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cash proceeds of approximately $19.6 million from the sale of the Graphite and
Lubricants division in 1999. A note receivable from the sale (in the amount of
$3.25 million) was collected in 2000.
The Company's primary financing arrangements are with a consortium of
lenders, providing a total of up to $42.5 million in financing through September
2004. In August 2000, certain financial covenants contained in the underlying
loan and security agreements were revised to cure a previous default and to
allow the Company to execute its reorganization and consolidation plans, as well
as other strategic initiatives. The agreements were also amended to increase the
rate of interest by 0.5% and require the payment of certain fees, including an
amendment fee of $206,875. The financing agreements, as amended, include a
revolving line of credit facility in the amount of $35 million which bears
interest at either the prime rate plus 0.75%, or the prevailing LIBOR rate plus
2.25% through September 2004. Borrowings under the revolving credit facility are
based upon eligible accounts receivable and inventories of the Company's U.S.
and Canada operations, as defined. The Company has executed an interest rate
swap agreement that effectively fixed the rate of interest on $8 million of
these borrowings at 8.98% through August 2005. The loan and security agreements
also include a term loan in the initial amount of $7.5 million. The term loan is
payable in monthly installments of $125,000, plus interest, through September
2004. The loan bears interest based upon the same prevailing rate described
above in connection with the revolving credit facility. The Company has
previously executed an interest rate swap agreement that effectively fixes the
rate of interest on approximately $1.1 million of the term loan at 8.5% through
May 2001.
These financing arrangements are collateralized by the tangible and
intangible assets of the U.S. and Canada operations (including accounts
receivable, inventories, property, plant and equipment, patents and trademarks)
and a pledge of the capital stock of the Company's subsidiaries. The loan and
security agreement contains provisions pertaining to the maintenance of certain
financial ratios and annual capital expenditure levels, as well as restrictions
as to payment of cash dividends. As of September 30, 2000, the Company is in
compliance with all such provisions, as amended. On January 10, 2001, the
agreement was amended to revise one financial ratio requirement for the period
ending December 31, 2000 due to the Company's expectation that it would not meet
the previous requirement as of that date. As of September 30, 2000, the Company
had approximately $23 million of unused lines of credit available under the
revolving credit facility. In addition, the Company's Mexico subsidiary has $14
million in bank lines of credit ($10 million unused as of September 30, 2000)
which bear interest at a rate based upon either a floating U.S. bank rate or the
rate of certain Mexican government securities.
The Company also has outstanding $16.5 million of 12% Senior Subordinated
Notes valued at their face amount, due 2003. In August 2000, the subordinated
note agreement was amended to revise certain financial covenants and cure a
previous default, as well as to provide the Company flexibility to execute its
strategic initiatives. The interest rate was increased to 13.5% through June
2002 and 12.25% though maturity in 2003. The exercise price of 300,000 warrants
held by the noteholders was reduced from $7.24 to $4.28. The amendment also
required payment of a fee of $50,000. The note agreement, as amended, contains
provisions that limit dividends and other payments, and require the maintenance
of certain financial covenants and ratios. The Company is in compliance with all
such provisions, as amended. The Company also incurred approximately $200,000 in
legal costs associated with the aforementioned amendments to its senior and
subordinated debt agreements.
The subordinated and senior debt have been classified, in accordance with
their terms and management's expectations as to Company performance, as
long-term in the accompanying consolidated financial statements. However, the
Company cannot assure that it will be in compliance with all covenant provisions
of its debt agreements in all future quarters and cannot assure that it will
receive waivers or amendments of any such provisions should that occur.
The Company entered into the aforementioned interest rate swap agreements
to balance and manage overall interest rate exposure and minimize overall cost
of borrowings. The swaps are not presently expected to have a material effect on
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total interest expense over the term of the underlying agreements.
In March 1999, the Company's Board of Directors approved a Stock
Repurchase Program authorizing the acquisition of up to $3 million in Dixon
Ticonderoga Company stock. Under this program, the Company repurchased 337,000
shares at a cost of $2.8 million ($2 million in fiscal 2000). These repurchases
were financed through the aforementioned and previous U.S. revolving line of
credit facilities.
Refer to Notes 3 and 4 to Consolidated Financial Statements for further
description of the aforementioned financing arrangements.
The existing sources of financing described above and cash expected to be
generated from future operations and / or asset sales would, in management's
opinion, be sufficient to fulfill all current and anticipated requirements of
the Company's ongoing business and to meet all of it obligations. However, if
future covenant violations occur with respect to its current financing
arrangements, the Company may need to pursue other sources of financing to
satisfy certain obligations before their due date.
FORWARD-LOOKING STATEMENTS
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The statements in this Annual Report on Form 10-K that are not purely
historical are "forward-looking statements" within the meaning of section 27A of
the Securities Act of 1933 and section 21E of the Securities Exchange Act of
1934, including statements about the Company's expectations, beliefs, intentions
or strategies regarding the future. Forward-looking statements include
statements regarding, among other things, the effects of the devaluation of the
Mexican peso; the Company's ability to meet its loan covenants in the future and
its current and anticipated obligations; management's inventory reduction plan
and expectation for savings from the restructuring and cost-reduction program;
the Company's ability to increase sales in its core businesses; its expectations
as to the effect of new accounting pronouncements; and its expectations with
regards to legal proceedings. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
known and unknown risks, uncertainties and other factors that could cause the