrant, other than those applicable solely to
the Warrants and the holders thereof, shall inure to the benefit of and
be enforceable by any holder or holders at the time of any Common Stock
(or Other Securities) issued upon the exercise of Warrants, whether so
expressed or not. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York. The
section headings in this Warrant are for purposes of convenience only and
shall not constitute a part hereof.
19. EXPIRATION. The right to exercise this Warrant shall
expire at 3 P.M., New York City time, on September 26, 2003.
DIXON TICONDEROGA COMPANY
By: __________________________
Name:
Title:
<PAGE>
FORM OF SUBSCRIPTION
(To be executed only upon exercise of Warrant)
To _________________
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder,
_____________ shares of Common Stock of DIXON TICONDEROGA COMPANY,
a Delaware corporation, and herewith makes payment of $_______ therefor
[by application pursuant to section 1.5 of such Warrant of $_______
aggregate principal amount of Notes (as defined in such Warrant) plus
$________ accrued interest thereon], and requests that the certificates
for such shares be issued in the name of, and delivered to
__________________ whose address is __________________.
[The undersigned hereby instructs you to credit the principal
amount of each Note so applied against the installments of principal
remaining unpaid on such Note in the ______________ order of their
maturity dates.]
Dated: ______________
_____________________
(Signature must conform in all respects to
name of holder as specified on the face of
this Warrant)
[insert address]
<PAGE>
FORM OF ASSIGNMENT
(To be executed only upon transfer of Warrant)
For value received, the undersigned registered holder of the
within Warrant hereby sells, assigns and transfers unto
____________________ the right represented by such Warrant to purchase
shares ____________ of Common Stock of DIXON TICONDEROGA COMPANY, a
Delaware corporation, to which such Warrant relates, and appoints
____________________ Attorney to make such transfer on the books of
___________________ maintained for such purpose, with full power of
substitution in the premises.
Dated: _____________
_________________________
(Signature must conform in all respects to
name of holder as specified on the face of
this Warrant)
[insert address]
Signed in the presence of:
_________________________
<PAGE> 1
AMENDED LICENSE AND TECHNOLOGICAL ASSISTANCE AGREEMENT
INTRODUCTION
THIS AMENDED AGREEMENT ("Agreement") is made this 22nd day of November,
1996, between Carborundum Corporation, a corporation organized under the laws
of the State of Delaware with principal offices at Crows Mill Road, Keasbey, New
Jersey 08832, (hereinafter referred to as "Licensor"), and New Castle
Refractories Company, a division of Dixon Ticonderoga Company, a corporation
organized under the laws of the State of Delaware, with principal offices at 915
Industrial Street, New Castle, Pennsylvania 16102 (hereinafter referred to as
"Licensee").
WHEREAS, Licensor, pursuant to a Federal Trade Commission (FTC) Consent
Order executed by the FTC and by Saint-Gobain/Norton Industrial Ceramics
Corporation on February 26, 1996, and entered as final on June 12, 1996, arising
out of "In the Matter of Saint-Gobain/Norton Industrial Ceramics Corporation,"
is interested in enabling Licensee to enter the Silicon Carbide Refractory Brick
business by providing Licensee with a patent and technology license and with a
technology transfer;
WHEREAS, Licensee is interested in entering the Silicon Carbide Refractory Brick
business through the acquisition of a patent and technology license from
Licensor;
WHEREAS, Licensor is further willing to provide Licensee with equipment
purchase and product sourcing options pursuant to companion agreements
entitled "Equipment Option and Purchase Agreement" and "Product Purchase
Agreement" respectively;
WHEREAS, Licensor and Licensee entered into an agreement dated August 23,
1996 ("Original Agreement"), providing Licensee a license from Licensor for
Silicon Carbide Refractory Brick Technology; and
WHEREAS, Licensor and Licensee wish to amend the Original Agreement;
NOW, THEREFORE, in consideration of the terms and conditions expressed
hereinbelow, Licensor and Licensee agree as follows:
1. DEFINITIONS
As used herein:
1.1 "Effective Date Of This Agreement" shall mean the date on which this
Agreement has been finally approved by the FTC.
<PAGE> 2
1.2 "Silicon Carbide Refractory Bricks" shall mean all refractory
products composed of bonded silicon carbide grains which are formed
by hydraulic, mechanical or vibratory pressing, and are marketed
for use in the manufacture of primary metals, including aluminum
reduction cells, steel blast furnaces, and copper shaft furnaces.
1.3 "Silicon Carbide Refractory Brick Technology" shall mean: all
patents, trade secrets, technology and know-how of Licensor for
producing any Silicon Carbide Refractory Brick product sold by
Carborundum on or before the date hereof, all such information
being sufficiently detailed for the commercial production and sale of
such products, including, but not limited to, all technical
information, data, specifications, drawings, design and equipment
specifications, manuals, engineering reports, manufacturing designs
and reports, operation manuals, and formulations, laboratory
research, and quality control data.
1.4 "Licensed Patents" shall mean all letters patent identified in
Appendix A.
1.5 "Licensed Products" shall mean products manufactured with the
Silicon Carbide Refractory Brick Technology.
1.6 "Sole License" shall mean an exclusive license with the exception of:
(a) Licensor, Licensor's affiliate, and other non North
American third parties; and
(b) any third party to whom the Silicon Carbide Refractory
Brick Technology had been licensed or otherwise
transferred prior to the date hereof.
2. PATENT AND TECHNOLOGY LICENSE
2.1 Subject to and conditioned upon final approval by the FTC, Licensor
hereby grants to Licensee a fully paid-up, Sole License, without the
right to sublicense, under the Licensed Patent and under the Silicon
Carbide Refractory Brick Technology to manufacture, use and sell
Licensed Products.
2.2 Licensor shall provide Licensee prior to the Effective Date Of This
Agreement, a list which represents Licensor's best understanding of
the third parties to whom the Silicon Carbide Brick Technology had
been licensed or otherwise transferred prior to the date hereof.
<PAGE> 3
3. TECHNICAL INFORMATION AND KNOW-HOW AND TECHNICAL
SERVICES
3.1 During the period of 12 months after the Effective Date Of This
Agreement, on reasonable notice and request by Licensee, Licensor
shall provide to the Licensee information, technical assistance, and
advice sufficient to effect the transfer to the Licensee of the
Silicon Carbide Refractory Brick Technology and to enable the
Licensee to manufacture Silicon Carbide Refractory Bricks.
3.2 During the period of 12 months after the Effective Date Of This
Agreement, on reasonable notice and request by Licensee, Licensor
shall also provide to the Licensee consultation and training with
knowledgeable employees of Licensor, including at least one qualified
engineer, at the Licensee's facility for a period of time, not to
exceed three (3) months, sufficient to satisfy Licensee's
management that its personnel are adequately trained in the
manufacture of Silicon Carbide Refractory Bricks.
3.3 Licensee shall reimburse Licensor for all of its direct out-of-pocket
expenses, including direct travel expenses, incurred in providing
the assistance required by this Article 3. Licensee shall also pay
Licensor a per diem (including time spent in travel to Licensee's
site) equal to Licensor's actual expenses (including but not limited
to daily wages or salary plus benefits) not to exceed five hundred
dollars per day ($500.00/day) per Licensor employee for each day
greater than 30 days of on-site assistance incurred in providing
the assistance required by this Article 3. All such payments
shall be made in United States dollars or in such other currency
as Licensor may approve in writing.
3.4 Licensor shall provide the Licensee with all promotional,
advertising, and marketing materials regarding Silicon Carbide
Refractory Bricks prepared or made available by Licensor at any time
during the period commencing twelve (12) months prior to the date
hereof, a list of all customers of Licensor's Silicon Carbide
Refractory Bricks during the period commencing twenty four (24)
months prior to the date hereof, and a list of Licensor's
suppliers of silicon carbide, other raw materials, and production
components used to produce Licensor's Silicon Carbide Refractory
Bricks.
3.5 Nothing in this Agreement shall obligate Licensor to transfer to
Licensee any technology or know-how (or rights thereto) that was
not in Licensor's possession or control during the entire period
between June 12, 1996 and the Effective Date of This Agreement.
<PAGE> 4
3.6 If, prior to six (6) months following the Effective Date of This
Agreement, Licensor makes a SiC Refractory Brick product
development and introduces an improved SiC Refractory Brick
product which is different from a Licensed Product in the primary
metals marketplace (i.e., the aluminum reduction cell, the steel
blast furnace, and the copper shaft furnace marketplaces), Licensor
shall transfer such product development to Licensee according to
paragraphs 3.1 and 3.2 hereinabove.
4. CONFIDENTIAL INFORMATION
4.1 When either party ("Discloser") discloses to the other ("Disclosee")
in connection with this Agreement any proprietary information with
respect to Silicon Carbide Refractory Bricks (said proprietary
information along with Silicon Carbide Refractory Brick Technology,
hereinafter referred to as "Technical Information"), it is agreed
that such disclosure of Technical Information is conditioned upon
the following:
4.2 Disclosee shall maintain in confidence and refrain from using for or
on behalf of anyone other than Discloser and/or Disclosee (and/or
Licensee's assignee if an assignment is made under paragraph 6.2
below) all Technical Information received from Discloser, whether
such Technical Information is embodied in documentation or
otherwise; provided that if Licensor is the Disclosee and Licensor
receives proprietary information of Licensee in the course of
providing technical assistance under this Agreement, then Licensor
shall also refrain from using such proprietary information on its own
behalf; and provided further that the obligations of this Article 4
shall not apply to any information which:
4.2.1 is, at the time Disclosee receives it or shall thereafter
become, part of the public domain except where this is due to
Disclosee's own acts or omissions, or the acts or omissions of
any of Disclosee's employees, or any third party acting on
Disclosee's behalf;
4.2.2 has been furnished or made known to Disclosee by any third
party as a matter of right and without restriction on
disclosure, provided that Disclosee does not know or have
reason to know that such information was acquired by such
third party directly or indirectly from Discloser under binder
of secrecy; or
4.2.3 was legally in Disclosee's possession at the time the parties
entered into this Agreement as evidenced by written records,
and was not acquired directly or indirectly from Discloser or a
predecessor in interest of Discloser.
<PAGE> 5
4.3 Disclosee shall limit the disclosure of Discloser's Technical
Information within Disclosee's organization to only those employees
who are required to use such Technical Information in connection
with the purposes for which such Technical Information was
disclosed to Disclosee and shall maintain current a continuing list
of the names of all of Disclosee's employees to whom such disclosure
has been made, which list shall be made available to Discloser upon
request.
5. CONSIDERATION
5.1 The parties hereto agree that in consideration of the rights and
licenses granted and conveyed in this Agreement, Licensee shall pay
to Licensor a fixed sum in the amount of Four Hundred and Fifty
Thousand Dollars ($450,000.00). This sum shall be paid by Licensor
to Licensee in the following manner:
5.1.1 Licensee shall pay to Licensor a sum in the amount of One
Hundred Thousand Dollars ($100,000.00) within thirty (30)
days of the Effective Date of This Agreement.
5.1.2 Licensee shall pay to Licensor a sum in the amount of One
Hundred and Fifty Thousand Dollars ($150,000.00) within
thirty (30) days of the earlier of:
a. the second anniversary of the Effective Date of
This Agreement; or
b. Licensee's cumulative invoicing of One Million
Dollars ($1,000,000) of gross sales of Licensed Product.
5.1.3 Licensee shall pay to Licensor a sum in the amount of Two
Hundred Thousand Dollars ($200,000.00) within thirty (30)
days of the earlier of:
a. the fifth anniversary of the Effective Date of This
Agreement, or
b. Licensee's cumulative invoicing of Four Million
Five Hundred Thousand Dollars ($4,500,000) of gross sales of
Licensed Product.
5.2 All payments to Licensor under this Agreement shall be made in
United States dollars at the office of Licensor set forth at the
beginning of this Agreement or at such other place as Licensor may
direct.
<PAGE> 6
5.3 If Licensee fails to make any payment required to be made by it
under this Agreement and Licensor initiates a mediation under
paragraph 7.3 and/or a judicial proceeding to collect such payment
or payments, then in addition to any payments that are due, Licensor
shall be entitled to recover from Licensee reasonable attorneys' fees
incurred by Licensor in connection with such mediation and/or
judicial proceedings along with interest at the Prime Rate plus two
(2) percent running from the time such payment or payments were
due under this Agreement.
6. TERM OF AGREEMENT
6.1 The license granted in Article 2 above shall be perpetual.
6.2 Licensee may assign its rights under this Agreement, including but
not limited to the Sole License that is granted hereunder, provided
that upon such assignment, the Sole License granted hereby to
Licensee shall immediately be fully transferred to Licensee's
assignee and shall terminate as to Licensee, and Licensee shall
cease to use the Silicon Carbide Refractory Brick Technology
furnished hereunder and the inventions embodied in the Licensed
Patents, and shall turn over to Licensee's assignee all documentation
and other physical forms embodying Technical Information (as defined
in paragraph 4.1 above) together with all copies that may have been
prepared by Licensee while such Technical Information was in
Licensee's possession; and provided further that Licensee shall have
a continuing obligation to comply with the confidentiality provisions
of Article 4 above; and provided further that Licensee's assignee
shall agree in writing, delivered to Licensor, that assignee shall be
fully bound by all obligations of Licensee under this Agreement,
including but not limited to the obligations of confidentiality set
forth in Article 4 hereof. In the event that Licensee makes an
assignment under this paragraph 6.2, Licensee shall give prompt
notice of such assignment and the identity of the assignee to
Licensor. The provisions of this paragraph 6.2 shall not oblige
Licensee to cease manufacture of any product using technology or
know-how which has been developed exclusively by it, or is part of
the public domain, or lawfully furnished by a third party, or was in
its possession prior to the Effective Date Of This Agreement.
6.3 The provisions of this Agreement, including but not limited to the
payment obligations set forth in Article 5, shall continue to be
binding upon Licensee notwithstanding an assignment under
paragraph 6.2 above.
6.4 This Agreement shall be terminated, and no party shall be obligated
hereunder, if this Agreement is not finally approved by the FTC on
or before August 26, 1997.
<PAGE> 7
7. GENERAL
7.1 During the term of this Agreement, Licensee shall diligently employ
its best efforts in the manufacture of Silicon Carbide Refractory
Bricks.
7.2 Any notice or other communication to either party to this Agreement
required or permitted hereunder shall be in writing and shall be sent
by registered airmail, return receipt requested, postage prepaid,
addressed to the address of such party set forth at the beginning of
this Agreement or to such changed address as such party shall be
deemed to have been served when delivered or, if delivery is not
accepted by reason of the fault of the addressee, when tendered.
7.3 All disputes arising in connection with this Agreement shall be
finally settled by mediation held and conducted in Worcester,
Massachusetts, U.S.A. in accordance with the rules of the American
Arbitration Association. Judgment to enforce the agreement reached
may be entered in any court having jurisdiction, or application may
be made to such court for a judicial acceptance of the award and an
order of enforcement, as the case may be. In interpreting the
provisions of this Agreement, the mediators shall apply the law of
Massachusetts.
7.4 This Agreement may be executed in several counterparts and each
such counterpart shall be deemed an original hereof.
7.5 Licensor warrants that prior to a final decision by the FTC, Licensor
will not continue any further discussions with any other party
regarding licensing Silicon Carbide Brick Technology.
IN WITNESS WHEREOF, Licensor and Licensee have caused this Agreement to be
duly executed on the date first written above.
LICENSOR COMPANY LICENSEE COMPANY
BY: /s/ Robert C. Ayotte BY /s/ Gino N. Pala
------------------------- -------------------------
Robert C. Ayotte Gino N. Pala
President and CEO President and CEO
Carborundum Corporation Dixon Ticonderoga Company
Date: 11/22/96 Date: 11/21/96
<PAGE> 8
APPENDIX A
U.S. Patent Number 4,578,363, "Silicon Carbide Refractories Having Modified
Silicon Nitride Bond" dated March 25, 1986.
<PAGE> 1
AMENDED EQUIPMENT OPTION AND PURCHASE AGREEMENT
THIS AMENDED AGREEMENT is made this 22 day of November, 1996 between
Carborundum Corporation, a Delaware corporation with principal offices at
Crows Mill Road, Keasbey, New Jersey 08832 ("Licensor") and New Castle
Refractories Company, a division of Dixon Ticonderoga Company, a Delaware
corporation with principal offices at 915 Industrial Street, New Castle,
Pennsylvania 16102 ("Licensee").
FACTS
Licensor and Licensee previously entered into an Equipment Option and
Purchase Agreement, dated August 23, 1996, which they now wish to amend and
supersede as set forth below.
Pursuant to a License and Technological Assistance Agreement (the "License
Agreement") dated November 22, 1996, Licensor has granted a license to Licensee
with respect to silicon carbide refractory brick technology.
Licensee wishes to have the option to purchase certain equipment from
Licensor used in the manufacture of silicon carbide refractory bricks, and
Licensor is willing to grant an option to purchase such equipment.
AGREEMENT
In consideration of the License Agreement and for other good and valuable
consideration, receipt of which is hereby acknowledged, the parties agree as
follows:
1. Licensor grants to Licensee an option (the "Option") to purchase any
one or all of the items of equipment listed on EXHIBIT A (the "Equipment")
for the purchase price set forth on EXHIBIT A (the "Purchase Price"). The
Option is exercisable at any time or times on or after the Effective Date of
this Agreement (defined below) and on or before 5:00 p.m. Eastern Time on the
fifth anniversary of the Effective Date. The Option may be exercised at
separate times with respect to each item of Equipment.
2. The Option may be exercised by written notice, which must provide a
date (not less than ninety days nor more than one hundred eighty days from
the date of delivery of the notice to Licensor) for removal of the Equipment
so purchased from Licensor's facilities.
<PAGE> 2
3. Licensor represents and warrants that the Equipment is operable and
in good condition, ordinary wear and tear excepted. Licensor covenants to
maintain the equipment in good condition in accordance with its customary
maintenance practices. However, Licensor will not be required to continue to
maintain the equipment during the term of this Agreement if Licensor, in its
sole discretion, determines that it has become economically unfeasible to do
so. Licensee will have the right to inspect the Equipment prior to
exercising the Option. Licensor will not be responsible for maintaining any
item of Equipment once the Option has been exercised with respect to that
item. The Equipment will be sold "as is, where is" to Licensee at
Licensee's risk.
THE LICENSOR MAKES NO OTHER REPRESENTATIONS OR WARRANTIES,
WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING,
BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, WITH RESPECT TO THE EQUIPMENT.
4. If the Option is exercised, the item or items of Equipment so
purchased will be made available to Licensee at Licensor's place of business in
Keasbey, New Jersey, and delivery will be F.O.B. Licensor's place of business.
Licensee will be solely responsible for disassembling, moving and reassembling
such Equipment. Licensee will provide Licensor with a certificate of
insurance with respect to all personnel utilized or employed for the purpose
of disassembling and moving such Equipment as follows:
(a) Workmen's Compensation and employer's Liability Insurance,
including Occupational Disease, covering all personnel
(aa) Employer's Liability (Coverage B on Workmen's Compensation
Policy) $100,000 minimum for each accident or disease.
(b) Comprehensive General Liability Insurance (endorsed to include
Contractual Liability coverage)
(bb) Minimum Limits of Liability:
Bodily Injury Liability: $250,000 each occurrence
500,000 aggregate
Property Damage Liability: $100,000 each occurrence
<PAGE> 3
(c) Automobile Liability Insurance
(cc) Minimum Limits of Liability:
Bodily Injury: $100,000 each person
300,000 each person
Property Damage: $200,000 each accident
Licensee will keep such insurance coverage in effect at all times
during the disassembling, moving and reassembling of such Equipment.
5. Licensee will pay the Purchase Price for the Equipment so purchased
within thirty days of the date such Equipment is shipped to Licensee or within
two hundred ten days after the giving of written notice as provided in Section
2, whichever comes first. Payment will be made in United States dollars at the
office of Licensor set forth at the beginning of this Agreement or at such
other place as Licensor may direct. Licensor will retain a purchase money
security interest in the Equipment so purchased until Licensee has paid for
such Equipment in accordance with the terms of this Agreement, and Licensee
agrees to execute such further documents, including UCC-1 Financing
Statements, as are necessary to perfect Licensor's security interest in such
Equipment.
6. Licensee may not assign this Agreement or all or any part of its
rights under this Agreement to any other person, firm or corporation without
the prior written consent of Licensor, which will not be unreasonably withheld
by Licensor with respect to an assignment by Licensee to any wholly owned
subsidiary of Licensee.
7. Any notice or other communication to either party to this Agreement
required or permitted under this Agreement will be in writing and will be sent
by registered air mail, return receipt requested, postage prepaid, addressed to
the address of such party set forth at the beginning of this Agreement or to
such changed address as such party shall have communicated to the other.
Any such notice or communication will be deemed to have been served when
delivered or, if delivery is not accepted by reason of the fault of the
addressee, when tendered.
8. All disputes arising in connection with this Agreement will be
finally settled by mediation held and conducted in Worcester, Massachusetts
in accordance with the rules of the American Arbitration Association.
Judgment to enforce the agreement reached may be entered in any court having
jurisdiction, or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may be. In
interpreting the provisions of this agreement, the mediators will apply
the law of the Commonwealth of Massachusetts.
<PAGE> 4
9 This Agreement may be executed in several counterparts an each such
counterpart shall be deemed an original of this agreement.
10. This agreement will be effective (the "Effective Date") when the
License Agreement becomes effective in accordance with its terms. If the
License Agreement does not become effective in accordance with its terms, then
this Agreement will be null and void.
IN WITNESS WHEREOF, Licensor and Licensee have caused this agreement to be
duly executed on the date first above written.
LICENSOR:
Carborundum Corporation
By: /s/ Robert C. Ayotte
----------------------------------
LICENSEE:
New Castle Refractories Company,
A Division of Dixon Ticonderoga
By: /s/ Gino N. Pala
----------------------------------
<PAGE> 5
EXHIBIT A
(Pages 1 - 4 attached)
Item Purchase Price
---- --------------
Crossley Press, 1000 Ton $25,000
Bickley Bell Kiln, 360 Cubic Foot $75,000
Maxibrator, Carborundum Custom Design $25,000
<PAGE> 6
EXHIBIT A
(Page 1 of 4)
The Crossley Machine Company
Specifications
1000-Ton Press - Double Compession
HYDRAULIC PRESS
Press Specifications:
Press Tonnage: 1,000 tons infinitely adjustable to 100-ton minimum
Power Requirements: 150 Horsepower and 10 Horsepower
Press Weight: 65,000 lbs. - 70,000 lbs. plus hydraulic unit.
Top Ram - Approach and return: 600 inches per minute
Top Ram - Max. pressing speed: 30 inches per minute-infinitely adjustable
Bottom Ram-Max. pressing speed 30 inches per minute-infinitely adjustable
Maximum Hydraulic Pressure to reach 1,000 tons - 3,767 pounds per sq in.
Hydraulic Power Unit:
With safety and "clean oil" controls as follows:
a. "Oversize" air breather.
b. Temperature switch pre-set to 145 degrees F. Will prevent press
from operating if temperature exceeds normal operating temperature
(110-120 degrees F).
c. High pressure relief valve pre-set to prevent hydraulic pressure over
normal maximum pressure.
d. Ten micron "full" flow filters and three micron filter for continuous
clean oil. Filters will have indicators for internal element change.
e. Water cooler with thermostatic control for control of oil temperature.
f. Provisions to add water heater if required.
g. Low level oil and temperature indicator.
<PAGE> 7
EXHIBIT A (Page 2 of 4)
Hydraulic Press
Page 2
Mechanical "Wear" Protection:
a. Case hardened alloy steel columns.
b. "Polypak" piston seals and wipers.
c. Flexible boots for lower ram - column area, die rods and ram pistons.
d. Split bronze bushings and wiper seals for rams - column area.
Safety Features:
a. Two hand anti-tie down cycle start buttons.
b. Mechanical latch type safety bar for ram.
c. Photohead or equivalent electrical interlock
(at operator position, front of press).
<PAGE> 8
EXHIBIT A (Page 3 of 4)
BICKLEY KILN
- - Bickley Model 2500 Iso - Jet Carbell Kiln
- - The kiln is equipped with two (2) kiln cars with nominal setting
dimensions of 72" wide X 144" long X 60" high each. Total kiln
volume is 360 cubic feet.
- - Maximum firing temperature of PCE Cone 30 is reached with eight (8)
dual fuel Iso - Jet burners (type 3.5 BPN-1000) having a total BTU
input rating of 6.0 million BTU per hour.
- - Fuel is natural gas and propane vapor alternate, with natural
gas rated at 1000 BTU per cubic foot.
- - Electrical hookup is 440 volt, 3-phase, 60-cycle for power and 110
volt, 1-phase, 60-cycle for control.
<PAGE> 9
EXHIBIT A (Page 4 of 4)
MAXIBRATOR
Maxibratr is an electromechanical vibratory compacting machine used for
making relatively complicated shapes. It is also a machine of choice when a
small quantity of a shape is to be made since there is no machine/mold setup
involved.
The basic machine consists of two (2) invicta type electromechanical vibrators
fixed to a lower platen. The electromechanical vibrators deliver the
compaction energy to the mold through the lower platen. The vibrator/platen
assembly is located from the main machime base by Metalastic vibration
isolators. The upper platen with two (2) 5" bore X 24" stroke air cylinders
provide the clamping force needed to hold the mold against the lower platen.
A noise enclosure surrounds the machine. The enclosure has a walk in access
for maintenance and air cylinder powered doors to pass for mold access.
<PAGE> 1
PRODUCT PURCHASE AGREEMENT
--------------------------
THIS AGREEMENT is made this 23rd day of August, 1996 between Carborundum
Corporation, a Delaware corporation with principal offices at Crows Mill Road,
Keasbey, New Jersey 08832 ("Licensor") and New Castle Refractories Company, a
division of Dixon Ticonderoga Company, a Delaware corporation with principal
offices at 915 Industrial Street, New Castle, Pennsylvania 16102 ("Licensee").
FACTS
Pursuant to a License and Technological Assistance Agreement (the
"License Agreement") dated August 23, 1996, Licensor has granted a license to
Licensee with respect to silicon carbide refractory brick technology.
Licensee anticipates that from time to time Licensee will have to
purchase silicon carbide refractory bricks ("Bricks") from Licensor in order to
meet Licensee's obligations under purchase orders from its own customers.
Licensor and Licensee have agreed to establish the parameters under
which Licensee may place orders with Licensor for Bricks.
AGREEMENT
In consideration of the License Agreement and for other good and valuable
consideration, receipt of which is hereby acknowledged, the parties agree as
follows:
1. Licensor grants to Licensee the right to purchase from Licensor the
products listed on Exhibit A attached to this Agreement (the "Products").
Licensor understands that the Products will be purchased for resale and for
comparative testing in the metals market, and consents to such use.
2. Attached to this Agreement as Exhibit B is a list of prices for the
most commonly ordered Brick shapes for each Product. Subject to the other
terms of this Agreement, Licensor agrees to sell the Products to Licensee at
such prices. The prices set forth in Exhibit B may be increased by Licensor
one year from the Effective Date of this Agreement (defined below) by the lesser
of (a) the percentage increase of any general price increase announced by
Licensor or (b) five percent, such increase to take effect for all Products
delivered after such increase. Any price increases will be noted on quotations
made at the time of order placement.
<PAGE> 2
3. If Licensee places an order for shapes that are not listed on
Exhibit B, then Licensor will determine the prices for such Bricks on a
comparative basis with similar Products that are listed on Exhibit B.
Licensor agrees to use its best efforts to assure consistent pricing with the
listed Products, with consideration being given to brick configuration, brick
size, quantity, required production routing, product specified and any
special requirements such as quality assurance testing, non-standard packaging
or non-standard lead times. Such prices will be determined in good faith by
Licensor and will be based upon brick dimensions and/or brick drawings, related
bills of materials and all other required customer specifications provided by
Licensee to Licensor.
4. In order for Licensee to place orders under this Agreement with the
benefit of the pricing schedule attached as Exhibit B, Products must be ordered
within the two year period commencing on the Effective Date of this Agreement
for shipment upon completion of production. All Products will be shipped
F.O.B. Keasbey, New Jersey pursuant to Licensor's standard terms and
conditions of sale, attached to this Agreement as Exhibit C, and payment will
be net thirty (30) days. All payments will be made in United States dollars
at the office of Licensor set forth at the beginning of this Agreement or at
such other place as Licensor may direct.
5. Licensee acknowledges that the prices set forth on Exhibit B assume
standard lead times in existence at the time of the placement of any particular
order by Licensee. Any orders received by Licensor from Licensee will be
scheduled for production on the same basis as standard customer orders,
within all of the limits of available capacity to which the Licensor's
operations are then subject. Subject to the foregoing, Licensor agrees that
it will deliver up to 400 tons of standard Products to Licensee pursuant to
orders placed pursuant to this Agreement within any rolling three-month period
during the term of this Agreement, not to exceed 1,000 tons in any rolling
twelve-month period.
6. Licensee may not assign this agreement or all or any part of its
rights under this agreement to any other person, firm or corporation without
the prior written consent of Licensor, which will not be unreasonably
withheld by Licensor with respect to an assignment by Licensee to any wholly
owned subsidiary of Licensee.
7. Any notice or other communication to either part to this agreement
required or permitted under this agreement will be in writing and will be
sent by registered air mail, return receipt requested, postage prepaid,
addressed to the address of such party set forth at the beginning of this
agreement or to such changed address as such party shall have communicated to
the other. Any such notice or communication will be deemed to have been
served when delivered or, if delivery is not accepted by reason of the fault
of the addressee when tendered.
<PAGE> 3
8. All disputes arising in connection with this agreement will be
finally settled by mediation held and conducted in Worcester, Massachusetts
in accordance with the rules of the American Arbitration Association.
Judgment to enforce the agreement reached may be entered in any court having
jurisdiction, or application may be made to such court for a judicial
acceptance of the award and the order of enforcement, as the case may be.
In interpreting the provisions of this agreement, the mediators will apply
the law of the Commonwealth of Massachusetts.
9. This agreement may be executed in several counterparts and each
such counterpart shall be deemed an original of this agreement.
10. This Agreement will become effective (the "Effective Date") when
the License Agreement becomes effective in accordance with its terms. If the
License Agreement does not become effective in accordance with its terms,
then this Agreement will be null and void.
IN WITNESS WHEREOF, Licensor and Licensee have caused this agreement to
be duly executed on the date first above written.
LICENSOR:
Carborundum Corporation
By: /s/ Robert C. Ayotte
-------------------------------
LICENSEE:
New Castle Refractories
Company,
A Division of Dixon Ticonderoga
By: /s/ Gino Pala
-------------------------------
<PAGE> 4
EXHIBIT A
CARBOFRAX
REFRAX 20
REFRAX 20 SBF
SIALFRAX
<PAGE> 5
EXHIBIT B
Delivered to Company only.
<PAGE> 6
EXHIBIT C
THE CARBORUNDUM COMPANY
Terms and Conditions of Sale
This Sale is Subject to the Following Terms and Conditions as Well as Those
Appearance on the Attached.
1. AGREEMENT OF SALE; ACCEPTANCE: Any acceptance contained herein is
expressly made conditional on Buyer's assent to any terms contained herein that
are additional to or different from those proposed by Buyer in its purchase
order and, hence, any terms and provisions of Buyer's purchase order which are
inconsistent with the terms and conditions hereof shall not be binding on the
Seller. Unless Buyer shall notify Seller in writing to the contrary as soon
as practicable after receipt hereof, acceptance of the terms and conditions
hereof by Buyer shall be deemed made and; in the absence of such notification,
the sale and shipment by the Seller of the goods covered hereby shall be
conclusively deemed to be subject to the terms and conditions hereof.
2. ENTIRE CONTRACT: This contract constitutes the final and entire agreement
between Seller and Buyer and any prior or contemporaneous understandings or
agreements, oral or written, are merged herein.
3. PRICES: The price to be paid by Buyer shall be the price in effect at
the date of actual delivery of the goods unless otherwise specified in writing
by Seller.
4. TAXES: The price of the goods does not include sales, use, excise, ad
valorem, property or other taxes now or hereafter imposed, directly or
indirectly, by any governmental authority or agency with respect to the
manufacture, production, sale, delivery, consumption or use of the goods
covered by this contract. Buyer shall pay such taxes directly or reimburse
Seller for any such taxes which it may be required to pay.
5. PAYMENT: The specific terms of payment are as specified in writing by
Seller. If the Buyer shall fail to make any payments in accordance with the
terms and provisions hereof, the Seller, in addition to its other rights and
remedies, but not in limitation thereof, may, at its option, defer its
shipments or deliveries hereunder, or under any other contract with the Buyer,
except upon receipt of satisfactory security or of cash before shipment.
6. SHIPMENT; RISK OF LOSS; TITLE: The goods shall be shipped FOB Seller's
shipping points. Risks of loss pass to Buyer upon delivery to the carrier.
Title shall pass to Buyer on delivery to the carrier.
7. DELIVERIES: The date of delivery provided herein is an approximation
based on Seller's best judgment and prompt receipt from the Buyer of all
necessary data regarding the goods. Unless otherwise expressly stated, Seller
shall have the right to deliver all of the goods at one time or in portions
from time to time within the time of delivery herein provided. The delivery of
non-conforming goods, or a default of any nature, in relation to one or more
installments of this contract shall not substantially impair the value of this
contract as a whole and shall not constitute a total breach of the contract
as a whole.
<PAGE> 7
8. DELAYS IN DELIVERIES: Seller shall be excused for delay in delivery,
may suspend performance and shall under no circumstances be responsible for
failure to fill any order or orders when due to: acts of God or of the
public enemy; fires; floods; riots; strikes; freight embargoes or
transportation delays; shortage of labor; inability to secure fuel, material
supplies, or power at current prices or on account of shortages thereof; any
existing or future laws or acts of the Federal or of any State Government
(including specifically but not exclusively any orders, rules or regulations
issued by any official or agency of any such government) affecting the
conduct of Seller's business; any clause beyond Seller's reasonable control.
9. OVERSHIPMENT: On orders for special shapes (non stocked items), Seller
may ship quantities produced to cover possible losses in manufacturing and
invoice the same up to an amount representing 10% of the initial order
quantity.
10. WARRANTY: Seller warrants that the goods manufactured by the Seller when
shipped are free from defects in materials and workmanship; provided, however,
Seller shall have no obligation or liability under this warranty unless it
shall have received prompt written notice specifying such defect no later than
one (1) year from the date of shipment. In the event of defects developing
within that period under normal and proper use, Buyer agrees that its sole
and exclusive remedy shall require only that the Seller, at its option,
repair, modify or replace the non-conforming goods FOB Seller's plant or
accept the return of the non-conforming goods and refund the purchase price
or part thereof, giving effect to the use or value received by Buyer. No goods
shall be returned to Seller without Seller's prior written consent. This
warranty is in lieu of all other warranties, express, implied or statutory,
written or oral, and DOES NOT INCLUDE ANY WARRANTY OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE.
11. LAWS, CODES, REGULATION, SAFETY DEVICES: Compliance with laws, codes and
regulations relating to the goods and their use is the sole responsibility of
Buyer, and Seller makes no warranty or representation with respect thereto.
Buyer assumes the responsibility for providing and installing any and all
devices for the protection of safety and health and shall indemnify and hold
harmless Seller against any expense, loss or damage which Seller may incur or
sustain as a result of Buyer's failure to so do.
12. PATENTS: Seller warrants that the use or sale of the goods delivered
hereunder will not infringe the claims of any United States patent covering the
goods, but does not warrant infringement by reason of the use thereof in
combination with other material or equipment in the operation of any process.
Seller shall, at its own expense, assume the defense of any claim, suit or
other proceedings brought against Buyer upon a claim that the goods furnished
under this contract constitutes an infringement of any patent of the United
States. Buyer agrees to cooperate in the defense of any such proceedings and
to provide information, assistance and authority necessary therefor. Should
the goods in such suit be held to constitute infringement and the use of the
goods enjoined, the Seller shall, at its own expense and at its option,
procure for the Buyer the right to continue using such goods or replace them
with substantially equivalent goods or modify them so they become non-
infringing. Buyer shall defend, hold harmless and indemnify Seller against
all judgments, decrees, costs and expenses arising out of any action against
Seller or its suppliers based on a claim that the manufacture or sale of
goods hereunder constitutes infringement of any United States letters patent,
if such goods were manufactured pursuant to Buyer's proprietary designs,
specifications and/or formulae and were not normally offered for sale by
seller; provided, however, Seller shall give prompt written notice of the
claim or action and Seller shall give Buyer authority, information and
assistance at Buyer's expense.
<PAGE> 8
13. LIABILITY: In no event shall Seller's obligation and liability under
this contract extend to direct, indirect, punitive, special, incidental or
consequential damages or losses Buyer may suffer or incur in connection
therewith, such as but not limited to loss of revenue or profits, damages or
losses as a result of Buyer's inability to operate, or shut down of, its
plant or operations, loss of use of the goods or associated goods or cost of
substitute goods, facilities or services, inability to fulfill contracts with
third parties, injury to good will, claims of customers and the like, nor
shall it extend to damages or losses Buyer may suffer or incur as a result of
claims, suits or other proceedings made or instituted against Buyer by third
parties, whether public or private in nature.
14. BUYER'S DEFAULT; TERMINATION: Buyer shall be liable to seller for all
damages or losses, including loss of reasonable profits, and for costs and
expenses, including attorney's fees, sustained by Seller and arising from
Buyer's default under, or breach of, any of the terms and conditions of this
contract. In the event of any such default or breach, Seller may, without
any obligation or liability to Buyer, terminate this contract forthwith by
written notice to Buyer and such action by seller shall not be deemed a waiver
of any right or remedy with respect to such default or breach.
15. ASSIGNMENT: No right or interest in this contract shall be assigned by
Buyer without prior written agreement by the Seller. No delegation of any
obligation owed or the performance of any obligation by the Buyer shall be
made without prior written agreement by the Seller.
16. LAW GOVERNING: The interpretation and performance of this contract shall
be in accordance with and shall be controller by the laws of the State of
New York. Buyer consents to the jurisdiction of he courts of the State of
New York with venue in Niagra County.
17. MODIFICATIONS; WAIVER: No waiver, alteration or modification of any of
the provisions hereof shall be binding on the Seller unless made in writing
and agreed to by a duly authorized official of the Seller. No waiver by the
Seller of any one or more defaults by the Buyer in the performance of any
provisions of this contract shall operate or be construed as a waiver of any
future default or defaults, whether or a like or of a different character.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets, the Consolidated Statement of Operations and the
Consolidated Statement of Cash Flows, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,597,032
<SECURITIES> 0
<RECEIVABLES> 24,795,300
<ALLOWANCES> 1,352,411
<INVENTORY> 31,460,934
<CURRENT-ASSETS> 60,545,651
<PP&E> 33,166,940
<DEPRECIATION> 17,730,505
<TOTAL-ASSETS> 77,848,140
<CURRENT-LIABILITIES> 32,169,102
<BONDS> 0
<COMMON> 3,537,211
0
0
<OTHER-SE> 12,454,345
<TOTAL-LIABILITY-AND-EQUITY> 77,848,140
<SALES> 106,695,874
<TOTAL-REVENUES> 106,695,874
<CGS> 70,343,837
<TOTAL-COSTS> 70,343,837
<OTHER-EXPENSES> 27,955,760
<LOSS-PROVISION> 2,039,000
<INTEREST-EXPENSE> 3,423,650
<INCOME-PRETAX> 2,933,627
<INCOME-TAX> 845,044
<INCOME-CONTINUING> 1,168,061
<DISCONTINUED> 0
<EXTRAORDINARY> (282,303)
<CHANGES> 0
<NET-INCOME> 885,758
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
