SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 ( d )

                     OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended September 30, 1999
                          ------------------
Commission file number  0-2655
                        ------

                           DIXON TICONDEROGA COMPANY
-------------------------------------------------------------------------------
             (Exact name of  Company as specified in its charter)
Form 10-K

__X_ Annual Report Pursuant to Section 13 or 15 (d) of the Securities  Exchange
Act of 1934 (Fee Required) for the fiscal year ended September 30, 1999.
                                                     ------------------

____ Transition  Report  Pursuant  to  Section  13 or 15 (d)  of the  Securities
Exchange Act of 1934 (No Fee Required) for the transaction period from _____ to
_____.


                  Delaware                                 23-0973760
---------------------------------------------  ---------------------------------
      (State or other jurisdiction of                   (I.R. S. Employer
       incorporation or organization)                Identification Number)

  195 International Parkway, Heathrow, FL                     32746
---------------------------------------------  ---------------------------------
  (Address of principal executive offices)                 (Zip Code)


Registrant's telephone number, including area code    (407) 829-9000
                                                      --------------

     Title of each class              Name of each exchange on which registered
--------------------------------      -----------------------------------------
Common Stock, $1.00 par value                American Stock Exchange
--------------------------------      -----------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the company was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [ X ] No [ ]

Based on the closing sales price on December 3, 1999, the aggregate market value
of the voting stock held by non-affiliates of the Company was $14,419,072.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of December 3, 1999:  3,283,906  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, 1999.


<PAGE>


                                     PART I
                                     ---- -

ITEM 1.   BUSINESS
-------   --------
                          RECENT EVENTS AND STRATEGIES
                          ------ ------ --- ----------

     Dixon  Ticonderoga  Company  (hereinafter  the "Company")  achieved  record
earning of  approximately  $6.7 million in its fiscal year ended  September  30,
1999,  largely due to the  successful  sale of its U.S.  Graphite and Lubricants
division for $23.5  million in March 1999.  Management  believes the sale of the
these  Industrial  Group assets has  significantly  strengthened  its  financial
position,  thus allowing for expanded  opportunities  for growth of its Consumer
Group,  both internally and through  possible  acquisitions  and joint ventures.
Moreover,  the  Company's  improved   capitalization  will  make  possible  more
aggressive  restructuring of its Consumer Group operations to improve efficiency
and reduce  further  operating  costs to  facilitate  these  growth  strategies.
Operating  income  of the  Consumer  Group  (exclusive  of  restructuring  costs
discussed below) increased approximately 4.4% to $10.7 million in fiscal 1999.
     The  improvement  is  attributable  to the success of many of the Company's
strategic  objectives over the past several years. Earlier in 1999, the Consumer
Group  management  team was  reorganized  to  acquire  additional  expertise  in
consumer  products sales and marketing.  The Company  introduced new promotional
programs to increase  its  penetration  of the  educational  and mass markets in
North  America.  The  Company  also  continued  its  emphasis on  improving  its
distribution  and customer  service  systems and  processes  through  technology
enhancements and training at its new modernized distribution center.  Management
believes  its current  service  levels with its major  customers to be among the
best in its industry.
     In 1999,  the Company has also embarked on an extensive  Restructuring  and
Cost  Reduction   Program  directed  toward  improving  its  overall   financial
performance  in the near future.  Key actions  adopted  include  Consumer  plant
closure and  consolidation,  as well as personnel  reduction  in  manufacturing,
sales  and  marketing  and  corporate   activities.   In  connection  with  this
initiative,  the Company recorded  non-recurring  charges of approximately  $1.9
million during 1999.  When fully  implemented,  the annualized cost savings from
these actions are expected to approximate $1.5 million.
     The Company  also  announced a Stock  Repurchase  Program  authorizing  the
acquisition of up to $3 million in Dixon Ticonderoga Company stock. To date, the
Company has repurchased  approximately 298,000 shares at a cost of approximately
$2.6 million. In addition,  the Company repurchased  5,722,760 (or approximately
17.2%) of the outstanding shares of its Mexican subsidiary, Grupo Dixon, S.A. de
C.V. for  approximately  $3.7 million.  The  repurchase  increases the Company's
ownership in its subsidiary to 97%. Company  management  believes the repurchase
program will enhance earnings over the long-term.
     In addition,  the Company recently  completed the  recapitalization  of its
U.S.  debt,  including a new five-year  $42.5 million  credit  agreement  with a
consortium  of lenders,  at more  favorable  terms than its  previous  principal
financing   arrangements.   The  Company  also  continued  its  human  resources
initiatives to enhance training,  personal  development,  benefits and incentive
compensation of its employees.

Further information regarding these matters is included elsewhere in this Annual
Report on Form 10-K.



<PAGE>


                              COMPANY ORGANIZATION
                              ------- ------------



<TABLE>
                            Dixon Ticonderoga Company
                                    (Parent)


      -----------------------------------------------------------------
      |                          |                    |               |
      |                          |                    |               |
<S>                       <C>                  <C>                 <C>
Dixon Ticonderoga, Inc.   Dixon Europe, Ltd.   Dixon Industrial  Ticonderoga
 Canada (Wholly-Owned)      (Wholly-Owned)          Mexico,        Graphite,
                                                 S.A. de C.V.   Inc./Inactive
      |                                         (Wholly-Owned)  (Wholly-Owned)
      |
Grupo Dixon S.A. de C.V.
and subsidiaries
(97% Owned)
</TABLE>









                                     INDUSTRY SEGMENTS
                                     -------- --------

     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,  correction
                              materials and allied products.

      Industrial Group        Manufacture   and  sale  to   industry  of
                              amorphous  graphite,  clay  and  graphite  stopper
                              heads,    firebrick,     silicon-carbide    brick,
                              non-graphitic   refractory   kiln   furniture  and
                              furnace linings.


     Financial  information  regarding  net  revenues,   operating  profits  and
identifiable  assets  related to the Company's  industry  segments for the years
ended  September  30,  1999,  1998,  and  1997,  is  contained  in  Note  13  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.


<PAGE>
CONSUMER GROUP
-------- -----

     The Company  manufactures its leading brand  Ticonderoga(R) and a full line
of pencils  in  Versailles,  Missouri.  The  Company  manufactures  and  markets
advertising specialty pencils, pens and markers through its promotional products
division. The Company also manufactures and markets Wearever(R) and Dixon(R) pen
writing  products  as well as  Prang(R)  and  Ticonderoga(R)  lines of  markers,
mechanical pencils and allied products.
     In Sandusky,  Ohio, the Company  manufactures  (mainly for wholesale school
suppliers and  retailers)  its Prang(R) brand of soy-bean based and wax crayons,
chalks,  dry and liquid tempera,  water colors and art materials.  This division
also manufactures  special markers for industrial use, all of which are marketed
and sold  together  with the  products  discussed  above,  by the U.S.  Consumer
division.
     Under an agreement with Warner Bros.  Consumer  Products,  the Company also
manufactures and markets in the U.S.,  Canada and Mexico a complete product line
of pencils, pens, crayons,  chalks, markers,  paints, art kits and related items
featuring the famous Looney Tunes(R) and Scooby Doo(R) characters.  (See Note 14
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 group.
     Grupo Dixon,  S.A. de C.V., a majority-owned  subsidiary (97%), is engaged,
through its  subsidiaries,  in the  manufacture  and sale in Mexico of black and
color writing and drawing  pencils,  correction  materials,  lumber  crayons and
allied products.  Grupo Dixon also  manufactures and sells in Mexico,  under its
Vinci(R)  brand,  certain  products  of the type  manufactured  at the  Sandusky
facility, as well as marker products and modeling clay.
     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
---------- -----

     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,
silicon-carbide  brick,  various types and designs of  non-graphitic  refractory
special shapes for ferrous and nonferrous metal  industries;  refractory  shapes
for furnace  linings and  industrial  furnace  construction;  various  grades of
insulating firebrick and graphite stopper heads.
     Prior to the sale of the Company's U.S. Graphite and Lubricants Division in
March 1999, the Industrial  Group  manufactured  and sold processed  natural and
synthetic bulk graphite,  graphite oil,  solvent and water-based  lubricants and
colloidal graphitic suspensions.
     Dixon  Industrial  Mexico,  S.A. de C.V.,  operates an  amorphous  graphite
processing facility in Hermosillo, Mexico and is engaged in related activities.


<PAGE>
                                  DISTRIBUTION
                                  ------------

     Consumer  products  manufactured  in  the  Company's  U.S.  facilities  are
distributed  nationally  through  wholesale,  commercial and retail  stationers,
school supply  houses,  industrial  supply  houses,  blueprint and  reproduction
supply firms, art material  distributors and retailers.  In an effort to enhance
service levels  (especially with large retail  customers),  the Company leased a
central   distribution   center  in  Macon,   Georgia.   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 Mexico subsidiary also operates a distribution  center in Mexico
City.
     The industrial  products  manufactured at various plants are sold by direct
sales,  manufacturers'  representatives  and  industrial  distributors  in North
America.

                                  RAW MATERIALS
                                  --- ---------

     Wood slats for pencil  manufacturing  can be  considered  a  strategic  raw
material for the Company's  business and are purchased from various suppliers in
the U.S., Indonesia and China.  Graphite,  used in the manufacture of refractory
products and leads for wood-cased pencils, is purchased  principally in the U.S.
There were no significant raw material  shortages of any consequence during 1999
nor are any expected for future periods.  However,  as a safeguard,  the Company
purchased additional strategic raw materials in anticipation of Year 2000.

                       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 63% in 1999) 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.

                            RESEARCH AND DEVELOPMENT
                            -------- --- -----------

     The Company employs  approximately 18 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.



<PAGE>


                                    EMPLOYEES
                                    ---------

     The total number of persons employed by the Company was approximately 1,354
of which 604 were employed in the United States.


ITEM 2.  PROPERTIES
-------  ----------

     The properties of the Company,  set forth in the following  table are owned
and are  collateralized  or pledged under the Company's  loan  agreement  with a
consortium  of lenders  (First  Union  Capital  Corporation  as agent),  and its
Heathrow,  Florida,  property, 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
                             --------                           --------------

    Heathrow, Florida (Corporate Headquarters)                         33,000
    Sandusky, Ohio (Consumer)                                         276,000
    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 (Grupo Dixon, S.A. de C.V.) (Consumer)  55,000
    Mexico City, D.F., Mexico (Grupo Dixon, S.A. de C.V.)(Consumer)    64,000
    Versailles, Missouri (Consumer)                                   120,000
    Deer Lake, Pennsylvania (Consumer)                                150,000



     The Company leases approximately  100,000 square feet in Macon, Georgia for
its U.S. Consumer central  distribution  center and 44,000 square feet in Mexico
City for its Mexico  distribution  center.  In  addition,  the  Company's  Dixon
Industrial  Mexico,  S.A.  de  C.V.,  subsidiary  leases  9,000  square  feet in
Hermosillo, Mexico.


<PAGE>


ITEM 3.  LEGAL   PROCEEDINGS
-------  -----   -----------

     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. In January 1998,
the  Company  paid $3.6  million to satisfy  this claim in full,  including  all
accrued interest.  The Company has continued to pursue 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.  In 1999, the pending  malpractice suit was dismissed and the Company
has appealed the decision.
      Also see Note 14 to Consolidated Financial Statements.

ITEM 4.    SUBMISSION  OF  MATTERS  TO  VOTE  OF  SECURITY  HOLDERS
-------    ----------  --  -------  --  ----  --  --------  -------

      None.



<PAGE>


                                     PART II
                                     -------


ITEM 5. MARKET FOR THE COMPANY'S  COMMON STOCK AND RELATED  SECURITY HOLDER
------- ------ --- --- ---------  ------ ----- --- -------  -------- ------
        MATTERS
        -------

     Dixon  Ticonderoga  Company  common stock is traded on the  American  Stock
Exchange under the symbol "DXT". The following table sets forth the low and high
per share  prices as per the  American  Stock  Exchange  closing  prices for the
applicable quarter.



                                     FISCAL               FISCAL
       QUARTER ENDING                 1999                 1998
       --------------                 ----                 ----
                                 LOW       HIGH       LOW        HIGH
                                -----     ------    -------     -------
         December 31            $7.88     $11.75     $12.88     $16.94
         March 31                8.56      11.75      12.63      15.00
         June 30                 9.81      12.13      12.38      15.56
         September 30            8.00      11.85       9.13      14.00





     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 1,
1999 was 418.



<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA
-------  -------- --------- ----

                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                   FOR THE FIVE YEARS ENDED SEPTEMBER 30, 1999
                    (in thousands, except per share amounts)
<TABLE>

                                  1999         1998     1997     1996     1995
                                --------     -------- -------- -------- -------
<S>                             <C>         <C>      <C>      <C>      <C>
REVENUES                        $114,689    $124,722 $115,055 $106,696  $95,565
                                ========   ========== ======== ======== =======

INCOME FROM
   CONTINUING OPERATIONS        $  6,682    $  3,136 $  3,601 $  1,168 $ 1,658

LOSS FROM DISCONTINUED
   OPERATIONS                         -           -        -        -    (595)

EXTRAORDINARY ITEM                    -           -        -      (282)      -
                                --------    -------- -------- -------- --------

NET INCOME                      $  6,682    $  3,136 $  3,601 $    886  $ 1,063
                                ========   ========= ======== ======== ========

EARNINGS (LOSS) PER
   COMMON SHARE (BASIC):
     CONTINUING OPERATIONS      $  1.95     $    .93 $   1.08 $    .36  $   .51

     DISCONTINUED OPERATIONS          -           -        -        -     (.18)

     EXTRAORDINARY ITEM               -           -        -      (.09)      -
                                --------   --------- -------- -------- --------

      NET INCOME               $   1.95     $    .93 $   1.08 $    .27  $   .33
                                ========   ========= ======== ======== ========

EARNINGS (LOSS) PER
   COMMON SHARE (DILUTED):
     CONTINUING OPERATIONS     $   1.87     $    .85 $   1.05 $    .36  $   .52

     DISCONTINUED OPERATIONS         -            -        -        -     (.19)

     EXTRAORDINARY ITEM              -            -        -      (.09)      -
                                --------    -------- -------- -------- --------

      NET INCOME                $   1.87    $    .85 $   1.05 $    .27  $   .33
                                ========    ======== ======== ========  =======

TOTAL ASSETS                    $ 92,888    $ 92,630 $ 84,161 $ 77,848  $70,158
                                ========    ======== ======== ========  =======

LONG-TERM DEBT                  $ 39,400(1) $ 21,927 $ 23,556 $ 25,119  $14,541
                                ========    ======== ======== ========  =======

DIVIDENDS PER
   COMMON SHARE                  $   -      $     -  $     -  $     -   $   -
                                 =======    ========= ======== ======== =======
</TABLE>

(1) The increase in long-term debt in 1999 is  attributable to the refinancing
of the  Company's  previous  revolving  credit  agreement  under a new five-year
facility. (See Notes 3 and 4 to Consolidated Financial Statements.)
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------- ------------ ---------- --- -------- -- --------- --------- ---
        RESULTS OF OPERATIONS
        ------- -- ----------


SUMMARY  OF  RESULTS  OF  OPERATIONS
-------  --  -------  --  ----------

1999 vs. 1998:
---- --- -----

     Income before income taxes and minority  interest  increased  $6,274,000 in
1999.  Gain from the sale of the U.S.  Graphite and Lubricants  division in 1999
was $9,636,000. In 1999, the Company recorded a $1,917,000 pre-tax provision for
restructuring  and  related  costs  associated  with plant  consolidation  and a
company - wide cost  reduction  program  designed to improve  overall  financial
performance in the future.  Restructuring  costs principally include anticipated
losses from the sale or  abandonment  of property and  equipment  (approximating
$1,330,000) and severance costs for affected employees (approximating $587,000).
Through September 30, 1999,  approximately $213,000 has been charged against the
severance cost accrual,  substantially  related to costs associated with planned
personnel reductions.  (See Note 12 to Consolidated Financial Statements.) There
was a $2,163,000  decrease in the Industrial  operating profits primarily due to
the sale of the U.S.  Graphite  and  Lubricants  division  and  weakness  in the
industries served by the Refractories division. Decreased U.S. interest expense,
primarily due to proceeds from the division sale were offset by higher  interest
expense in Mexico, reflecting increased borrowings since it acquisition of Vinci
(see Note 10 to Consolidated  Financial Statements) and higher inventory levels.
Income taxes increased principally due to significantly higher pre-tax income.


1998 vs. 1997:
---- --- -----

     Income before income taxes and minority  interest  decreased  $1,683,000 in
1998.  Foreign currency losses increased  $1,717,000 (see Note 1 to Consolidated
Financial  Statements).  Revenue increases in Mexico,  due to the acquisition of
Vinci (see Note 10 to Consolidated Financial Statements) and in the mass market,
increased foreign operating profits $1,350,000,  excluding currency losses. U.S.
Consumer  operating  profits remained constant in spite of a revenue increase of
$5,073,000  due to higher  distribution,  marketing and sales costs,  (including
costs incurred to close its previous distribution center and open a new facility
operated by a third party) which offset higher gross profit  margins.  Legal and
professional  expenses  increased  $540,000 due primarily to ongoing legal costs
incurred in an effort to recover  from other  responsible  parties for the claim
previously  paid under ECRA as described  in Item 3 and Note 14 to  Consolidated
Financial  Statements.  Interest expense  increased  $870,000 on higher U.S. and
Mexico  borrowings.  Income tax expense decreased due to lower before tax income
and lower effective foreign tax rates.

1997 vs. 1996:
---- --- -----

     Income before income taxes and minority  interest  increased  $4,153,000 in
1997. In 1996, there were provisions for litigation  settlements and legal costs
of $2,039,000  (see Item 3 and Note 14 to  Consolidated  Financial  Statements).
Revenue  increases of $5,715,000  in the foreign  operations  contributed  to an
increase in operating  profits of  $2,815,000.  Manufacturing  efficiencies  and
higher volume increased U.S. Consumer  operating  profits by $1,011,000.  Higher
employee benefit and insurance costs,  consulting and professional expenses, and
amortization  of  loan  fees  increased  corporate  administrative  expenses  by
$870,000.  Operating profits in the Industrial  segment decreased  $464,000 with
gains in the  Refractories  division being more than offset by a decrease in the
Graphite  and  Lubricants   division  operating  profit,   which  suffered  from
competitive  pricing  pressures.  Interest expense increased  $380,000 on higher
average  borrowing rates during the year. The 1997 effective tax rates increased
to more normal U.S.  statutory and state tax rates  overall,  compared with 1996
which was favorably affected by lower foreign tax rates.




<PAGE>


REVENUES
--------

     Overall  1999  revenues  decreased  $10,033,000  from the prior  year.  The
changes by segment are as follows:

                         Increase(Decrease)       % Increase (Decrease)
                          (in thousands)    Total     Volume  Price / Mix
                          --------------    -----     ------  -----------

      Consumer U.S.         $(3,875)         (6)       (5)        (1)
      Consumer Foreign        1,373           5         2          3
      Industrial             (7,531)        (30)      (29)        (1)

     The  U.S.  Consumer  revenue  decrease  was  strictly  in the  mass  retail
(principally  mega-store)  market where  customer  consolidation  and  inventory
reductions  affected  sales during the  back-to-school  buying  season.  Foreign
Consumer  revenues  increased  in Mexico by $944,000  and in Canada by $406,000,
reflecting  continuing  success in their  respective  mass retail  markets.  The
decrease  in  Industrial  revenue  was  primarily  due to the  sale of the  U.S.
Graphite  and  Lubricants  division  and,  to a lesser  degree,  weakness in the
industries served by the Refractories division.
     While  the  Company  has  operations  in  Canada,   Mexico  and  the  U.K.,
historically only the operating results in Mexico have been materially  impacted
by  currency  fluctuations.  There  has been a  significant  devaluation  of the
Mexican peso at least once in each of the last three decades, the last one being
in  August  of  1998.  In the  short  term  after  such  devaluations,  consumer
confidence has been shaken, leading to an immediate reduction in revenues in the
months  following the  devaluation.  Then, after the immediate shock, and as the
peso  stabilizes,  revenues tend to grow.  Selling  prices tend to rise over the
long term to offset any  inflationary  increases in costs.  The peso, as well as
any currency  value,  depends on many  factors  including  international  trade,
investor  confidence  and  government  policy,  to name a few. These factors are
impossible for the Company to predict, and thus, an estimate of potential effect
on results of operations  for the future  cannot be made.  This currency risk in
Mexico is presently managed through local currency financing and by export sales
to the U.S. denominated in U.S. dollars.

     Revenues in 1998 increased  $9,667,000  over the prior year. The changes by
segment are as follows:


                               Increase(Decrease)        % Increase  (Decrease)
                                (in thousands)     Total   Volume     Price/Mix
                                --------------     -----   ------     ---------

      Consumer U.S.                 $5,073            8       8           -
      Consumer Foreign               5,385           22      40          (18)
      Industrial                      (791)          (3)     (3)          -



     The U.S. Consumer  increase was primarily in the educational  market due to
more aggressive  promotional programs and restructured sales force. The increase
in Foreign Consumer  revenues  reflects the acquisition of Vinci (see Note 10 to
Consolidated  Financial  Statements) and increases in the mass market in Mexico.
Decreases  of  $1,600,000  and  $498,000  in the  revenue of Mexico and  Canada,
respectively,  were due to the decline in their local currencies compared to the
U.S. dollar.  The Industrial  revenue decrease was in the bulk graphite markets,
due primarily to weakness in the automotive industry and continuing  competitive
pricing pressures.

     Overall 1997 revenues increased $8,359,000 over the prior year. The changes
by segment are as follows:

                        Increase(Decrease)            % Increase (Decrease)
                         (in thousands)      Total       Volume   Price/Mix
                         --------------      -----       ------   ---------
      Consumer U.S.          $1,945            3            2          1
      Consumer Foreign        5,715           30           22          8
      Industrial                699            3            4         (1)




<PAGE>
     U.S. Consumer revenue increased  primarily in the educational,  mass retail
and commercial  office supply mega-store  markets.  Revenue in Mexico and Canada
increased  $4,168,000 and $1,326,000,  respectively.  In both  geographic  areas
there were aggressive efforts in the mass retail market. In Mexico,  there was a
decrease of $425,000 in revenue due to the decline in value of the peso compared
to the U.S. dollar.  The Industrial  increase was primarily due to higher volume
in the Refractories division.


OPERATING  PROFITS
---------  -------

     Operating  profits  (exclusive  of the gain on sale of assets of $9,636,000
and  provision for  restructuring  and related  costs of  $1,917,000)  decreased
$1,346,000  from  1998.   Industrial  operating  profits  decreased  $2,163,000,
primarily due to the sale of the U.S. Graphite and Lubricants division in March,
1999 and lower  Refractories  division profits due to weakness in the industries
it serves. The reduction in Industrial gross profits  substantially  contributed
to the relative  increase in total cost of goods sold in 1999 (62.9% of sales as
compared  with  61.2% in  1998).  As  discussed  above,  U.S.  Consumer  revenue
decreased  significantly,  yet operating  profits only deceased  $206,000 due to
lower selling and administrative  expenses from cost reduction efforts.  Foreign
operating profits increased  $659,000  primarily due to higher revenues and more
favorable foreign currency effects. General corporate expenses were also reduced
by $364,000  reflecting cost reduction  activities.  The aforementioned  gain on
sale of assets relates to the sale of the U.S. Graphite and Lubricants Division.
The provision  for  restructuring  and related  costs under the  Company's  cost
reduction program principally  represents  anticipated  impairment losses due to
plant  closures and  consolidation,  as well as employee  severance  costs.  The
aforementioned  cost reduction efforts contributed to lower relative selling and
administrative  costs  (29.5%  of  sales in 1999  compared  to 30.8% of sales in
1998).
     There was a decrease of $811,000 in operating  profits in 1998. The Company
recorded  foreign  currency  losses of  $1,604,000  and  $194,000  in Mexico and
Canada,  respectively,   as  discussed  in  Note  1  to  Consolidated  Financial
Statements.  Foreign Consumer  operating profit,  excluding the foreign currency
losses,  increased  approximately $1.9 million. This increase occurred in Mexico
where the addition of Vinci (see Note 10 to Consolidated  Financial  Statements)
added  $1,220,000.  The remainder of the increase was due to higher revenues and
manufacturing  efficiencies.  U.S. Consumer  operating profit increased $250,000
over the prior year as higher gross  profit  margins  were  partially  offset by
increased  distribution,  marketing and sales costs.  Higher distribution costs,
adversely  impacted  U.S.  operating  profit  this  year,  caused in part by the
closing of its previous  distribution center and related start-up costs of a new
facility  operated  by  a  third  party.  In  addition,   higher  marketing  and
promotional  costs  had  a  negative  impact  on  operating  profit.  Legal  and
professional  services  increased  $540,000 primarily due to ongoing legal costs
incurred in an effort to recover  from other  responsible  parties for the claim
paid under ECRA,  as described in Item 3 and Note 14 to  Consolidated  Financial
Statements.  These above  mentioned  factors caused  selling and  administrative
costs to increase (30.7% of sales in 1998 compared to 27.2% in 1997).  Operating
profit in the  Industrial  segment  decreased  $350,000  due to the  decline  in
graphite revenue.
     There was an increase of $3,362,000 in operating profits in 1997 (exclusive
of provisions for litigation  settlements and related costs). Foreign operations
increased  $2,815,000.  Mexico operating profit increased  $2,393,000 and Canada
increased  $368,000  on revenue  increases  of 45% and 15%,  respectively.  U.S.
Consumer  operating  profit  increased  $1,011,000  (exclusive of provisions for
litigation  settlements  and related costs in 1996),  primarily due to increased
manufacturing  efficiencies  and  higher  volume.  Industrial  operating  profit
decreased  $464,000  primarily  due  to  competitive  pricing  pressures  in the
Graphite and  Lubricants  division.  Total cost of goods sold in 1997  decreased
(63.4%  of  sales  as  compared  with  65.9%  in  1996)  due  primarily  to  the
aforementioned manufacturing efficiencies.



<PAGE>
MINORITY  INTEREST
--------  --------

     Minority  interest  represents  3% of the net  income  of the  consolidated
subsidiary,  Grupo  Dixon,  S.A.  de C.V.,  since  September,  1999,  20.2% from
February 1997 and 49.9% prior thereto ($402,135, $704,940 and $808,536 in fiscal
1999, 1998 and 1997,  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
1994. The Company has repurchased  approximately 47% of its subsidiaries  shares
since February 1997.


EFFECT  OF  CERTAIN  NEW  ACCOUNTING  PRONOUNCEMENTS
------  --  -------  ---  ----------  --------------

     In 1998,  the FASB issued  Statement  No. 133  "Accounting  for  Derivative
Instruments and Hedging Activities" which is effective for the Company in fiscal
2001. This statement requires all derivative instruments to be recognized in the
balance  sheet as either  assets  or  liabilities  at fair  value.  The  Company
currently  uses cash flow  hedges to  convert  variable  rate debt to fixed rate
debt,  but does not expect the prescribed  accounting  for these  instruments to
materially affect its financial position or results of operations when adopted.


LIQUIDITY  AND  CAPITAL  RESOURCES
---------  ---  -------  ---------

     The  Company's  cash  flows used in  operating  activities  increased  $4.8
million  in fiscal  1999,  due  principally  to higher  inventory  levels in its
Consumer Group. U.S. and Mexico Consumer inventories increased  approximately $8
million  due to the  following  factors:  planned  increases  in  strategic  raw
materials in anticipation of Year 2000;  planned  increases in certain  finished
goods  to   facilitate   plant   consolidation   activities   and  new   product
introductions;  and less than forecasted  back-to-school  shipments due to major
customer  consolidation and inventory  reduction efforts.  Management expects to
reverse the trend of increasing  inventories and improve operating cash flows in
fiscal 2000,  as new material and  finished  goods levels  normalize  based upon
forecasted  production  and sales.  The increase in  inventories  was  partially
offset by increased  accounts  receivable  collections in fiscal 1999. As is the
case  historically,  cyclical  short-term  borrowings  (see below) financed peak
mid-year  working capital  requirements.  Total net cash flows used in operating
activities  of $10.4  million  excludes the effects of the sale of assets of the
Company's U.S. Graphite and Lubricants division.
     The Company's 1999 investing activities included  approximately  $1,010,000
in  purchases of property and  equipment  (before net  disposals of $370,000) as
compared  with  $1,351,000  in the prior  year.  There has been a lower level of
purchases as compared with prior years, due to better capital  budgeting and the
continued  use of leasing as a financing  alternative  to  acquiring  equipment.
Since  1997,  the  Company  has  financed  in excess of $3 million of  strategic
manufacturing equipment under long-term operating lease arrangements.  (See Note
14 to Consolidated Financial Statements.) Generally,  all major capital projects
are  discretionary in nature and thus no material  purchase  commitments  exist.
Capital  expenditures  will continue to be funded from  operations  and existing
financing  or new  leasing  arrangements.  Total cash  provided  from  investing
activities  increased  dramatically  due to the cash  proceeds of  approximately
$19.6 million from the sale of the U.S. Graphite and Lubricants division. These
proceeds (net of escrowed  funds and income tax payments) were initially used to
reduce  short-term  indebtedness  described  below.  In addition,  in 1998,  the
Company's Mexico subsidiary acquired the stock of Vinci de Mexico, S.A. de C.V.,
for approximately $3.3 million.
     In  September  1999,  the  Company  entered  into  new  primary   financing
arrangements  with a  consortium  of  lenders,  providing a total of up to $42.5
million in financing  through  September  2004. The underlying loan and security
agreements  include a  revolving  line of credit  facility  in the amount of $35
million  which bears  interest at either the prime rate (8.5% at  September  30,
1999) plus 0.25%, or the prevailing LIBOR rate  (approximately 5.4% at September
30, 1999) plus 1.75% through  December 2000.  Borrowings under the new 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 previously
executed an interest rate swap  agreement  which  effectively  fixes the rate of
interest on $5 million of the revolver debt at 8.12% through 2000.  The loan and
security agreements also include a term loan in the 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 which effectively fixes
the rate of  interest  on  approximately  $2.8  million  of the term  loan at 8%
through 2000.
     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. The Company is presently in compliance with all
such  provisions.  As of September 30, 1999, the Company had  approximately  $20
million of unused lines of credit available under the revolving credit facility.
In addition,  the Company's  Mexico  subsidiary  has $7 million in bank lines of
credit ($4.5  million  unused as of September 30, 1999) which bear interest at a
rate based upon enter a floating U.S.  bank rate or the rate of certain  Mexican
government securities.
     In 1996,  the Company  completed the private  placement of $16.5 million of
12%  Senior  Subordinated  Notes  valued at their  face  amount,  due  2003.  In
connection  with the  private  placement,  the  Company  issued  to  noteholders
warrants  to purchase  300,000  shares of Company  stock at $7.24 per share.  In
1998, the Company  canceled a reverse  interest rate swap  agreement  (which had
originally  converted  $10 million of the notes to a floating  rate of interest)
resulting  in  a  deferred  gain  of  approximately  $375,000,  which  is  being
recognized over the remaining original term of the notes. The note agreement, as
amended,  contains  provisions  which limit the payment of dividends and require
the  maintenance  of certain  financial  covenants  and  ratios.  The Company is
presently in compliance with all such provisions.
     The Company entered into the aforementioned interest rate swap agreement 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
total interest expense over the term of the underlying agreements.
     The  Company's  repurchases  of its  stock  and  the  stock  of its  Mexico
subsidiary  (See  Notes  7  and 8 to  Consolidated  Financial  Statements)  were
financed through the  aforementioned  and previous U.S. revolving line of credit
facilities.
     The Mexico  subsidiary's  acquisition of Vinci (See Note 10 to Consolidated
Financial  Statements)  was  financed  initially  through  on-hand cash and cash
equivalents. The additional working capital needs in Mexico are financed through
the U.S. and Mexico bank lines of credit discussed above.
     Refer to Notes 3 and 4 to  Consolidated  Financial  Statements  for further
description of the aforementioned financing arrangements.
     The existing  sources of financing and cash  expected to be generated  from
future  operations  and / or assets  sales 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>


YEAR  2000  READINESS  DISCLOSURE
----  ----  ---------  ----------

     The Year 2000 issue relates to the way computer systems and programs define
calendar dates;  they could fail or make  miscalculations  while  interpreting a
date  including "00" to mean 1900,  not 2000.  Also,  many systems and equipment
that  are  not  typically  thought  of as  `computer  related'  (referred  to as
`non-IT') may contain embedded hardware or software that may have a time element
dependency.
     Dixon began work on the Year 2000 (Y2K) compliance issue in 1998. The scope
of the project includes addressing the compliance of all applications, operating
systems,  and  hardware  on  mid-range,  PC and Local  area  network  platforms;
addressing  issues  related  to  non-IT  embedded  hardware  and  software;  and
addressing the compliance of business partners.
     The project has five phases:  assessment of systems and equipment  affected
by the Y2K issue;  definition  of  strategies  to address  affected  systems and
equipment;  remediation of systems;  testing of systems;  and  certification  of
systems.  To certify that all IT systems are Y2K compliant,  each system will be
tested using a standard testing  methodology which includes  millennium testing,
millennium  leap year  testing and  cross-over  year  testing.  Testing  will be
performed on each system as remediation is completed.
     Dixon has  completed all phases for its U.S. and Canadian  operations.  Its
Mexican  operations  have been  brought  into  compliance  by a complete  system
replacement.  Dixon's  non-IT  related  systems and  equipment are currently Y2K
compliant. This statement is based primarily upon communication with the vendors
as well as physical inspection, assessment, remediation and testing of equipment
and related controlling software.
     With respect to key business suppliers,  the assessment and strategy phases
are  underway  with  approximately  67% of all vendors and  approaching  100% of
critical vendors certifying compliance. In addition, any non-responding critical
suppliers have been identified and additional  steps are underway to insure that
there will be no  interruption of services  before,  during and after January 1,
2000. Contingency planning and testing will continue for the rest of 1999.
     We are also  dependent  upon our  customers  for sales and cash  flow.  Y2K
interruptions  in our  customers'  operations  could  result in  reduced  sales,
increase  inventory or receivable  levels and cash flow reductions.  While these
events are  possible,  our customer base is broad enough to minimize the effects
of a single  occurrence.  We are  taking  steps to  monitor  the  status  of our
customers as a means of determining risks and alternatives.
     Dixon  utilizes an IBM AS/400 system along with J. D. Edwards  software for
its core  business  applications.  These systems have been  assessed,  upgraded,
corrected  where  necessary  and  tested  to  insure   continuous  and  accurate
processing of information.
     Since the inception of the project, the company has incurred  approximately
$130,000 in costs directly  related to Y2K compliance.  These costs were outside
the normal and previously  planned upgrades of systems.  Based on assessments of
equipment and systems,  the company  expects  additional  Y2K expense to be less
than $10,000,  which will not have a material affect on the Company's operations
or financial  condition.  In addition,  there will not be adverse  impact due to
postponement of IT projects  because of resource  constraints  caused by the Y2K
project.
     The Company presently believes that its business-critical  computer systems
as well as non-IT related systems and equipment are Y2K compliant.  Based on the
progress  the Company has made in  addressing  its Y2K issues and the  Company's
efforts to complete  its  contingency  planning,  the  Company  does not foresee
significant risks associated with Y2K compliance at this time.


FORWARD-LOOKING STATEMENTS
--------------- ----------

     Any  "forward-looking  statements"  contained in this Annual Report on Form
10-K (including without limitation, management's expectation with respect to the
Company's ability to meet its current and anticipated obligations, the Company's
expectation as to the effect of new accounting  pronouncements  on its financial
position or results of operations,  and its readiness with respect to Y2K, among
others)  involve known and unknown risks,  uncertainties  and other factors that
could cause the actual  results to differ  materially  from those  expressed  or
implied by such  forward-looking  statements.  Such risks  include  (but are not
limited to) certain foreign  currency  exchange risk,  interest rate fluctuation
risk and Y2K compliance risks.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
---- --- ------------ --- ----------- ----------- ----- ------ ----

     As discussed  elsewhere,  the Company is exposed to the following principal
market risks (i.e.  risks of loss arising from adverse changes in market rates):
foreign exchange rates and interest rates on debt.

     The  Company's  exposure  to  foreign  currency  exchange  rate risk in its
international  operations  is  principally  limited to Mexico  and,  to a lesser
degree, Canada. Approximately 32% of the Company's fiscal 1999 net revenues were
derived in Mexico and Canada,  combined (exclusive of intercompany  activities).
Foreign  exchange  transaction  gains and losses arise from monetary  assets and
liabilities  denominated in currencies other than the business unit's functional
local  currency.  It is estimated that a 10% change in both the Mexican peso and
Canadian  dollar  would  impact  reported  operating  profit by  $300,000.  This
quantitative  measure  has  inherent  limitations  because it does not take into
account the changes in customer  purchasing  patterns or any  adjustment  to the
Company's  financing  or  operating  strategies  in response to such a change in
rates.  Moreover,  this measure does not take into account the possibility  that
these currency rates can move in opposite  directions,  such that gains from one
may offset losses from another.
     In addition,  the Company's  cash flows and earnings are subject to changes
in interest  rates. As of September 30, 1999,  approximately  45% of total short
and  long-term  debt is fixed,  at rates  between 8% and 12%. The balance of the
Company debt is variable,  principally based upon the prevailing U.S. bank prime
rate or LIBOR rate.  Certain interest rate swaps,  which expire in 2000, fix the
rate of interest on $7.8 million of this debt at  approximately  8%. A change in
the average prevailing interest rates of the remaining debt of 1% would not have
a material effect upon the Company's  results of operations or cash flows.  This
quantitative  measure  does not  take  into  account  the  possibility  that the
prevailing rates (U.S. bank prime and LIBOR) can move in opposite directions and
that  the  Company  has,  in most  cases,  the  option  to elect  either  as the
determining interest rate factor.




<PAGE>


ITEM 8.   FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA
-------   ---------  ----------  ---  -------------  ----


                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE




                                                                         PAGE
                                                                         ----

Report of Independent Certified Public Accountants                         18

Consolidated Balance Sheets as of
  September 30, 1999 and 1998                                           19-20

Consolidated  Statements of  Operations  For the Years
  Ended September 30, 1999, 1998 and 1997                                  21

Consolidated  Statements of Comprehensive Income
  For the Years Ended September 30, 1999, 1998 and 1997                    22

Consolidated Statements of Shareholders' Equity
  For the Years Ended  September 30, 1999,  1998 and 1997                  23

Consolidated  Statements  of Cash  Flows For the
  Years Ended September 30, 1999, 1998 and 1997                         24-25

Notes to Consolidated Financial Statements                              26-39

Schedule For the Years Ended September 30, 1999, 1998, and 1997:

      II. Valuation and Qualifying Accounts                                40

      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.

Consent of Independent Certified Public Accountants                        41





<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




Shareholders and Board of Directors of
Dixon Ticonderoga Company


     In  our  opinion,  the  consolidated  financial  statements  listed  in the
accompanying  index  present  fairly,  in all material  respects,  the financial
position of Dixon Ticonderoga Company and its subsidiaries at September 30, 1999
and 1998, and the results of their operations,  their  comprehensive  income and
their cash flows for each of the three years in the period ended  September  30,
1999, in conformity with generally accepted accounting  principles in the United
States. In addition,  in our opinion, the financial statement schedule listed in
the  accompanying  index  presents  fairly,  in  all  material   respects,   the
information  set  forth  therein  when  read in  conjunction  with  the  related
consolidated  financial  statements.  These  financial  statements and financial
statement  schedule are the  responsibility  of the  Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.






PricewaterhouseCoopers LLP
Orlando, Florida
November 24, 1999



<PAGE>


                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           SEPTEMBER 30, 1999 AND 1998

<TABLE>

                                                     1999             1998
     ASSETS:                                      -----------      ------------
     ------

CURRENT ASSETS:

   <S>                                            <C>              <C>
   Cash and cash equivalents                      $   935,413      $ 2,853,281
   Receivables, less allowance for doubtful
     accounts of $1,428,541 in 1999 and            29,343,196       31,810,617
     $1,369,815 in 1998
   Inventories                                     39,425,594       37,445,502
   Other current assets                             2,381,518        1,630,381
                                                  ------------     ------------

      Total current assets                         72,085,721       73,739,781
                                                  ------------     ------------

PROPERTY, PLANT AND EQUIPMENT:

   Land and buildings                              13,413,125       14,847,930
   Machinery and equipment                         17,661,335       21,182,762
   Furniture and fixtures                           1,753,765        1,213,662
                                                  ------------     ------------

                                                   32,828,225       37,244,354
      Less accumulated depreciation               (19,004,402)     (20,975,708)
                                                  ------------     ------------

                                                   13,823,823       16,268,646
                                                  ------------     ------------

OTHER ASSETS                                        6,978,123        2,621,460
                                                  ------------     ------------

                                                  $92,887,667      $92,629,887
                                                  ============     ============
</TABLE>




<PAGE>



<TABLE>

      LIABILITIES AND SHAREHOLDERS' EQUITY:          1999           1998
      ----------- --- ------------- -------       ------------   ------------

CURRENT LIABILITIES:
<S>                                                <C>           <C>
   Notes payable                                   $2,578,467    $26,031,951
   Current maturities of long-term debt             1,638,835      1,879,775
   Accounts payable                                 6,143,136      7,765,451
   Accrued liabilities                             12,268,095      8,482,278
                                                  ------------   ------------

      Total current liabilities                    22,628,533     44,159,455
                                                  ------------   ------------

LONG-TERM DEBT                                     39,399,795     21,927,289
                                                  ------------   ------------

DEFERRED INCOME TAXES AND OTHER                        96,843        776,100
                                                  ------------   ------------

MINORITY INTEREST                                     533,390      2,711,805
                                                  ------------   ------------

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 3,688,559 shares in 1999 and
     3,654,558 shares in 1998                       3,688,559      3,654,558
   Capital in excess of par value                   3,586,471      3,327,755
   Retained earnings                               26,945,792     20,264,057
   Accumulated comprehensive income (loss)         (2,416,475)    (3,373,837)
                                                  ------------   -----------
                                                   31,804,347     23,872,533
   Less treasury stock, at cost (292,789 shares
     in 1999 and 222,841 shares in 1998)           (1,575,241)      (817,295)
                                                  ------------   ------------

                                                   30,229,106     23,055,238
                                                  ------------   ------------

                                                  $92,887,667    $92,629,887
                                                  ============   ============
</TABLE>



               The accompanying notes are an integral part of the
                       consolidated financial statements.



<PAGE>

<TABLE>

                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997

                                          1999           1998          1997
                                      -------------   ------------  -----------
<S>                                   <C>             <C>           <C>

REVENUES                              $114,689,474    $124,721,758 $115,054,806
                                      -------------   ------------ ------------

COSTS AND EXPENSES:
  Cost of goods sold                    72,170,810     76,296,877   72,916,837
  Selling and administrative expenses   33,789,975     38,349,867   31,252,037
  Provision for restructuring and
   related costs                         1,916,800         -            -
                                      -------------   ------------ -----------

                                       107,877,585    114,646,744  104,168,874
                                      -------------   ------------ -----------

GAIN ON SALE OF ASSETS                   9,636,318         -            -
                                      -------------   ------------ -----------

OPERATING INCOME                        16,448,207     10,075,014   10,885,932

INTEREST EXPENSE                         4,771,109      4,671,646    3,799,760
                                      -------------   ------------ -----------

INCOME BEFORE INCOME TAXES
  AND MINORITY INTEREST                 11,677,098      5,403,368    7,086,172

INCOME TAXES                             4,593,228      1,562,069    2,676,458
                                      -------------   ------------ -----------
                                         7,083,870      3,841,299    4,409,714

MINORITY INTEREST                          402,135        704,940      808,536
                                      -------------   ------------ -----------

NET INCOME                             $ 6,681,735    $ 3,136,359  $ 3,601,178
                                      =============   ============ ===========

EARNINGS PER COMMON SHARE (BASIC)      $      1.95    $       .93  $      1.08
                                      =============   ============ ===========

EARNINGS PER COMMON SHARE (DILUTED)    $      1.87    $       .85  $      1.05
                                      =============   ============ ===========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


<PAGE>
                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
              FOR THE YEARS ENDED SEPTEMBER 30,1999, 1998, AND 1997



                                     1999             1998             1997
                                  -----------      ------------    ------------

NET INCOME                        $6,681,735      $ 3,136,359      $ 3,601,178

OTHER COMPREHENSIVE INCOME (LOSS):

   Foreign currency translation
     adjustments                      957,362         (604,981)        (99,825)
                                  -----------      ------------     -----------

TOTAL COMPREHENSIVE INCOME        $7,639,097      $ 2,531,378      $ 3,501,353
                                  ===========      ============     ===========





               The accompanying notes are an integral part of the
                       consolidated financial statements.

<PAGE>
                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
             FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>

                                       Common       Capital in                   Accumulated
                                      Stock $1       Excess of      Retained     Comprehensive      Treasury
                                      Par Value      Par Value      Earnings     Income (Loss)       Stock
                                     ------------   ------------  ------------  ---------------  -------------
<S>                                  <C>            <C>           <C>             <C>            <C>

BALANCE, September 30, 1996          $ 3,537,211    $ 2,489,674   $ 13,526,520   $ (2,669,031)   $   (892,818)
   Net income                                                        3,601,178
   Cumulative translation adjustment                                                  (99,825)
   Employee stock options exercised       54,470        260,669
   Employee Stock Purchase Plan
      (9,339 shares)                                     20,325                                        34,252
                                     -----------    -----------   ------------    -----------    ------------

BALANCE, September 30, 1997            3,591,681      2,770,668     17,127,698     (2,768,856)       (858,566)
   Net income                                                        3,136,359
   Cumulative translation adjustment                                                 (604,981)
   Employee stock options exercised       62,877        529,013
   Employee Stock Purchase Plan
      (11,253 shares)                                    28,074                                        41,271
                                     -----------    -----------   ------------    -----------    ------------


BALANCE, September 30, 1998            3,654,558      3,327,755     20,264,057     (3,373,837)       (817,295)
   Net income                                                        6,681,735
   Cumulative translation adjustment                                                  957,362
   Employee stock options exercised       34,001        227,094
   Employee Stock Purchase Plan
      (6,619 shares)                                     31,622                                        31,672
   Purchase of treasury stock
      (76,567 shares)                                                                                (789,618)
                                     -----------    -----------   ------------    -----------    ------------

BALANCE, September 30, 1999          $ 3,688,559    $ 3,586,471   $ 26,945,792   $ (2,416,475)   $ (1,575,241)
                                     ===========    ===========   ============    ===========    ============
</TABLE>

<PAGE>

<TABLE>

                         DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997

                                             1999          1998          1997
                                          ------------  ------------  ---------
Cash flows from operating activities:
<S>                                      <C>           <C>           <C>

Net income                               $ 6,681,735   $ 3,136,359  $ 3,601,178

Adjustments  to  reconcile  net income to
   net cash provided  by (used in)
   operating activities:
   Depreciation and amortization           2,607,425     2,933,660    2,571,660
   Deferred taxes                           (889,000)    1,448,626     (228,039)
   Provision for doubtful accounts
      receivable                             191,356       105,126      248,576
   Gain on sale of assets                 (9,636,318)        -             -
   Income    attributable   to   minority
      interest                               402,135       704,940      808,536
   (Income) loss  attributable to foreign
      currency exchange                     (127,299)    1,798,357       80,829
Changes in assets [(increase) decrease]
   and liabilities [increase (decrease)]:
   Receivables, net                        1,677,182    (5,726,094)  (2,862,231)
   Inventories                            (7,279,117)   (5,326,301)    (207,379)
   Other current assets                     (781,505)      253,571     (374,881)
   Accounts  payable and accrued
      liabilities                         (1,787,274)   (4,558,206)   3,703,760
   Other assets                           (1,480,679)     (437,785)    (655,730)
                                          ------------  ------------  ---------

Net cash  provided by (used in)
   operating activities                  (10,421,359)   (5,667,747)   6,686,279
                                          ------------  ------------  ---------

Cash flows from investing activities:
   Purchases of plant and equipment, net    (638,384)   (1,350,855)  (1,938,543)
   Proceeds on sale of assets             19,596,710     1,089,399         -
   Payment  for   purchase  of  Vinci  de
      Mexico,  S.A.  de  C.V.,  net of
      cash acquired                            -        (3,289,200)        -
                                          ------------  ------------  ---------

Net cash  provided by (used in)
   investing activities                   18,958,326    (3,550,656)  (1,938,543)
                                          ------------  ------------  ---------
</TABLE>

<PAGE>
<TABLE>

                                             1999          1998         1997
                                          ------------ ------------  ----------
<S>                                        <C>            <C>          <C>

Cash flows from financing activities:

Principal reductions of notes payable      (23,361,167)       -           -
Proceeds from additions to long-term debt   17,523,741        -           -
Proceeds from additions to notes payable         -        8,672,323   1,918,202
Principal reductions of long-term debt        (320,471)  (1,672,606) (1,433,695)
Purchase of treasury stock                    (789,618)       -            -
Purchase of subsidiary stock                (3,734,668)       -      (2,519,324)
Other non-current liabilities                 (465,169)      44,044     197,435
Employee Stock Purchase Plan                    63,294       69,345      54,577
Exercise of stock options                      261,095      368,103     162,512
                                          ------------ ------------  ----------

Net cash  provided by (used in) financing
   activities                              (10,822,963)   7,481,209  (1,620,293)
                                          ------------ ------------  -----------

Effect of exchange rate changes on cash        368,128   (1,017,112)   (116,888)
                                          ------------ ------------  -----------

Net increase  (decrease) in cash and cash
   equivalents                              (1,917,868)  (2,754,306)  3,010,555

Cash and cash  equivalents,  beginning of
   year                                      2,853,281    5,607,587   2,597,032
                                          ------------ ------------  ----------

Cash and cash equivalents, end of year    $  935,413    $ 2,853,281 $ 5,607,587
                                          ============ ============ ===========

Supplemental disclosures:

Cash paid during the year for:
   Interest                               $  4,887,426  $ 4,690,538 $ 4,127,005
   Income taxes                              5,100,663      893,756   1,570,774
</TABLE>


      During fiscal 1999, the Company  accepted a note  receivable of $3,250,000
as  partial  consideration  for the  sale of  assets  of its U.S.  Graphite  and
Lubricants division.


               The accompanying notes are an integral part of the
                       consolidated financial statements.




<PAGE>
                   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 5% 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.

      Loss contingencies:
      ---- --------------

      The  Company  recognizes  loss  contingencies,   including   environmental
      liabilities,  when they become  probable  and the  related  amounts can be
      reasonably estimated.

      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  Grupo Dixon,  S.A. de
      C.V.,  subsidiary.  In  1999,  the  Company  repurchased  shares  of  this
      subsidiary on the open market,  reducing the minority  interest from 20.2%
      to 3%.

      Translation  of  foreign  currencies:
      -----------  --  -------  -----------

      In accordance with Financial  Accounting  Standards Board (FASB) Statement
      No.  52,  the  Company  has  determined  that  each  foreign  subsidiary's
      functional  currency is their local  currency.  All assets and liabilities
      are translated at period-end exchange rates. All revenues and expenses are
      translated  using average  exchange rates during that period.  Translation
      gains  and  losses  are  reflected  as  a  separate   component  of  other
      comprehensive  income (loss),  except for Mexico for the period January 1,
      1997  through  December  31,  1998.  As of  January  1,  1997  Mexico  was
      considered a highly  inflationary  economy for  purposes of applying  this
      statement.  Mexico  translation  gains  and  losses,  therefore,  affected
      results of  operations  through  December 31, 1998.  Gains and losses from
      foreign currency  transactions are included in the Consolidated  Statement
      of Operations.  Total foreign currency exchange gains (losses) included in
      operating income were approximately  $127,000,  $(1,798,000) and ($81,000)
      for fiscal years 1999, 1998 and 1997, respectively.

      Cash  and  cash  equivalents:
      ----  ---  ----  ------------

      Cash and cash equivalents  include investment  instruments with a maturity
      of three months or less at time of purchase.



<PAGE>
      Inventories:
      ------------

      Inventories are stated at the lower of cost or market. Certain inventories
      amounting to $16,144,000  and  $16,458,000 at September 30, 1999 and 1998,
      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 $962,000 and $816,000 higher at
      September  30,  1999 and 1998,  respectively.  All other  inventories  are
      accounted for using the FIFO method.

      The financial  accounting basis for the LIFO inventories  exceeds the LIFO
      tax basis by  approximately  $261,000 and $1,375,000 at September 30, 1999
      and 1998, respectively.

      Inventories consist of (in thousands):

                                              September 30,
                                             1999       1998
                                           ---------  ---------

            Raw material                    $15,246    $13,303
            Work in process                   5,016      4,651
            Finished goods                   19,164     19,492
                                           ---------  ---------

                                            $39,426    $37,446
                                           =========  =========


      Property,  plant  and  equipment:
      ---------  -----  ---  ----------

      Property, plant and equipment are stated at cost. Depreciation is provided
      principally on a  straight-line  basis over the estimated  useful lives of
      the  respective  assets.  The range of estimated  useful lives by class of
      property, plant and equipment are as follows:

            Buildings and improvements             10-25 years
            Machinery and equipment                 5-15 years
            Furniture and fixtures                   3-5 years

      When  assets  are sold or  retired,  their  cost and  related  accumulated
      depreciation  are removed from the accounts.  Any gain or loss is included
      in income.


      Impairment of long-lived assets:
      ---------- -- ---------- -------

      Long-lived  assets used in the  Company's  operations,  including  cost in
      excess of net assets of businesses  acquired,  are reviewed for impairment
      when events and  circumstances  indicate  that the  carrying  amount of an
      asset may not be recoverable. The primary indicators of recoverability are
      the associated current and forecasted  undiscounted  operating cash flows.
      The Company's policy is to record an impairment loss when it is determined
      it is  probable  that the  carrying  amount of the asset  exceeds its fair
      value.




<PAGE>


      Stock-based compensation:
      ----------- -------------

      The Company  accounts  for  compensation  cost  related to employee  stock
      options  and other  forms of employee  stock-based  compensation  plans in
      accordance  with the  requirements  of Accounting  Principles  Board (APB)
      Opinion 25 and related interpretations.  APB 25 requires compensation cost
      for  stock-based   compensation  plans  to  be  recognized  based  on  the
      difference, if any, between the fair market value of the stock on the date
      of grant and the option exercise price.  The Company  provides  additional
      proforma disclosures as required under FASB Statement No. 123, "Accounting
      For Stock-Based Compensation".


      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.


(2)   ACCRUED  LIABILITIES:
---   -------  ------------

      The major components of accrued liabilities are as follows (in thousands):

                                               September 30,
                                             1999        1998
                                           ---------  ---------

            Salaries and wages               $1,433    $ 2,244
            Employee benefit plans              594        511
            Income taxes                      2,540      1,712
            Other                             7,701      4,015
                                           ---------  ---------

                                           $ 12,268    $ 8,482
                                           =========  =========


(3)   NOTES  PAYABLE:
---   ----   --------

      On  September  30,  1999,  the  Company's  revolving  credit  facility was
      refinanced as long-term debt, due in 2004.  Borrowings  under the previous
      credit  facility  ($23,043,000  as of September  30, 1998) were retired in
      fiscal 1999 (See Note 4).

      The  Company's  Mexican  subsidiary  has  bank  lines of  credit  totaling
      approximately  $7 million,  under which $2.5 and $2.9 million of unsecured
      notes  payable  were  outstanding  as of  September  30,  1999  and  1998,
      respectively. The notes bear interest (approximately 9.2% at September 30,
      1999) based upon either a floating  U.S.  bank rate or the rate of certain
      Mexican government securities and is renewable annually.

      The weighted  average  interest  rate of the Company's  outstanding  notes
      payable  (including  foreign  borrowings)  was 9.3%,  10.0% and 9.0% as of
      September 30, 1999, 1998 and 1997, respectively.



<PAGE>


(4) LONG-TERM DEBT:
--- --------- -----

      Long-term debt consists of the following (in thousands):

                                               September 30,
                                              1999      1998
                                           ---------  ---------

            12% Senior Subordinated Notes  $ 16,500   $ 16,500
            Bank notes payable               14,468        -
            Bank term loan                    7,500      4,444
            Building mortgage                 2,398      2,513
            Other                               173        350
                                           ---------  ---------
                                             41,039     23,807
            Less current maturities          (1,639)    (1,880)
                                           ---------  ---------

                                           $ 39,400   $ 21,927
                                           =========  =========

      In  September  1999,  the  Company  entered  into  new  primary  financing
      arrangements  with a  consortium  of  lenders,  providing a total of up to
      $42.5 million in financing through September 2004. The underlying loan and
      security  agreements  include a revolving  line of credit  facility in the
      amount of $35 million which bears  interest at either the prime rate (8.5%
      at  September  30,  1999)  plus  0.25%,  or  the  prevailing   LIBOR  rate
      (approximately  5.4% at September  30, 1999) plus 1.75%  through  December
      2000. Thereafter,  the interest rate can vary based upon certain financial
      performance ratios (as defined in the agreement),  but in no event greater
      than the prime rate, plus 1% or the LIBOR rate plus 2.5%. Borrowings under
      the new  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  previously  executed  an  interest  rate swap
      agreement  which  effectively  fixes the rate of interest on $5 million of
      the revolver debt at 8.12% through July 2000.

      The loan and security agreements also include a term loan in the 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 for the  revolving
      credit facility. The Company has previously executed an interest rate swap
      agreement which  effectively  fixes the rate of interest on  approximately
      $2.8 million of the term loan at 8% 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.  At  September  30,  1999,  the Company had  approximately  $20
      million of unused lines of credit  available  under the  revolving  credit
      facility. A fee of 0.25% is paid on the unused portion of this facility.

      In 1996, the Company  completed the private  placement of $16.5 million of
      12% Senior  Subordinated  Notes valued at their face amount,  due 2003. In
      connection with the private  placement,  the Company issued to noteholders
      warrants to purchase  300,000  shares of Company stock at $7.24 per share.
      No value was assigned to the  warrants,  which expire in 2003,  based on a
      fair market  value  determination  at the date of issuance.  In 1998,  the
      Company  canceled  a reverse  interest  rate  swap  agreement  (which  had
      originally  converted  $10  million  of the  notes to a  floating  rate of
      interest) resulting in a deferred gain of approximately $375,000, which is
      being  recognized over the remaining  original term of the notes. The note
      agreement,  as  amended,  contains  provisions  which limit the payment of
      dividends and require the maintenance of certain  financial  covenants and
      ratios.

      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 notes payable
      and term loan and the building  mortgage are reasonable  estimates of fair
      value  as  interest  rates  are  based on  prevailing  market  rates.  The
      aggregate  fair value of the Company's  two  remaining  interest rate swap
      agreements  (discussed  above ) is an unrecognized  loss of  approximately
      $42,000,  representing the net cost to cancel the underlying agreements as
      of September 30, 1999.

      In 1998,  the FASB issued  Statement No. 133  "Accounting  for  Derivative
      Instruments and Hedging  Activities" which is effective for the Company in
      fiscal 2001.  This  statement  requires all  derivative  instruments to be
      recognized in the balance sheet as either  assets or  liabilities  at fair
      value.  The Company  currently  uses cash flow hedges to convert  variable
      rate  debt to  fixed  rate  debt,  but  does  not  expect  the  prescribed
      accounting  for these  instruments  to  materially  affect  its  financial
      position or results of operations when adopted.

      Aggregate maturities of long-term debt are as follows (in thousands):

                                 2000           $1,639
                                 2001            7,214
                                 2002            7,199
                                 2003            7,185
                                 2004           16,140
                                 Thereafter      1,662
                                               --------
                                               $41,039
                                               ========



<PAGE>
(5)   INCOME  TAXES:
---   ------  ------

      The  components  of net deferred tax asset  (liability)  recognized in the
      accompanying consolidated balance sheet are as follows (in thousands):

                                                    1999           1998
                                                 ------------   ------------
      U.S. current deferred tax assets
         (included in other current assets)       $  258        $   555
      Foreign current deferred tax liability
         (included in accrued liabilities)        (1,343)         (1,091)
      U.S. and foreign, noncurrent deferred tax
         asset (liability) (included in other
         assets and deferred income taxes and
         other, respectively)                      1,156            (525)
                                                 ------------   ------------

         Net deferred tax asset (liability)       $   71        $ (1,061)
                                                 ============   ============

      Deferred tax assets:
         Vacation pay                             $  135        $    266
         Accrued pension                             466             368
         Accrued restructuring and related costs     357              -
         Accrued environmental costs                 148              90
         Installment sale and related expenses       434              -
         Other                                       126              45
         Foreign net operating loss carryforward     509             507
         Valuation allowance                        (509)           (507)
                                                 ------------   ------------

         Total deferred tax asset                  1,666             769
                                                 ------------   ------------

      Deferred tax liabilities:
         Inventories                                (962)         (1,094)
         Depreciation                               (105)           (198)
         Property, plant and equipment              (528)           (538)
                                                 ------------   ------------

         Total deferred tax liability             (1,595)         (1,830)
                                                 ------------   ------------

      Net deferred tax asset (liability)          $   71        $ (1,061)
                                                 ============   ============

      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  $21,632,000 as
      of September 30, 1999. The determination of the unrecognized  deferred tax
      liability for such temporary differences is not practicable.



<PAGE>
     The provision for income taxes from  continuing  operations is comprised of
the following (in thousands):

                         1999       1998       1997
                       --------   --------  --------
  Current:
     U.S. Federal      $3,463     $ (656)    $  773
     State                491         41         85
     Foreign            1,528        728      2,046
                       -------    -------    -------
                        5,482        113      2,904
                       -------    -------    -------
  Deferred:
     U.S. Federal        (929)       916        (51)
     State               (110)        -          -
     Foreign              150        533       (177)
                       -------    -------    -------

                         (889)     1,449       (228)
                       -------    -------    -------
                       $4,593     $1,562     $2,676
                       =======    =======    =======


      Foreign  deferred tax  provision  (benefit) is  comprised  principally  of
      temporary  differences  related to Mexico asset purchases.  U.S.  deferred
      provision in 1998 results  primarily from legal  expenses  deducted on the
      books in prior years that were  deductible for tax purposes that year. The
      U.S.  deferred  (benefit) in 1999 and 1997 result  primarily from expenses
      accrued but not yet deductible for taxes.

      The Company has net operating  loss  carryforwards  for its United Kingdom
      subsidiary of  approximately  $2 million  without an expiration  date, for
      which the related benefit is fully reserved through a valuation allowance,
      as their utilization is uncertain.

      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):

                                                  1999       1998       1997
                                                --------   --------  ---------

        Amount computed using statutory rate     $3,970      $1,837    $2,409


        Foreign income                              (26)      (557)        38

        State  taxes,  net of  federal benefit      252          27        56

        Permanent differences                       231         239       138

        Others                                      166          16        35
                                                --------   --------  ---------

        Provision for income taxes              $ 4,593     $ 1,562   $ 2,676
                                                ========   ========  =========

     Permanent differences result primarily from intercompany net income that is
     eliminated from the consolidated  statements of operations but are taxed in
     various jurisdictions.

     A Revenue Canada  examination  with respect to its 1994 and 1995 tax years,
     resulted in an assessment which was paid in fiscal 1999. The Company has an
     appeal pending with Revenue Canada.  All tax and interest has been provided
     for and no liability or recovery is reflected in the Consolidated Financial
     Statements.



<PAGE>


(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.

     In 1999, the Company  adopted the revised  disclosure  requirements of FASB
     Statement  No.132,   "Employers'   Disclosures  About  Pensions  and  Other
     Postretirement  Benefits".  This statement  standardized the disclosures of
     pensions and other  postretirement  benefits into a combined format but did
     not change the accounting for these benefits.  Prior years' information has
     been reclassified to conform to the new disclosure format.

     The  following  tables  set forth the  plans'  funded  status  (accumulated
     benefits  exceed assets in all plans) and other  information for the fiscal
     years ended September 30, 1999 and 1998 (in thousands):

                                                       September 30,

                                                      1999       1998
                                                    ---------  ---------
         Change in benefit obligation:

         Obligation at beginning of year             $4,123     $3,428

         Service cost                                   311        358

         Interest cost                                  235        217

         Actuarial (gain) loss                          (74)       362

         Benefit payments                              (320)      (242)
                                                    ---------  ---------

         Obligation at end of year                   $4,275     $4,123
                                                    =========  =========




         Change in market value of plan assets:

         Market value at beginning of year           $2,692     $2,243

         Actual return on plan assets                    45        268

         Employer contributions                         489        423

         Benefit payments                              (320)      (242)
                                                    ---------  ---------

         Market value at end of year                 $2,906     $2,692
                                                    =========  =========





<PAGE>
                                                        September 30,
                                                      1999       1998
                                                    ---------  ---------
         Actuarial present value of:

         Accumulated benefit obligation             $(4,275)   $(4,123)
                                                    =========  =========

         Projected benefit obligation               $(4,275)   $(4,123)

         Plan assets at market value                  2,906      2,692
                                                    ---------  ---------

         Projected benefit obligation in excess of
         plan assets                                 (1,369)     (1,431)

         Unrecognized net gain from past
            experience different from assumptions       875         830

         Unrecognized net obligation being
            recognized over periods from 10 to 16
            years                                       730         830
                                                    ---------  ---------

         Prepaid pension expense                     $  236     $   229
                                                    =========  =========





  Net periodic pension costs include the following components (in thousands):

                                                     1999       1998       1997
                                                   ---------  ---------  ------
  Service costs - benefits earned during period      $  311    $  126   $  126
  Interest cost on projected benefit obligation         235       217      220
  Expected return on plan assets                       (203)     (269)     (58)
  Net amortization and deferral                         139       190       30
                                                    --------- --------   ------
  Net periodic pension cost                          $  482    $  264   $  318
                                                    ========= =========  ======


     In determining the projected benefit obligation, the assumed discount rates
     ranged  from 4.25 % to 7.5 % for  1999,  4.25% to 6.0% for 1998 and 4.5% to
     7.5% for 1997.  The  expected  long-term  rates of return on assets used in
     determining  net  periodic  pension  cost ranged from 7.5 % to 8.5 % in all
     years  presented  above.   There  are  no  assumed  rates  of  increase  in
     compensation  expense in any year,  as  benefits  are fixed and do not vary
     with compensation levels.

     The  Company  also  maintains  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, 1999, 1998 and
     1997 were $871,000, $875,000 and $ 617,000, respectively.



<PAGE>


(7)   SHAREHOLDERS'  EQUITY:
---   -------------  -------

      The Company provides an Employee Stock Purchase Plan under which shares of
      its common stock can be issued to eligible  employees.  Among the terms of
      this plan,  eligible  employees may purchase  through  payroll  deductions
      shares of the Company's  common stock up to 10 % of their  compensation at
      the  lower of 85 % of the fair  market  value of the stock on the first or
      last day of the plan year (May 1 and April 30).  On May 1, 1999,  1998 and
      1997, 6,619, 11,253 and 9,339 shares, respectively, were issued under this
      plan. At September 30, 1999,  there are 92,478 shares available for future
      purchases under the plan.

      The Company has also granted non-qualified options to key employees, under
      the 1988 Dixon Ticonderoga Company Executive Stock Plan to purchase shares
      of its common  stock at the market  price on the date of grant.  Under the
      1988 Plan (as amended)  options  vest 25 % after one year;  25 % after two
      years; and 50 % after three years, and remain  exercisable for a period of
      five years from the date of vesting. All options expire three months after
      termination  of  employment.  At September  30,  1999,  there were 399,625
      options  outstanding  and no shares  available for future grants under the
      1988 Plan.

      In  addition,  the Dixon  Ticonderoga  Company 1999 Stock Option Plan (the
      "New  Plan") was  adopted  in fiscal  1999,  covering a maximum  aggregate
      300,000 shares.  Under the New Plan,  qualified incentive stock options or
      non-qualified  stock  options  can be granted to  employees  at the market
      price on the date of grant  and which  will vest on the same  bases as the
      1988 Plan described  above.  Non-qualified  options under the New Plan may
      also be issued to Company  outside  directors  at the market  price on the
      date of grant and which may vest over  varying  periods.  In 1999,  30,000
      non-qualified  options  were  granted to outside  directors  under the New
      Plan. The granted  options vest over a two-year  period.  At September 30,
      1999 there were 270,000  shares  available for future grants under the New
      Plan. The following table  summarizes the combined stock options  activity
      for 1999, 1998 and 1997:


<PAGE>
                                  1999               1998               1997
                          ------------------ ------------------ ----------------
                            Number   Option   Number    Option   Number   Option
                          of Shares  Price   of Shares   Price   of Shares Price
                          --------- -------- --------- -------- ---------- -----

      Options outstanding                                         36,817   $4.75
         at beginning of       312   $7.75     18,935   $7.75     42,375    7.75
         year                                   2,000    6.13      2,000    6.13
                            44,250    8.63     72,750    8.63     97,000    8.63
                            60,125    6.75     72,750    6.75     92,000    6.75
                            15,250    7.13     15,750    7.13     17,000    7.13
                           317,000    8.88    351,000    8.88
                            10,000   14.13
                            18,500   12.88
      Options exercised                                          (36,720)   4.75
                           (10,250)   6.75     (9,500)   6.75     (2,625)   6.75
                            (2,000)   7.13       (500)   7.13     (1,250)   7.13
                              (312)   7.75    (18,623)   7.75     (6,375)   7.75
                            (1,750)   8.63    (28,000)   8.63     (7,500)   8.63
                                               (2,000)   6.13
                           (19,688)   8.88     (4,250)   8.88

      Options granted                                            351,000    8.88
                                               10,000   14.13
                                               18,500   12.88
                            40,000   11.00
      Options expired or                                             (97)   4.75
         canceled                                                (17,065)   7.75
                              (750)   8.63       (500)   8.63    (16,750)   8.63
                            (1,250)   6.75     (3,125)   6.75    (16,625)   6.75
                           (24,312)   8.88    (29,750)   8.88
                            (2,500)   7.13
                           (13,000)  12.88
                          ---------          ----------         ----------
                           429,625            465,437            533,185
                          =========          ==========         ==========


      The Company has adopted the  disclosure-only  provisions of FASB Statement
      No. 123 and, accordingly,  there is no compensation expense recognized for
      its stock option plans.  Pro forma net income and earnings per share would
      have been as  follows  if the fair  market  estimates  were used to record
      compensation expense:

                                        1999           1998          1997
                                     ------------   ------------  ------------

      Net income                     $ 6,476,269    $ 2,990,726   $3,503,790
                                     ============   ============  ============

      Earnings per share:
          Basic                      $   1.89       $   .88       $  1.05
                                     ============   ============  ============
          Diluted                    $   1.81       $   .81       $  1.02
                                     ============   ============  ============



<PAGE>
      These pro forma amounts were estimated using the  Black-Scholes  valuation
      model  assuming  no  dividends,  expected  volatility  of 33 %,  risk-free
      interest rate of 6.5 %, and expected lives of approximately six years. The
      weighted average fair value estimates of options granted during 1999, 1998
      and 1997 was $3.67,  $4.45 and $2.98,  respectively.  The weighted average
      remaining  lives are 5.6, 6.5 and 5.75 years for options  granted in 1999,
      1998 and 1997, respectively.

      In 1995,  the Company  declared a dividend  distribution  of one Preferred
      Stock  Purchase  Right on each share of Company  common stock.  Each Right
      will entitle the holder to buy  one-thousandth  of a share of a new series
      of  preferred  stock at a price of $30.00  per share.  The Rights  will be
      exercisable only if a person or group ( other than the Company's chairman,
      Gino N.  Pala,  and  his  family  members  )  acquires  20% or more of the
      outstanding  shares of common  stock of the Company or  announces a tender
      offer following which it would hold 30% or more of such outstanding common
      stock.  The Rights entitle the holders other than the acquiring  person to
      purchase  Company  common  stock  having a market  value of two  times the
      exercise prices of the Right. If, following the acquisition by a person or
      group of 20% or more of the Company's  outstanding shares of common stock,
      the Company were acquired in a merger or other business combination,  each
      Right  would be  exercisable  for that number of the  acquiring  company's
      shares of common  stock  having a market  value of two times the  exercise
      prices of the  Right.  The  Company  may redeem the Rights at one cent per
      Right at any time until ten days following the occurrence of an event that
      causes  the Rights to become  exercisable  for  common  stock.  The Rights
      expire ten years from the date of distribution.

      In  March,   1999,  the  Company  announced  a  Stock  Repurchase  Program
      authorizing  the  acquisition  of up to $3  million  in Dixon  Ticonderoga
      Company  stock.  Through  September  30,  1999,  the  Company  repurchased
      approximately 77,000 shares at a cost of $790,000.


(8)   SUBSIDIARY  STOCK  REPURCHASE:
---   ----------  -----  -----------

      In fiscal 1997, the Company repurchased 9,900,000 shares (or 29.7%) of its
      subsidiary,  Grupo Dixon, S.A. de C.V., for approximately $2.5 million. In
      fiscal 1999, the Company  repurchased an additional  5,722,760  shares (or
      17.2%) for approximately $3.7 million, bringing its total ownership in its
      subsidiary  to 97%. The shares were  originally  issued in 1994,  when the
      Company sold  16,627,760  shares of the  subsidiary  in an initial  public
      offering  on the Mexico  Intermediate  Market.  The  Company  applied  the
      purchase  method of accounting to record these  repurchases  of subsidiary
      stock.


(9)   EARNINGS  PER  COMMON  SHARE:
---   --------  ---  ------  ------

      Basic  earnings per common share is  calculated  by dividing net income by
      the weighted  average number of shares  outstanding.  Diluted earnings per
      common  share  is  based  upon  the  weighted  average  number  of  shares
      outstanding,  plus the  effects  of  potentially  dilutive  common  shares
      [consisting of stock options (Note 7) and stock warrants (Note 4)].

      Average common shares used in the  calculation of earnings per share are
      as follows:

              Year           Basic      Diluted
              ----         ---------   ---------
              1999         3,420,779   3,581,062
              1998         3,387,202   3,708,026
              1997         3,323,261   3,433,801




<PAGE>


(10) ACQUISITION:
---  ------------

      In December 1997,  the Company's  Mexican  subsidiary  acquired all of the
      capital  stock of Vinci de Mexico,  S.A. de C.V.,  ("Vinci"),  and certain
      assets  of  a  related   entity  for  a  final  total  purchase  price  of
      approximately  28.3 million  pesos  (approximately  $3.5 million) in cash.
      Vinci is a well-known  manufacturer  of tempera and oil paints,  chalk and
      modeling clay in Mexico.  The company also  manufactured  plastic products
      (such as rulers  and  geometric  sets),  water  colors  and  crayons.  The
      acquisition was accounted for under the purchase method of accounting and,
      accordingly, the accompanying Consolidated Balance Sheet includes the fair
      value of Vinci's  specific  assets  and  liabilities,  including  goodwill
      approximating  $320,000.  Goodwill is being  amortized  over the estimated
      period of benefit of 20 years. The results of Vinci's operations have been
      included  in the  consolidated  results  of  operations  since the date of
      acquisition.


(11)  SALE  OF  ASSETS:
----  ----  --  -------

      On March 2, 1999, the Company  completed the sale of its U.S. Graphite and
      Lubricants  division for $23.5  million,  plus the  assumption  of certain
      trade obligations  related to the division.  Except as provided for in the
      Asset  Purchase  Agreement,  the  Company  generally  retained  all  other
      liabilities of the business  through the closing date,  including  various
      environmental  liabilities.  The purchaser paid $20.25 million in cash and
      executed a five-year  subordinated  note for the balance of $3.25 million.
      The note is unsecured  and bears  interest at 9%,  deferred as  additional
      principal until  September 2, 2001.  Under the terms of the Asset Purchase
      Agreement, the Company relinquished approximately $650,000 of the proceeds
      which  had been  placed in  escrow,  pending  the  completion  of  certain
      post-closing  procedures.  In  connection  with  this  sale,  the  Company
      retained or accrued  additional  liabilities  approximating $4 million for
      ongoing  maintenance  of unsold  real estate and  environmental  expenses,
      employee severance and benefit costs and other  post-closing  obligations.
      The Company realized a net pre-tax gain of  approximately  $9.6 million on
      the sale.


(12)  RESTRUCTURING AND RELATED COSTS:
----  ------------- --- ------- ------

      In  fiscal  1999,  the  Company  provided   approximately   $1,917,000  in
      connection with its  Restructuring  and Cost Reduction  Program,  which is
      intended to improve  overall  financial  performance  in the  future.  The
      program included manufacturing plant closure and consolidation, as well as
      personnel  reduction in  manufacturing,  sales and marketing and corporate
      activities.  Approximately 125 employees  (principally plant workers) were
      affected by this  program.  The carrying  amount of property and equipment
      held for disposal  approximates $3 million and its estimated fair value is
      principally  based upon  assessments  of value made by local  realtors  or
      appraisals.  Management anticipates disposal of these assets by the end of
      2000. The restructuring charge and subsequent utilization is summarized as
      follows:

                                        1999         Utilized      Balance at
                                     Restructuring   in Fiscal      September
                                       Charge          1999         30, 1999
                                     ------------   ------------  --------------

      Employee severance and
      related costs                  $   587,000     $ (199,000)    $   388,000

      Anticipated losses from the
        sale or abandonment of
        property and equipment         1,330,000        (14,000)      1,316,000
                                     ------------   ------------  --------------

                                     $ 1,917,000     $ (213,000)    $ 1,704,000
                                     ============   ============  ==============



<PAGE>


(13)  LINE   OF   BUSINESS  REPORTING:
----  ----   --   --------  ----------

      The Company has adopted FASB Statement No. 131 "Disclosures About Segments
      of an Enterprise and Related  Information".  This  statement  requires the
      Company  to report  information  about its  operating  segments  under the
      "management  approach".  The management approach is based on the manner in
      which management reports segment information within the Company for making
      operating decisions and assessments.

      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,  1999,  1998 and
      1997, and for the years then ended (in thousands).

                                      Consumer    Industrial    Total
                                        Group       Group      Company
                                      ----------  ----------  ----------
      Net revenues:

         1999                          $ 97,372    $ 17,317    $114,689
         1998                            99,874      24,848     124,722
         1997                            89,416      25,639     115,055


      Income before interest, taxes and minority interest:

         1999                           $ 8,815    $ 10,332    $ 19,147
         1998                            10,279       2,859      13,138
         1997                             9,908       3,243      13,151



<PAGE>
       A reconciliation  of income before interest,  taxes and minority interest
       to net income follows (in thousands):
<TABLE>
                                                           1999
                                      -----------------------------------------
                                       Consumer   Industrial             Total
                                        Group       Group     Corporate Company
                                      ---------  ----------  ---------- --------
       <S>                            <C>        <C>         <C>        <C>
       Income before interest,
         taxes and minority interest    $ 8,815    $10,332   ($ 2,699)  $16,448

       Interest expense                  (3,528)      (430)      (813)   (4,771)

       Income tax (expense) benefit      (2,112)    (3,845)     1,364    (4,593)


       Minority interest                   (402)        -          -       (402)
                                      ---------  ----------  ---------- -------

       Net income                       $ 2,773    $ 6,057   ($ 2,148)  $ 6,682
                                      =========  ==========  ========== =======

                                                           1998
                                      -----------------------------------------
                                       Consumer   Industrial             Total
                                        Group       Group     Corporate Company
                                      ---------  ----------  ---------- -------
       Income before  interest,
         taxes and minority interest    $10,279    $ 2,859   ($ 3,063)  $10,075

       Interest expense                  (3,181)    (1,085)      (406)   (4,672)

       Income tax (expense) benefit      (2,199)      (667)     1,304    (1,562)

       Minority interest                   (705)        -          -       (705)
                                      ---------  ----------  ---------- -------

       Net income                       $ 4,194    $ 1,107   ($ 2,165)  $ 3,136
                                      =========  ==========  ========== =======

                                                           1997
                                      -----------------------------------------
                                       Consumer   Industrial             Total
                                        Group       Group     Corporate Company
                                      ---------  ----------  ---------- -------
       Income before  interest,
         taxes and minority interest    $ 9,908    $ 3,243   ($ 2,265)  $10,886

       Interest expense                  (2,445)      (963)      (392)   (3,800)

       Income tax (expense) benefit      (2,818)      (857)       999    (2,676)

       Minority interest                   (809)        -          -       (809)
                                      ---------  ----------  ---------- -------

       Net income                       $ 3,836    $ 1,423   ($ 1,658)  $ 3,601
                                      =========  ==========  ========== =======
</TABLE>

      Operating profit of the Consumer Group includes a charge for restructuring
      and related costs of $1,917 and the Industrial  Group includes the gain on
      sale of the U.S.  Graphite  and  Lubricants  Division  of  $9,636 in 1999.
      Certain  corporate  expenses  have been  allocated  based upon  respective
      segment sales.  Interest expense (where not  specifically  identified) has
      been allocated based upon identifiable assets by segment. Income taxes are
      determined based upon the respective effective tax rates.


<PAGE>





                                       Consumer      Industrial       Total
                                         Group         Group         Company
                                      ------------  ------------   ------------
      Identifiable assets:

      1999                              $75,609       $ 5,978        $81,587
      1998                               71,152        15,622         86,774
      1997                               64,224        14,164         78,388

      Corporate  assets were  $11,301,  $5,856 and $5,773 at September 30, 1999,
      1998 and 1997, respectively.

                                       Consumer      Industrial       Total
                                         Group          Group        Company
                                      ------------   ------------  ------------
      Depreciation and amortization:

      1999                              $ 1,485       $   392        $ 1,877
      1998                                1,722           532          2,254
      1997                                1,306           500          1,806

      Expenditures   for   plant  and
        equipment:

      1999                              $  802        $   150        $   952
      1998                                 853            502          1,355
      1997                                 773            914          1,687

      Corporate  depreciation and amortization were $730, $680 and $766, for the
      years ended  September 30, 1999,  1998 and 1997,  respectively.  Corporate
      expenditures  for equipment  were $58,  $148 and $371,  in 1999,  1998 and
      1997, respectively.


      Foreign operations:

                                                    Operating     Identifiable
                                       Revenues    Profit (Loss)     Assets
                                     ------------  -------------   ------------
      1999
         Canada                         $ 8,943       $   557        $ 5,784
         Mexico                          22,127         4,890         22,921
         United Kingdom                   1,080           (13)           633

      1998
         Canada                         $ 8,537       $   892        $ 6,712
         Mexico                          20,925         4,455         17,803
         United Kingdom                   1,056            (4)           789

      1997
         Canada                         $10,041       $ 1,038        $ 7,305
         Mexico                          13,714         4,339         13,140
         United Kingdom                   1,092             9            667




<PAGE>


(14)  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(R)  and   Scooby-Doo(R)
      characters.  Under the terms of the agreement,  as amended, the Company is
      obligated  to pay a total of $1  million  through  2000,  for the right to
      market and sell all types of  pencils,  pens,  crayons,  chalks,  markers,
      paints,  art kits and related items.  Through fiscal 1999, the Company has
      paid  $905,000  ($774,000  earned by Warner Bros.)  through  September 30,
      1999.

      The Company has entered into employment  agreements with three  executives
      which  provide  for the  continuation  of  salary  (currently  aggregating
      $48,000 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  leases  certain  manufacturing  equipment  under a five-year
      noncancelable  operating lease arrangement.  The rental expense under this
      lease was  $417,000 in 1999 and 1998 and $322,000 in 1997.  Annual  future
      minimum rental payments are  approximately  $417,000 per year through 2001
      and $104,000 in 2002.

      The  Company's  New  Castle  Refractories  Division  has  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 from Carborundum  Corporation,
      and which require Carborundum  Corporation to reimburse the Company for up
      to $225,000 for product development.

      The  Company,  in the  normal  course  of  business,  is party in  certain
      litigation.  In 1996, a decision was rendered by the Superior Court of New
      Jersey in Hudson County finding the Company  responsible for $1.94 million
      in certain  environmental  clean-up  costs  relating  to a claim under New
      Jersey's  Environmental  Clean-Up  Responsibility  Act  (ECRA)  by a  1984
      purchaser of industrial property from the Company.  All subsequent appeals
      were denied and the Company continues to pursue 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  attorney.  As a result of the judgment,  the Company paid $3.6
      million  in 1998 to  satisfy  this claim in full,  including  all  accrued
      interest. No anticipated recoveries from insurance carriers or other third
      parties have been  recognized.  In 1999, the pending  malpractice suit was
      dismissed and the Company has appealed the decision.

      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  assesses  the extent of  environmental  matters on an ongoing
      basis. In the opinion of management (after taking into account accruals of
      approximately  $370,000 as of September 30, 1999), the resolution of these
      matters  will not  materially  affect  the  Company's  future  results  of
      operations or financial position.




<PAGE>


(15)  SUMMARY  OF  QUARTERLY  FINANCIAL  INFORMATION  ( UNAUDITED )
----  -------  --  ---------  ---------  -----------  -------------
      ( In Thousands, Except  Per  Share  Data ):
      --------------- ------  ---  -----  -------
<TABLE>

            1999:                      First     Second      Third       Fourth
          --------                 ----------  ---------   ---------   ---------
<S>                                 <C>         <C>         <C>         <C>

       Revenues                      $22,807     $24,916     $36,916     $30,050
       Operating income                  110       9,180       4,841       2,317
       Income before taxes and
          minority interest             (999)      7,937       3,474       1,265
       Minority interest                  35        (193)       (189)        (55)
       Net income (loss)                (600)      4,331       2,126         825
       Earnings(loss) per share:(a)
         Basic                          (.17)       1.26         .63         .24
         Diluted                        (.17)       1.20         .59         .23




            1998:                      First     Second      Third       Fourth
                                    ----------  ---------   ---------   ---------

       Revenues                      $23,797     $24,853     $38,503     $37,569
       Operating income                1,288       1,360       4,699       2,728
       Income before taxes and
         minority interest               497         264       3,406       1,236
       Minority interest                 118         187         293         107
       Net income                        305         120       2,015         696
       Earnings(loss) per share:(a)
         Basic                           .09         .04         .60         .20
         Diluted                         .08         .03         .54         .19
</TABLE>

      (a)Calculated independently for each period, and consequently,  the sum of
         the quarters may differ from the annual amount.



<PAGE>


                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
           FOR THE THREE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997

<TABLE>

                      Balance at   Additions    Additions to         Balance
                      Beginning    Charged      (Deductions          at Close
   Description        Of Period    to Income    From) Reserves      of Period
-------------------  ------------ ----------   ---------------    ---------------

Allowance for Doubtful Accounts:
--------- --- -------- ---------
<S>                  <C>          <C>          <C>                <C>

Year Ended
 September 30, 1999   $1,369,815   $ 191,356    $(132,630)     (2)   $1,428,541
                      ==========   =========    ==========           ==========

Year Ended                                      $ 616,205      (1)
  September 30, 1999  $1,004,537   $ 105,126    $(356,053)     (2)   $1,369,815
                      ==========   =========    ==========           ==========

Year Ended
  September 30, 1999  $1,352,411   $ 248,576    $(596,450)     (2)   $1,004,537
                      ==========   =========    ==========           ==========
</TABLE>


(1) Additions to reserve of Mexico subsidiary from acquisition of Vinci de
      Mexico, SA. de C.V., and other adjustments.
(2) Write off of accounts considered to be uncollectible (net of recoveries).



<PAGE>



               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



   Shareholders and Board of Directors of
   Dixon Ticonderoga Company


     We hereby  consent to the  incorporation  by reference in the  Registration
   Statements on Form S-8 (File Nos.  33-20054,  33-23380 and  333-22205) and on
   Form S-2 (File No.  333-22119)  of Dixon  Ticonderoga  Company of our report,
   dated November 24, 1999,  relating to the financial  statements and financial
   statement schedule, which appear in this Form 10-K.





   PricewaterhouseCoopers LLP
   Orlando, Florida
   December 29, 1999



<PAGE>


ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
-------  -------  --  ---  -------------  ----  -----------  --  --------------
         FINANCIAL DISCLOSURES
         --------- -----------


         None.






<PAGE>


                                          PART III
                                          ---- ---


ITEM 10. DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  COMPANY
-------- ---------  ---  ---------  --------  --  ---  -------

Certain  information  required  under this Item with  respect to  Directors  and
Executive  Officers  will be contained in the  Company's  1999 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                      71    Chairman  of the  Board  since  February
(Father-in-law of Richard F.            1989;   President  and  Chief  Executive
Joyce)                                  Officer or  Co-Chief  Executive  Officer
                                        since 1978.

Richard F. Joyce                  44    Vice   Chairman   of  the  Board   since
(Son-in-law of Gino N. Pala)            January  1990;  President  and  Co-Chief
                                        Executive   Officer  since  March  1999;
                                        prior   thereto   President   and  Chief
                                        Operating Officer, Consumer Group, since
                                        March,1996; Executive Vice President and
                                        Chief  Legal  Executive  since  February
                                        1991; Corporate Counsel since July 1990.

Richard A. Asta                   43    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.

Leonard D. Dahlberg, Jr.          48    Executive  Vice President of Procurement
                                        since   April   1999;    prior   thereto
                                        Executive  Vice  President,   Industrial
                                        Group, since March 1996;  Executive Vice
                                        President   of    Manufacturing/Consumer
                                        Products  division  since  August  1995;
                                        Senior Vice  President of  Manufacturing
                                        since February  1993;  Vice President of
                                        Manufacturing since March 1990.

Laura Hemmings                    48    Corporate  Secretary since January 1986;
                                        prior  thereto  secretary  to  President
                                        and  Chief   Executive   Officer   since
                                        February 1982.

John Adornetto                    58    Vice President and Corporate  Controller
                                        since   January   1991;   prior  thereto
                                        Corporate   Controller  since  September
                                        1978.




<PAGE>


ITEM 11.  EXECUTIVE  COMPENSATION
--------  ---------  ------------

      Information  required  under this Item will be contained in the  Company's
1999 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
1999 Proxy Statement which is incorporated herein by reference.


ITEM 13.    CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS
--------    -------  -------------  ---  -------  ------------

      Information  required  under this Item will be contained in the  Company's
1999 Proxy Statement which is incorporated herein by reference.






<PAGE>


                                          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:

            (2) a. Share  Purchase  Agreement by and among Dixon  Ticonderoga de
            Mexico, S.A. de C.V., and by Grupo Ifam, S.A. de C.V., and Guillermo
            Almazan  Cueto with respect to the capital stock of Vinci de Mexico,
            S.A. de C.V., (English translation).4

            (2) b. Asset  Purchase  Agreement  dated  February  9, 1999,  by and
            between Dixon  Ticonderoga  Company,  as Seller and Asbury  Carbons,
            Inc., as Buyer.6

            (3) (i) Restated Certificate of Incorporation2

            (3) (ii) Amended and Restated Bylaws1

            (4)  a.  Specimen Certificate of Company Common Stock2

            (4)  b.  Amended and Restated Stock Option Plan3

            (10) a. First  Modification of Amended and Restated Revolving Credit
            Loan and Security Agreement by and among Dixon Ticonderoga  Company,
            Dixon Ticonderoga,  Inc., First Union Commercial Corporation,  First
            National Bank of Boston and National Bank of Canada1

            (10) b. 12.00% Senior Subordinated Notes, Due 2003, Note and Warrant
            Purchase Agreement1

            (10) c. 12.00% Senior  Subordinated  Notes,  Due 2003,  Common Stock
            Purchase Warrant Agreement1

            (10) d.  License and  Technological  Agreement  between  Carborundum
            Corporation and New Castle Refractories Company, a division of Dixon
            Ticonderoga Company1

            (10) e. Equipment Option and Purchase Agreement between  Carborundum
            Corporation and New Castle Refractories Company, a division of Dixon
            Ticonderoga Company1

            (10) f. Product Purchase Agreement between  Carborundum  Corporation
            and New Castle Refractories Company, a division of Dixon Ticonderoga
            Company1



<PAGE>


            (10) g. Second Modification of Amended and Restated Revolving Credit
            Loan and Security Agreement by and among Dixon Ticonderoga  Company,
            Dixon Ticonderoga,  Inc., First Union Commercial Corporation,  First
            National Bank of Boston and National Bank of Canada5

            (10) h. Third  Modification of Amended and Restated Revolving Credit
            Loan  and  Security  Agreement,  Amendment  to  Loan  Documents  and
            Assignment   by  and  among   Dixon   Ticonderoga   Company,   Dixon
            Ticonderoga,  Inc., First Union Commercial Corporation,  BankBoston,
            N.A., National Bank of Canada and LaSalle Bank.

            (10) i.  First  Modification  of  Amended  and  Restated  Term  Loan
            Agreement  and  Assignment by and among Dixon  Ticonderoga  Company,
            Dixon  Ticonderoga,   Inc.,  First  Union  Commercial   Corporation,
            BankBoston, N.A., National Bank of Canada and LaSalle Bank.

            (10) j.  Amendment No. 1 to 12.00% Senior  Subordinated  Notes,  Due
            2003, Note and Warrant Purchase Agreement.

            (21) Subsidiaries of the Company

            (27) Financial Data Schedule7

1Incorporated  by reference to the Company's  Annual Report on Form 10-K for the
year ended September 30, 1996, file number 0-2655, filed in Washington, D.C.

2Incorporated  by reference to the Company's  quarterly  report on Form 10-Q for
the period ended March 31, 1997, file number 0-2655, filed in Washington, D.C.

3Incorporated  by reference to Appendix 3 to the Company's Proxy Statement dated
January 27, 1997, filed in Washington, D.C.

4Incorporated  by reference to the  Company's  current  report on Form 8-K dated
December 12, 1997, filed in Washington D.C.

5Incorporated  by reference to the Company's  Annual report on Form 10-K for the
year ended September 30, 1998, file number 0-2615, filed in Washington, D.C.

6Incorporated  by reference to the  Company's  current  report on Form 8-K dated
March 2, 1999, filed in Washington D.C.

7Filed electronically via EDGAR.

(b)     Reports on Form 8-K:
        ------- -- ---- ----

        None.


<PAGE>


                                   SIGNATURES

        Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934,  the Company has duly caused this Annual  Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.

                            DIXON TICONDEROGA COMPANY


                                      /s/  Gino N. Pala
                                      ----------------------
                                      Gino N. Pala, Chairman of Board and
                                      Co-Chief Executive Officer

        Pursuant to the Securities  Exchange Act of 1934,  this Annual Report on
Form  10-K has been  signed  below by the  following  persons  on  behalf of the
Company in the capacities indicated.




        /s/  Gino N. Pala
        ----------------------
        Gino N. Pala             Chairman of Board, Co-Chief
                                 Executive Officer and Director
                                 Date:  December 29, 1999
        /s/  Richard F. Joyce
        ----------------------
        Richard F. Joyce         Vice Chairman of Board, Co-Chief
                                 Executive Officer, President and Director
                                 Date:  December 29, 1999
        /s/  Richard A. Asta
        ----------------------
        Richard A. Asta          Executive Vice President of Finance,
                                 Chief Financial Officer and Director
                                 Date:  December 29, 1999
        /s/  Harvey L. Massey
        ----------------------
        Harvey L. Massey         Director
                                 Date:  December 29, 1999
        /s/  Philip M. Shasteen
        ----------------------
        Philip M. Shasteen       Director
                                 Date:  December 29, 1999
        /s/  Ben Berzin, Jr.
        ----------------------
        Ben Berzin, Jr.          Director
                                 Date:  December 29, 1999
        /s/  John E. Romondo
        ----------------------
        John E. Romondo          Director
                                 Date:  December 29, 1999
        /s/  Kent Kramer
        ----------------------
        Kent Kramer              Director
                                 Date:  December 29, 1999
        /s/  John Ritenour
        ----------------------
        John Ritenour            Director
                                 Date:  December 29, 1999








<PAGE>


                                                                 Exhibit (10) h

                   THIRD MODIFICATION OF AMENDED AND RESTATED
                  REVOLVING CREDIT LOAN AND SECURITY AGREEMENT,
                           AMENDMENT TO LOAN DOCUMENTS
                                       AND
                                   ASSIGNMENT

      This Third  Modification of Amended and Restated Revolving Credit Loan and
Security  Agreement,  Amendment to Loan  Documents and  Assignment  (this "Third
Modification")  dated as of September 30, 1999 (the "Effective Date"), is 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  identified  on the
signature pages hereto as Existing Lenders (the "Existing Lenders"), the Persons
identified on the signature pages hereto as New Lenders (the "New Lenders",  and
together with the Existing  Lenders,  the "Lenders") 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,  as  amended
September  26,  1996  and May 19,  1998  (said  Agreement  as it may be  further
amended,  restated or otherwise  modified from time to time,  being  hereinafter
called the "Revolving Credit Agreement") by and among the Borrower, the Existing
Lenders and the Agent, pursuant to which the Existing Lenders extended financial
accommodations to Borrower in the form of a U.S.  $45,000,000  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 parties to the  Revolving  Credit  Agreement  have agreed to
amend the Revolving Credit Agreement as provided herein;

      WHEREAS,  the parties to the Revolving Credit Agreement and the New Lender
have agreed that the New Lender  shall  become a party to the  Revolving  Credit
Agreement  (as amended  hereby) by way of  assignment by National Bank of Canada
(the "Assigning Lender") of its Revolving Credit Commitment;

      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 Third Modification and
not otherwise  defined herein,  shall have the meanings  ascribed to them in the
Revolving Credit Agreement.

SECTION 2. AMENDMENT TO DEFINITIONS.  Section 1.1 (Definitions) of the Revolving
Credit Agreement is hereby amended as follows:

            a. The definition of "Adjusted  LIBOR Rate" is hereby deleted in its
               entirety and replaced with the following:

               "Adjusted  LIBOR  Rate"  shall  mean  the  LIBOR  Rate  plus  the
               Applicable Percentage for Loans which are LIBOR Loans.

            b. The definition of "Adjusted  Prime Rate" is hereby deleted in its
               entirety and replaced with the following:

               "Adjusted  Prime  Rate"  shall  mean  the  Prime  Rate  plus  the
               Applicable Percentage for Loans which are Prime Rate Loans.
            c. The  definition  of  "Fixed  Charges"  is hereby  deleted  in its
               entirety and replaced with the following:

               "Fixed Charges" shall mean, for any period,  the aggregate of (i)
               Borrower's   interest   expense,    (ii)   non-financed   Capital
               Expenditures,   including  those  made  with  proceeds  from  the
               Revolving Credit Loans and not subsequently refinanced within the
               applicable  period  (including,   to  the  extent  not  otherwise
               included in Fixed Charges,  payments under Capital Leases), (iii)
               scheduled  payments of principal on all Indebtedness for borrowed
               money during such period; provided, however, that for each period
               ending on or after June 30,  2001,  such  scheduled  payments  of
               principal  shall  be  calculated  for  the  twelve  month  period
               immediately  succeeding  such  period,  (iv) and  payments of all
               taxes on or measured by income, all determined in accordance with
               GAAP less, for any period ending on or before September 30, 1997,
               the amount of Capital  Expenditures  relating to the construction
               of the  Heathrow  Facility,  made during the twelve  month period
               immediately preceding the last day of such period.

            d. The definition of "NBC" is hereby deleted,  and the following new
               definition is added in the alphabetically appropriate place:

               "LaSalle"  shall mean LaSalle Bank,  National  Association,  a
               national  banking association,  and having an office at
               135 S. LaSalle Street,  Chicago,  Illinois 60603.

            e. The definition of "Overadvance" is hereby deleted in its
               entirety.

            f. The definition of "Revolving Credit Commitment" is hereby deleted
               in its entirety and replaced with the following:

               "Revolving Credit  Commitment" shall mean the commitments of each
               of the  Lenders  pursuant  to  Section  2.1  hereof  to make  the
               Revolving Credit Loans to the Borrower, to wit: FUCC, $17,616,375
               or  50.3325%  of  the   Revolving   Credit   Loans;   BankBoston,
               $11,593,750  or 33.125% of the Revolving  Credit Loans;  and NBC,
               $5,789,875 or 16.5425% of the Revolving Credit Loans.

            g. The following  new  definitions  are added in the  alphabetically
               appropriate places:

               "Applicable  Percentage"  shall mean,  for any day,  the rate per
               annum set forth below  opposite the  applicable  Category then in
               effect,  it being  understood that the Applicable  Percentage for
               (i) Loans which are Prime Rate Loans shall be the  percentage set
               forth  under the column  "Prime  Rate Loans" and (ii) Loans which
               are LIBOR  Loans  shall be the  percentage  set  forth  under the
               column "LIBOR Loans":



<PAGE>



              Fixed Charge                             Prime       LIBOR
  Category   Coverage Ratio      Leverage Ratio      Rate Loans    Loans
  --------   --------------      --------------      ----------    -----
------------------------------------------------------------------------
     1      < 1.30 To 1.0  Or    > 4.0 to 1.0           1.00%       2.50%
------------------------------------------------------------------------
     2      > 1.30 to 1.0 but    < 4.0 to 1.0 but
            < 1.40 to 1.0 and    > 3.75 to 1.0           .75%       2.25%
------------------------------------------------------------------------
            > 1.40 to 1.0 but    < 3.75 to 1.0 but
     3      < 1.50 to 1.0 and    > 3.50 to 1.0           .50%       2.00%
------------------------------------------------------------------------
     4      > 1.50 to 1.0 but    < 3.50 to 1.0 but
            < 1.60 to 1.0 and    > 3.25 to 1.0           .25%       1.75%
------------------------------------------------------------------------
     5      > 1.60 to 1.0 and    < 3.25 to 1.0            0%        1.50%


               The Applicable  Percentage shall, in each case, be determined and
               adjusted  annually on the date five (5)  Business  Days after the
               date on which the Agent has received from the Borrower the annual
               financial information and certifications required to be delivered
               to the Agent and the Lenders in accordance with the provisions of
               Section  7.3  (each  an  "Interest   Determination  Date").  Such
               Applicable  Percentage  shall be  effective  from  such  Interest
               Determination  Date  until the next such  Interest  Determination
               Date.  The  initial  Applicable  Percentages  shall  be  based on
               Category 4 until the first Interest  Determination Date occurring
               after December 31, 2000.  After the Closing Date, if the Borrower
               shall fail to provide the  quarterly  financial  information  and
               certifications  in accordance with the provisions of Section 7.3,
               the Applicable  Percentage from such Interest  Determination Date
               shall, on the date five (5) Business Days after the date by which
               the  Borrower   was  so  required  to  provide   such   financial
               information and  certifications to the Agent and the Lenders,  be
               based on  Category  1 until  such  time as such  information  and
               certifications  are  provided,  whereupon  the Category  shall be
               determined  by the then current  Leverage  Ratio and Fixed Charge
               Coverage Ratio. For purposes  hereof,  in the event the financial
               calculations on any Interest  Determination  Date fall within two
               different   Categories,   the  greater  of  the  two   Applicable
               Percentages shall be applied.

               "Dollars"  and "$" shall mean  dollars in lawful  currency of the
               United States of America,  unless otherwise specifically provided
               herein.

               "Fixed Charge  Coverage  Ratio" shall mean the ratio of EBITDA to
               Fixed Charges.

               "Leverage Ratio" shall mean the ratio of Funded Debt to EBITDA.

               "Permitted   Acquisition"  shall  mean  the  acquisition  of  the
               business  or  substantially  all of the  assets  or  stock of any
               Person, provided that the following conditions are met:

               (i)the  total  purchase  price  for such  acquisition  shall  not
                  exceed  $5,000,000,  and the aggregate  purchase price for all
                  acquisitions   made  in  any  fiscal  year  shall  not  exceed
                  $10,000,000;

               (ii) the Borrower  shall give the Agent  written  notice not less
                  than 15 days in  advance  of the  making of such  acquisition,
                  which notice shall include the date and details  regarding the
                  form of the acquisition,  a description of the stock or assets
                  to be acquired and the location of the assets to be acquired.


<PAGE>



               (iii)  the  assets  or  business  to  be  acquired  shall  be  in
                  substantially  the same or similar  line of  business  as that
                  engaged in by the Borrower;

               (iv) the  Agent,  on behalf of the  Lenders,  shall be  granted a
                  first  priority  perfected  security  interest  in the  assets
                  acquired;

               (v)no Event of  Default  exists  prior  to or  immediately  after
                  giving effect to such  acquisition  (subject to the provisions
                  of Section 1.2 hereof);

               (vi) the Borrower  shall have delivered to the Agent a compliance
                  certificate  demonstrating  that,  on a pro forma basis,  such
                  acquisition  will not  create a default  under  any  financial
                  covenant  contained  herein for the four fiscal quarters ended
                  immediately prior to the proposed date of such acquisition;

               (vii) after giving effect to such acquisition, Availability shall
                  be no less than $5,000,000.

SECTION 3. AMENDMENTS TO ACCOUNTING TERMS. Section 1.2 (Accounting Terms) of the
Revolving  Credit  Agreement  is hereby  amended  by adding  the  following  new
paragraph to the end thereof:

            Notwithstanding  the above, the parties hereto acknowledge and agree
            that,  for  purposes  of  all   calculations   made  in  determining
            compliance  for any applicable  period with the financial  covenants
            set forth herein (including  without  limitation for purposes of the
            definition of "Applicable Percentage" set forth in Section 1.1), any
            Indebtedness  of  a  company   acquired   pursuant  to  a  Permitted
            Acquisition  (a  "Newly  Acquired  Company")  which  is  retired  in
            connection  with such Permitted  Acquisition  shall be excluded from
            such  calculations  and deemed to have been  retired as of the first
            day of such applicable  period and income  statement items and other
            balance sheet items (whether  positive or negative)  attributable to
            the Newly Acquired  Company  acquired in such  transaction  shall be
            included  in  such  calculations  to the  extent  relating  to  such
            applicable period, subject to adjustments mutually acceptable to the
            Agent and the Borrower.

SECTION 4.  AMENDMENTS TO GENERAL LOAN PROVISIONS.

            Section 2 of the  Revolving  Credit  Agreement is hereby  amended as
            follows:

            a. Section 2.1  (Revolving  Line of Credit) of the Revolving  Credit
               Agreement is amended by replacing  the  reference to  "Forty-Five
               Million  U.S.   Dollars   ($45,000,000)"   with  a  reference  to
               "Thirty-Five Million U.S. Dollars ($35,000,000)".

            b. Section 2.2 (Maximum  Revolving Credit Facility) of the Revolving
               Credit  Agreement  is  amended  by  replacing  the  reference  to
               "Forty-Five Million U.S. Dollars  ($45,000,000)" with a reference
               to "Thirty-Five Million U.S. Dollars ($35,000,000)".

            c. Section 2.5(b) (LIBOR Option) of the Revolving  Credit  Agreement
               is hereby amended by deleting the second sentence  thereof in its
               entirety and replacing it with the following:

               Interest  on LIBOR  Loans  will be  calculated  on the basis of a
               360-day  year for the actual  days  elapsed  and shall be due and
               payable on the last day of the applicable LIBOR Period.


<PAGE>


            d. Section 2.9 (Loan Purposes) of the Revolving  Credit Agreement is
               hereby  amended by inserting the words ",  seasonal  requirements
               and other cash flow  requirements"  following the words  "working
               capital needs".

            e. Section  2.10  (Optional  Prepayments)  of the  Revolving  Credit
               Agreement is hereby deleted in its entirety and replaced with the
               following:

               Section 2.10: Optional  Prepayments.  The Borrower shall have the
               right at any time, on 90 days' prior written notice to Agent,  to
               voluntarily prepay the entire principal balance of the Loans then
               outstanding,  and, upon such prepayment,  (a) Borrower's right to
               receive  advances under the Revolving Credit Loans and obtain the
               issuance  of Letters  of Credit  hereunder  shall  simultaneously
               terminate and (b) if prepaid by refinancing the Loans by a source
               other than the Lenders,  the Borrower  shall pay to the Lenders a
               prepayment fee equal to (i) 1.5%, if such prepayment occurs on or
               before  September 30, 2000, (ii) 1.0%, if such prepayment  occurs
               after September 30, 2000 but on or before  September 30, 2002, or
               (iii) 0.5%, if such  prepayment  occurs after  September 30, 2002
               but on or before  September 30, 2004, in each case of the average
               outstanding principal balance of the Loans during the twenty-four
               (24) month period preceding such prepayment.

SECTION 5.  AMENDMENTS  TO PAYMENT  PROVISIONS.  Section 3.1  (Payments)  of the
Revolving Credit Agreement is hereby amended by adding the following sentence to
the end thereof:

            All  payments  hereunder  shall be made without  setoff,  deduction,
            counterclaim or withholding of any kind.

SECTION  6.   AMENDMENTS   TO   REPRESENTATIONS   AND   WARRANTIES.   Section  6
(Representations  and  Warranties) of the Revolving  Credit  Agreement is hereby
amended by adding the following new subsection 6.19 thereto:

            6.19  Year  2000  Issue.  Any   reprogramming  and  related  testing
            necessary to permit the proper functioning of each of the Borrower's
            computer systems in and following the year 2000 will be completed in
            all  material  respects  prior to  October  31,  1999  (that is, the
            Borrower  will  be  "Year  2000  Compliant"),  and  the  cost to the
            Borrower of becoming Year 2000 Compliant will not result in an Event
            of Default  or have a material  adverse  effect  upon the  business,
            operations,   property,   condition   (financial  or  otherwise)  or
            prospects  of the Borrower  and its  Subsidiaries  taken as a whole.
            Except for becoming  Year 2000  Compliant as  described  above,  the
            computer and management information systems of the Borrower are and,
            with ordinary course  upgrading and  maintenance,  will continue for
            the term of this  Agreement  to be,  adequate for the conduct of its
            business.

SECTION 7.  AMENDMENTS TO AFFIRMATIVE  COVENANTS.  Subsection (f) of Section 7.3
(Financial  and Business  Information  of the  Borrower) of the of the Revolving
Credit  Agreement  is hereby  deleted  in its  entirety  and  replaced  with the
following:

            (f)At such times as determined by reference to  Availability  as set
               forth  in  the  schedule  below,  a  Borrowing  Base  Certificate
               reflecting  information  as of  the  close  of  business  on  the
               immediately  preceding  Business Day for the applicable  monthly,
               weekly or daily period, as the case may be:


<PAGE>



                               Availability       Reporting Frequency
                               ------------       -------------------
                             > $10,000,000            Monthly

                             < $10,000,000 but        Weekly
                             > $5,000,000

                             < $5,000,000             Daily

               ;provided,  however,  that upon and during the continuation of an
               Event of Default,  the Borrower  shall  deliver a Borrowing  Base
               Certificate on a daily basis.

SECTION 8.  AMENDMENTS TO NEGATIVE COVENANTS.

            (a)Section 8.2  (Acquisitions)  of the Revolving Credit Agreement is
               hereby  amended by deleting  the  proviso  thereto and adding the
               words "except for Permitted Acquisitions" in its place.

            (b) The  following  new section  8.29 is hereby  added to the end of
                Section 8:

               8.29 Additional Indebtedness.  Contract, create, incur, assume or
               permit to exist any additional  Indebtedness  in connection  with
               the  mortgaged  property  of the  Borrower  located in  Heathrow,
               Florida.

            (c) The  following  new section  8.30 is hereby  added to the end of
                Section 8:

               8.30  Inactive  Subsidiaries.  Cause  or  permit  either  of  the
               Borrower's   Subsidiaries,   Bryn  Mawr  Ocean  Resorts  Inc.  or
               Ticonderoga Graphite,  Inc., to engage in any business or own any
               assets  valued in excess of $10,000  without  the  consent of the
               Required Lenders.

SECTION 9.  AMENDMENTS TO FINANCIAL  COVENANTS.  The  following  sections of the
Revolving Credit Agreement are amended in their entirety to read as follows:

            8.9   Tangible Net Worth.  The existing  covenant is hereby deleted
                  and replaced with the following:

               Tangible Capital Funds.  Permit Net Worth less Intangible  Assets
               plus Subordinated Debt less foreign currency  translation effects
               to be less than the following:

                              September 30, 1999   $39,000,000
                              September 30, 2000   $41,000,000
                              September 30. 2001   $43,000,000
                              September 30, 2002   $45,000,000
                              September 30, 2003   $47,000,000
                              September 30, 2004   $49,000,000

               8.10  Current  Ratio.  The existing  covenant is hereby  deleted
                     and replaced with the following:

               Leverage  Ratio.  At any time,  permit the Leverage  Ratio to be
               greater than 4.25 to 1.0 (to be determined on a rolling four
               quarter basis).


<PAGE>


               8.11 Fixed Charge Coverage  Ratio. At any time,  permit the ratio
               of EBITDA to Fixed Charges for the twelve (12) months immediately
               preceding the date of calculation to be less than 1.20 to 1.0 (to
               be determined on a rolling four quarter basis).

               8.l2  Interest and Dividend Coverage.  [The existing covenant is
               deleted].

               8.13 Ratio of EBIT to Interest on  Indebtedness.  [The  existing
               covenant is deleted].

               8.16  Debt to Equity Ratio.  [The existing covenant is deleted].

               8.17  Pro Forma Debt Coverage Ratio.  [The existing covenant is
               deleted].

SECTION 10. AMENDMENT TO TERM OF AGREEMENT. Section 12.1 (Term) of the Revolving
Credit  Agreement is hereby  amended by deleting the words "three (3) years from
the Closing Date" and inserting the words "September 30, 2004" in their place.

SECTION 11. AMENDMENTS TO EVENTS OF DEFAULT.  Section 13.1 (Event of Default) of
the Revolving Credit Agreement is hereby amended as follows:

               (a)  Subsection   (h)  is  amended  by  deleting  the  words  "or
                    DT-Mexico"  and  inserting  the words "or any  Guarantor" in
                    their place.

               (b)  Subsection   (i)  is  amended  by  deleting  the  words  "or
                    DT-Mexico"  and  inserting  the words "or any  Guarantor" in
                    their place.

               (c)  Subsection  (j) is  amended by  inserting  the words "or any
                    Guarantor" following the word "Borrower".

SECTION  12.  AMENDMENTS  TO  PROVISIONS  FOR  PAYMENT OF  EXPENSES.  Section 15
(Payment of Expenses) is hereby amended by adding the following new Section 15.4
thereto:

            15.4 Taxes.  All payments made by the Borrower under this Agreement,
            any Notes and any documents  relating  hereto shall be made free and
            clear of, and without deduction or withholding for or on account of,
            any present or future income, stamp or other taxes, levies, imposts,
            duties, charges, fees, deductions or withholdings,  now or hereafter
            imposed,  levied,  collected,  withheld or assessed by any court, or
            governmental  body,  agency or other official,  including  interest,
            penalties and liabilities  with respect  thereto,  excluding  income
            taxes of the Lenders or the Agent  ("Taxes").  If any such Taxes are
            required to be withheld from any amounts payable to the Agent or any
            Lender  hereunder  or under  any Notes or other  documents  relating
            thereto, (A) the Borrower shall withhold and remit such Taxes to the
            relevant  authority  when and as due,  (B) the amounts so payable to
            the Agent or such Lender shall be increased to the extent  necessary
            to yield to the  Agent or such  Lender  interest  or any such  other
            amounts  payable  hereunder or under the Notes or any other document
            relating  hereto at the rates or in the  amounts  specified  in this
            Agreement and any Notes, and (C) as promptly as possible  thereafter
            the Borrower  shall send to the Agent for its own account or for the
            account of such Lender,  as the case may be, a certified  copy of an
            original  official  receipt  received by the Borrower showing prompt
            payment thereof.  If the Borrower fails to pay any Taxes when due to
            the appropriate  taxing authority or fails to remit to the Agent the
            required  receipts  or  other  required  documentary  evidence,  the
            Borrower   shall   indemnify  the  Agent  and  any  Lender  for  any
            incremental Taxes,  interest or penalties that may become payable by
            the  Agent or any  Lender  as a  result  of any  such  failure.  The
            agreements in this subsection  shall survive the termination of this
            Agreement and the payment of the Loans and all other amounts payable
            hereunder.


<PAGE>


SECTION 13. AMENDMENTS TO MISCELLANEOUS PROVISIONS.  Section 17 of the Revolving
Credit Agreement is hereby amended as follows:

            a. Section  17.2  (Governing  Law;  Waiver  of  Jury  Trial)  of the
               Revolving  Credit  Agreement is hereby  amended by inserting  the
               words "OR ANY STATE OR FEDERAL COURT LOCATED  WITHIN  MECKLENBURG
               COUNTY,  STATE OF NORTH  CAROLINA"  following the words "STATE OF
               FLORIDA".

            b. A new section 17.3  (Arbitration) is inserted  following  Section
               17.2, and the remaining sections are renumbered accordingly:

               17.3  Arbitration.

               (a)Notwithstanding   the   provisions  of  Section  17.2  to  the
               contrary, upon demand of any party hereto, whether made before or
               after institution of any judicial proceeding,  any dispute, claim
               or controversy arising out of, connected with or relating to this
               Agreement  and  the  other   documents   executed  in  connection
               therewith including all promissory notes and collateral documents
               ("Disputes")  between or among parties to this Agreement shall be
               resolved by binding  arbitration as provided herein.  Institution
               of a judicial  proceeding  by a party does not waive the right of
               that party to demand arbitration hereunder. Disputes may include,
               without limitation,  tort claims,  counterclaims,  disputes as to
               whether a matter is subject  to  arbitration,  claims  brought as
               class actions,  claims arising from credit documents  executed in
               the  future,  or  claims  arising  out of or  connected  with the
               transaction reflected by this Agreement.

               (b)  Arbitration  shall be  conducted  under and  governed by the
               Commercial Financial Disputes Arbitration Rules (the "Arbitration
               Rules") of the American  Arbitration  Association (the "AAA") and
               Title 9 of the  U.S.  Code.  All  arbitration  hearings  shall be
               conducted in  Charlotte,  North  Carolina.  A hearing shall begin
               within 90 days of demand for  arbitration  and all hearings shall
               be  concluded  within 180 days of demand for  arbitration.  These
               time  limitations  may not be extended unless a party shows cause
               for extension and then no more than a total extension of 60 days.
               The  expedited  procedures  set  forth in Rule 51 et seq.  of the
               Arbitration  Rules  shall be  applicable  to  claims of less than
               $1,000,000.  All applicable statutes of limitation shall apply to
               any  Dispute.  A  judgment  upon the award may be  entered in any
               court having  jurisdiction.  The panel from which all arbitrators
               are selected  shall be comprised of licensed  attorneys  selected
               from the Commercial  Financial  Dispute  Arbitration Panel of the
               AAA. The single arbitrator selected for expedited procedure shall
               be  a  retired   judge   from  the   highest   court  of  general
               jurisdiction,  state or  federal,  of the state where the hearing
               will be  conducted  or if such person is not  available to serve,
               the single  arbitrator  may be a licensed  attorney.  The parties
               hereto do not waive applicable  Federal or state  substantive law
               except as provided herein.  Notwithstanding  the foregoing,  this
               arbitration provision does not apply to disputes under or related
               to interest rate protection agreements entered into by any Lender
               and Borrower.

               (c) Notwithstanding the preceding binding arbitration provisions,
               the parties hereto agree to preserve, without diminution, certain
               remedies  that the Agent or the  Lenders  may employ or  exercise
               freely,  independently  or  in  connection  with  an  arbitration
               proceeding or after an arbitration  action is brought.  The Agent
               and the  Lenders  shall have the right to proceed in any court of
               proper  jurisdiction or by self-help to exercise or prosecute the
               following  remedies,  as applicable:  (i) all rights to foreclose
               against  any  real or  personal  property  or other  security  by
               exercising  a power of sale  granted  under any loan  document or
               under  applicable  law  or  by  judicial  foreclosure  and  sale,
               including a  proceeding  to confirm the sale;  (ii) all rights of
               self-help  including  peaceful  occupation  of real  property and
               collection of rents, set-off, and peaceful possession of personal
               property;  and (iii) obtaining  provisional or ancillary remedies
               including   injunctive   relief,   sequestration,    garnishment,
               attachment,  appointment  of receiver  and filing an  involuntary
               bankruptcy  proceeding.  Preservation  of these remedies does not
               limit the power of an arbitrator  to grant similar  remedies that
               may be requested by a party in a Dispute.

               (d) The parties hereto agree that they shall not have a remedy of
               punitive or  exemplary  damages  against the other in any Dispute
               and  hereby  waive any right or claim to  punitive  or  exemplary
               damages  they  have  now or which  may  arise  in the  future  in
               connection  with any Dispute,  whether the Dispute is resolved by
               arbitration or judicially.

               (e) By  execution  and  delivery of this  Agreement,  each of the
               parties  hereto  accepts,  for itself and in connection  with its
               properties,  generally  and  unconditionally,  the  non-exclusive
               jurisdiction  relating to any arbitration  proceedings  conducted
               under the  Arbitration  Rules in  Charlotte,  North  Carolina and
               irrevocably  agrees  to be bound by any final  judgment  rendered
               thereby in connection  with this  Agreement  from which no appeal
               has been taken or is available.

            c. Section 17.3 (Notice) of the Revolving Credit Agreement is hereby
               amended by deleting the notice  information for NBC and replacing
               it with the following:

               If to LaSalle:       LaSalle Bank, National Association
                                    135 S. LaSalle Street
                                    Chicago, Illinois  60603
                                    Attention: Helen Coufoudakis
                                    Facsimile Number: (312) 904-1338

SECTION 14. AMENDMENT TO LOAN DOCUMENTS. All references in the Loan Documents to
National  Bank of Canada are hereby  deleted and  replaced  with  references  to
LaSalle Bank,  National  Association.  All  references in the Loan  Documents to
"NBC" are hereby deleted and replaced with references to "LaSalle".

SECTION 15. AMENDMENTS TO EXHIBITS.  Exhibit A to the Revolving Credit Agreement
is hereby deleted and replaced with Exhibit A attached hereto.

SECTION  16.  RATIFICATION:  EFFECT  ON  TERM  LOAN  AGREEMENT.  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,
except that all references  contained  therein to "Revolving  Credit  Agreement"
shall  refer  to the  Revolving  Credit  Agreement  as  modified  by this  Third
Modification and any reference to $45,000,000  contained  therein shall refer to
$35,000,000.  To the extent that any of the  amendments of the Revolving  Credit
Agreement  contained in this Third  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 17. 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  Third  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 Third  Modification  has been duly authorized by all
necessary  corporate action on the part of the Borrower,  has been duly executed
by a duly  authorized  officer  of 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.

SECTION 18. LOAN AGREEMENT  REPRESENTATIONS AND WARRANTIES.  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 19. CONDITIONS PRECEDENT TO EFFECTIVENESS OF MODIFICATION. It shall be a
condition  precedent to the  effectiveness of this Third  Modification  that the
Borrower and each Guarantor shall have complied with each of the following:

               (a)Executed  Documents.  The Agent shall have  received  executed
               originals  of (i)  this  Third  Modification  together  with  the
               Consent attached hereto,  (ii) Revolving Credit Notes in favor of
               each of the Lenders  (other than the Assigning  Lender) and (iii)
               recorded modifications of the Mortgages.

               (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
               resolutions   adopted  by  the  Board  of   Directors   and  sole
               shareholder of such Guarantor authorizing the execution, delivery
               and performance by such Guarantor of this Third Modification, (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  Third  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 Third Modification
               and any other documents executed in connection therewith.

               (c)Certificates of Borrower and Guarantors.  The Agent shall have
               received a certificate  from each entity  comprising the Borrower
               and from each Guarantor,  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
               Third  Modification  are true,  correct  and  complete  as of the
               Effective  Date;  that such entity 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 Third  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  such  entity  has  satisfied  each of the
               closing conditions set forth in this Section 17.

               (d)Opinion of Counsel to the Borrower and  Guarantors.  The Agent
               shall have  received  the opinion of counsel for the Borrower and
               the Guarantors  dated the Effective Date, as to the  transactions
               contemplated  by this Third  Modification,  in form and substance
               satisfactory to the Agent and its special counsel.

               (e) Delivery of  Collateral.  The Agent shall have received stock
               certificate  and  undated  stock  powers  executed  in  blank  in
               connection  with the pledge of (i) 47% of DTC's interest in Grupo
               Dixon, S.A. de C.V. and (ii) 18% of DTC's interest in DTI.

               (f)  Organizational  Structure.  The Agent shall have received an
               organizational   chart  showing  the  current  structure  of  the
               Borrower and its Subsidiaries.

               (g)Amendment to Pledge Agreement. The Agent shall have received a
               pledge  amendment,  dated  as of the  date  hereof,  in the  form
               attached to the Amended and  Restated  Stock  Pledge and Security
               Agreement  dated as of July 10, 1996 made by the  Borrower to the
               Agent  and  the  Lenders,   setting  forth  all  of  the  Pledged
               Collateral as of the date hereof.

               (h)Letter to  Accountants.  The Borrower  shall have executed and
               delivered a letter addressed to its certified public accountants,
               authorizing   such   accountants  to  discuss  the  finances  and
               financial  affairs of the  Borrower  with LaSalle as set forth in
               the letter  from the  Borrower  to  PricewaterhouseCoopers  dated
               September 30, 1999.

               (i)Modification  of Term Loan  Agreement.  All  conditions to the
               First  Modification  of Amended and Restated Term Loan  Agreement
               dated  as of the date  hereof  by and  among  the  Borrower,  the
               Lenders and the Agent shall have been fulfilled.

SECTION 20.  ASSIGNMENT AND  ASSUMPTION.  The Assigning  Lender hereby sells and
assigns,  without  recourse,  to the  New  Lender,  and the  New  Lender  hereby
purchases and assumes, without recourse, from the Assigning Lender, effective as
of the  date  hereof,  such  interests  in the  Assigning  Lender's  rights  and
obligations under the Revolving Credit Agreement (including, without limitation,
the Revolving  Credit  Commitment of the Assigning Lender on the date hereof and
the  Revolving  Credit  Loans  and  Letter of  Credit  Obligations  owing to the
Assigning Lender which are outstanding on the date hereof) as shall be necessary
in order to give effect to the reallocations of the Revolving Credit Commitments
effected by the amendment to the  definition of  "Revolving  Credit  Commitment"
pursuant to Section 2 hereof.  From and after the date hereof (i) the New Lender
shall  be a party  to and be bound by the  provisions  of the  Revolving  Credit
Agreement  (as  amended  hereby)  and, to the extent of the  interests  assigned
hereby,  have the rights and  obligations  of a Lender  thereunder and under the
other Loan Documents and (ii) the Assigning  Lender shall,  to the extent of the
interests  assigned  hereby,  relinquish  its  rights and be  released  from its
obligations  under the Revolving  Credit  Agreement.  The  Assigning  Lender (i)
represents  and  warrants  that it is the  legal  and  beneficial  owner  of the
interest being assigned by it hereunder and that such interest is free and clear
of any adverse claim;  (ii) makes no  representation  or warranty and assumes no
responsibility  with respect to any  statements,  warranties or  representations
made in or in connection  with the Loan  Documents or the  execution,  legality,
validity,  enforceability,   genuineness,  sufficiency  or  value  of  the  Loan
Documents or any other instrument or document  furnished  pursuant thereto;  and
(iii) makes no  representation  or warranty and assumes no  responsibility  with
respect  to  the  financial  condition  of  any  Borrower  or  Guarantor  or the
performance or observance by any Borrower or Guarantor of any of its obligations
under the Loan Documents or any other instrument or document  furnished pursuant
thereto.  The  New  Lender  (i)  confirms  that  it has  received  a copy of the
Revolving  Credit  Agreement  (as  amended  hereby)  together  with  such  other
documents and  information  as it has deemed  appropriate to make its own credit
analysis and decision to enter into this Third Modification; (ii) agrees that it
will, independently and without reliance upon the Agent, the Assigning Lender or
any other Lender and based on such  documents and  information  as it shall deem
appropriate at the time,  continue to make its own credit decisions in taking or
not taking  action under the  Revolving  Credit  Agreement;  (iii)  appoints and
authorizes  the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Revolving Credit Agreement as are delegated
to the Agent by the terms  thereof,  together with such powers and discretion as
are  reasonably  incidental  thereto;  (iv)  agrees  that  it  will  perform  in
accordance  with  their  terms all of the  obligations  that by the terms of the
Revolving Credit  Agreement are required to be performed by it as a Lender;  and
(v) attaches any U.S. Internal Revenue Service or other forms required under the
Revolving Credit Agreement.

SECTION 21.  MODIFICATION TO FOREIGN EXCHANGE  AGREEMENT.  The Borrower and FUCC
hereby  agree to modify the  Foreign  Exchange  Agreement  as  follows:  (a) all
references  to the  "Credit  Agreement"  contained  therein  shall  refer to the
Revolving Credit Agreement as modified  pursuant to this Third  Modification and
(b) the reference to "$45,000,000"  contained in the third WHEREAS  paragraph on
page 1 shall be changed to "$35,000,000".

SECTION  22.  FEES.  The  Borrower  agrees to pay to the Agent,  for the ratable
benefit  of the  Lenders,  a fee on the date of this  Third  Modification  in an
amount equal to $122,500.

SECTION 23.  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 Third Modification.

SECTION 24.  COUNTERPARTS.  This Third  Modification may be executed in any
number of counterparts which, when taken together, shall constitute one
original.

SECTION  25.  GOVERNING  LAW;  SEVERABILITY.  This Third  Modification  shall be
governed by, and construed and  interpreted  in accordance  with, the law of the
State of Florida.  Wherever possible,  each provision of this Third Modification
shall  be  interpreted  in  such  manner  as to be  effective  and  valid  under
applicable  law,  but if any  provision  of this  Third  Modification  shall  be
prohibited  by  or  invalid  under  applicable  law,  such  provision  shall  be
ineffective  only to the extent of such  prohibition  or invalidity  and without
invalidating the remaining provisions of this Third Modification.

SECTION 26.  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 Third  Modification,  the Loan Agreements or any other Loan
Documents or any course of conduct, course of dealing,  statements (whether oral
or  written)  or  actions  of any party  hereto.  This  provision  is a material
inducement of the parties to enter into this Third Modification.

SECTION 27. TITLES.  The section titles contained in this Third Modification are
and shall be without  substantive  meaning or content of any kind whatsoever and
are not part of this Third Modification.


<PAGE>


      IN WITNESS WHEREOF, the Borrower, the Existing Lenders, the New Lender and
the Agent have  caused  this Third  Modification  to be  executed as of the date
first above written.

                              BORROWER:

                              DIXON TICONDEROGA COMPANY,
                              a Delaware corporation

                              By:   /s/  Richard A. Asta
                              ---------------------------------------------
                              Name: Richard A. Asta
                              Title:   Executive  Vice  President  of  Finance
                                       and  Chief Financial Officer




                              DIXON TICONDEROGA INC.,
                              an Ontario corporation

                              By:     /s/  Richard A. Asta
                              -----------------------------------------------
                              Name: Richard A. Asta
                              Title:   Executive  Vice  President  of  Finance
                                       and  Chief Financial Officer




                              AGENT:

                              FIRST UNION COMMERCIAL CORPORATION,
                              a North Carolina corporation, as Agent

                              By: /s/ Robert L. Dean
                              ----------------------
                              Name: Robert L. Dean
                              Title: VP







<PAGE>


                              EXISTING LENDERS:

                              FIRST UNION COMMERCIAL CORPORATION,
                              a North Carolina corporation, as a Lender

                              By: /s/ Robert L. Dean
                              ----------------------
                              Name: Robert L. Dean
                              Title: VP



                              BANKBOSTON, N.A.,
                              a national banking association

                              By: /s/ Stephen Y. McGehee
                              --------------------------
                              Name: Stephen Y. McGehee
                              Title: Managing Director





                              NATIONAL BANK OF CANADA,
                              a Canadian chartered bank

                              By: /s/ E. Lynn Forgosh
                              -----------------------
                              Name: E. Lynn Forgosh
                              Title: Group V.P.



                              NEW LENDER:

                              LASALLE BANK NATIONAL ASSOCIATION

                              By: /s/ Meg Marion
                              ------------------
                              Name: Meg Marion
                              Title: Senior V.P.




<PAGE>


                                     CONSENT
                                     -------

This  Consent  (the  "Consent"),  dated  September  30,  1999,  is  delivered in
connection with the Third  Modification of Amended and Restated Revolving Credit
Loan and Security  Agreement  and  Assignment,  dated as of the date hereof (the
"Third  Modification").  Each of the undersigned hereby confirms and agrees that
the  Guaranty  previously  executed by it is, and shall  continue to be, in full
force  and  effect,  and  hereby  ratifies  and  confirms  in all  respects  its
obligations thereunder,  except that upon the effectiveness of, and on and after
the date of, the Third  Modification,  all  references  in each  Guaranty to the
"Revolving  Credit  Agreement"  shall mean the  Revolving  Credit  Agreement  as
modified by the Third  Modification  and any  reference to  "$45,000,000"  shall
refer to "$35,000,000".



                              DIXON EUROPE, LIMITED

                              By:   /s/  Richard A. Asta
                              ---------------------------------------------
                              Title: Secretary





                              GRUPO DIXON, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:





                              VINCI de MEXICO, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:



                              VINCI MANUFACTURA, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:


<PAGE>


                              COMERCIALIZADORA DIXON, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:



                              SERVIDIX, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:



                              DIXON INDUSTRIAL MEXICO, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:



                              DIXON TICONDEROGA de MEXICO, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:




<PAGE>


                                    Exhibit A

                           Borrowing Base/Availability

I. BORROWING  BASE.  The  "Borrowing  Base" for the  Revolving  Credit Loans and
   Letters of Credit at any date shall be the sum of the  following  as the same
   exists on that date:

   (a) eighty percent (80%) of the face amount of Eligible Accounts; plus

   (b)eighty percent (80%) of the face amount of Eligible Foreign Accounts; plus

   (c) fifty percent (50%) of the FIFO cost of Eligible Inventory  consisting of
       raw materials and packaged finished goods; plus

   (d) forty percent (40%) of the FIFO cost of Eligible Inventory  consisting of
       unpackaged  finished goods; plus (e) forty percent (40%) of the FIFO cost
       of Eligible Inventory consisting of packaging materials;

      provided,  however,  that the aggregate  amount of Revolving  Credit Loans
      shall not exceed the following sublimits which can be advanced against the
      following  categories of Collateral:  (i) against Eligible Inventory,  the
      sublimit is Twenty Million U.S.  Dollars  ($20,000,000),  and (ii) against
      Eligible Inventory of packaging  materials,  the sublimit is Seven Hundred
      Fifty Thousand U.S. Dollars ($750,000).

   If the results of any two (2) consecutive field audits conducted by the Agent
   reveal a Dilution  Percentage  equal to or greater than twelve percent (12%),
   the Agent reserves the right, in its sole discretion, to reduce the foregoing
   advance rates  applicable to Eligible  Accounts and Eligible Foreign Accounts
   from time to time upon any increase  occurring in the Dilution  Percentage of
   the Eligible Accounts or Foreign Eligible  Accounts.  No such reduction shall
   establish  a  custom,  and each  such  modification  shall  become  effective
   immediately for purposes of calculating new Loans hereunder.

   The Agent may, in its sole discretion, at any time or times after the Closing
   Date,  decrease the ratio (i.e.,  advance rate) of its Loans against Eligible
   Accounts,  Eligible Foreign Accounts or Eligible Inventory for any reason the
   Agent  shall deem  necessary  without  establishing  a custom,  and each such
   decrease shall become  effective  immediately for purposes of calculating the
   new Loans hereunder.

   In addition, the Agent may, with the consent of the Required Lenders, exclude
   any assets acquired  pursuant to a Permitted  Acquisition from calculation of
   the Borrowing Base.

   In  addition,  the Agent may, at any time or times  after the  Closing  Date,
   establish  one or more  reserves  against  the  Borrowing  Base  in its  sole
   discretion.

II.AVAILABILITY.  "Availability" at any date shall be the Borrowing Base at such
   date less the sum of the  following  as the same exist on that date:  (a) one
   hundred percent (100%) of the aggregate  amount of all outstanding  Revolving
   Credit Loans;  plus (b) one hundred percent (100%) of the aggregate amount of
   all undrawn Standby Letters of Credit issued pursuant to Section 2.1.1 of the
   Agreement;  plus (c)  fifty  percent  (50%) of the  aggregate  amount  of all
   undrawn  Trade  Letters of Credit  issued  pursuant  to Section  2.1.1 of the
   Agreement;  plus (d) (i) one hundred percent (100%) of all  outstanding  Spot
   Foreign Exchange Contracts,  and (ii) twenty percent (20%) of all outstanding
   Forward  Foreign  Exchange  Contracts  until two (2) days  prior to the value
   date, at which time, the reserve shall equal one hundred  percent (100%) plus
   (e) one hundred  percent  (100%) of the amount  which the Agent,  in its sole
   discretion,  determines to be the aggregate amount of the "Loss", "Settlement
   Amount" and "Unpaid  Amount",  as such terms are defined in the Interest Rate
   Swap Agreement.


<PAGE>


                                                                 Exhibit (10) i

                              FIRST MODIFICATION OF
                    AMENDED AND RESTATED TERM LOAN AGREEMENT
                                 AND ASSIGNMENT

      This  Modification  of  Amended  and  Restated  Term  Loan  Agreement  and
Assignment  (this  "First  Modification")  dated as of  September  30, 1999 (the
"Effective  Date"),  is 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  identified  on the  signature  pages  hereto as Existing  Lenders  (the
"Existing Lenders"), the Persons identified on the signature pages hereto as New
Lenders  (the  "New  Lenders",  and  together  with the  Existing  Lenders,  the
"Lenders") 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  Term Loan
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 "Term  Loan  Agreement"),  by and among the  Borrower,  the  Existing
Lenders  and the  Agent,  pursuant  to  which  the  Lenders  extended  financial
accommodations to Borrower in the form of a $7,750,000.08  term loan facility in
accordance  with,  and  subject  to, the terms and  conditions  of the Term Loan
Agreement; and

      WHEREAS,  the parties to the Term Loan  Agreement have agreed to amend the
Term Loan Agreement as provided herein;

      WHEREAS,  the parties to the Term Loan  Agreement  and the New Lender have
agreed that the New Lender shall become a party to the Term Loan  Agreement  (as
amended  hereby) by way of assignment by National Bank of Canada (the "Assigning
Lender") of its Term Loans;

      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
Term Loan Agreement.

SECTION 2. AMENDMENT TO  DEFINITIONS.  Section 1.1 of the Term Loan Agreement is
hereby amended as follows:

            (a)The  following  new  definition  is added  in the  alphabetically
               appropriate place:

               "Dollars"  and "$" shall mean  dollars in lawful  currency of the
               United States of America,  unless otherwise specifically provided
               herein.

            (b)The  definition of "Term Loan" is hereby  amended by deleting the
               word  "7,750,000.08"  and inserting the word  "$7,500,000" in its
               place.

SECTION 3.  AMENDMENTS TO TERM LOAN  PROVISIONS.  Section 2.1 (Term Loan) of the
Term Loan Agreement is hereby amended by as follows:

            (a)Section   2.1(a)  is  hereby   amended  by   deleting   the  word
               "$3,900,768.79"  and  inserting the word  "$3,774,937.50"  in its
               place.

            (b)Section   2.1(b)  is  hereby   amended  by   deleting   the  word
               "$2,567,187.53 and inserting the word "$2,484,375" in its place.

            (c)Section   2.1(c)  is  hereby   amended  by   deleting   the  word
               "$1,282,043.76  and  inserting  the word  "$1,240,687.50"  in its
               place.

SECTION  4.  AMENDMENTS  TO  PAYMENT  PROVISIONS.  Section  3 of the  Term  Loan
Agreement is amended as follows:

            (a)Section  3.1  (Payments)  of the Term  Loan  Agreement  is hereby
               amended by (i) deleting the words "200 South Biscayne  Boulevard,
               11th Floor, MC: FL6090, Miami, Florida,  33131" and inserting the
               words "One First  Union  Center,  300 S.  College  Street,  DC-4,
               Charlotte, NC 28288" in their place and (ii) adding the following
               sentence to the end thereof:

               All payments  hereunder shall be made without setoff,  deduction,
               counterclaim or withholding of any kind.

            (b)Section 3.3  (Principal  Payments) of the Term Loan  Agreement is
               hereby deleted in its entirety and replaced with the following:

               3.3 Principal Payments.  In addition to and concurrently with the
               monthly payments of Interest, Borrower shall pay to Agent monthly
               installments  of Principal  in an amount  equal to $125,000  from
               October 1, 1999 through September 1, 2004.

SECTION 5.  AMENDMENTS  TO TAX  PROVISIONS.  Section 12 (Taxes) of the Term Loan
Agreement is hereby deleted in its entirety and replaced with the following:

            All payments made by the Borrower  under this  Agreement,  any Notes
            and any documents  relating  hereto shall be made free and clear of,
            and  without  deduction  or  withholding  for or on account  of, any
            present or future  income,  stamp or other taxes,  levies,  imposts,
            duties, charges, fees, deductions or withholdings,  now or hereafter
            imposed,  levied,  collected,  withheld or assessed by any court, or
            governmental  body,  agency or other official,  including  interest,
            penalties and liabilities  with respect  thereto,  excluding  income
            taxes of the Lenders or the Agent  ("Taxes").  If any such Taxes are
            required to be withheld from any amounts payable to the Agent or any
            Lender  hereunder  or under  any Notes or other  documents  relating
            thereto, (A) the Borrower shall withhold and remit such Taxes to the
            relevant  authority  when and as due,  (B) the amounts so payable to
            the Agent or such Lender shall be increased to the extent  necessary
            to yield to the  Agent or such  Lender  interest  or any such  other
            amounts  payable  hereunder or under the Notes or any other document
            relating  hereto at the rates or in the  amounts  specified  in this
            Agreement and any Notes, and (C) as promptly as possible  thereafter
            the Borrower  shall send to the Agent for its own account or for the
            account of such Lender,  as the case may be, a certified  copy of an
            original  official  receipt  received by the Borrower showing prompt
            payment thereof.  If the Borrower fails to pay any Taxes when due to
            the appropriate  taxing authority or fails to remit to the Agent the
            required  receipts  or  other  required  documentary  evidence,  the
            Borrower   shall   indemnify  the  Agent  and  any  Lender  for  any
            incremental Taxes,  interest or penalties that may become payable by
            the  Agent or any  Lender  as a  result  of any  such  failure.  The
            agreements in this subsection  shall survive the termination of this
            Agreement and the payment of the Loans and all other amounts payable
            hereunder.

SECTION 6. AMENDMENTS TO MISCELLANEOUS  PROVISIONS.  Section 13 of the Term Loan
Agreement is hereby amended as follows:

            a. Section  13.2  (Governing  Law;  Waiver  of  Jury  Trial)  of the
               Revolving  Credit  Agreement is hereby  amended by inserting  the
               words "OR ANY STATE OR FEDERAL COURT LOCATED  WITHIN  MECKLENBURG
               COUNTY,  STATE OF NORTH  CAROLINA"  following the words "STATE OF
               FLORIDA".

            b. A new section 13.3 is inserted  following  Section 13.2,  and the
               remaining sections are renumbered accordingly:

               13.3  Arbitration.

               (a)Notwithstanding   the   provisions  of  Section  13.2  to  the
                  contrary, upon demand of any party hereto, whether made before
                  or after institution of any judicial proceeding,  any dispute,
                  claim  or  controversy  arising  out  of,  connected  with  or
                  relating to this Agreement and the other documents executed in
                  connection   therewith  including  all  promissory  notes  and
                  collateral documents  ("Disputes") between or among parties to
                  this  Agreement  shall be resolved by binding  arbitration  as
                  provided  herein.  Institution  of a judicial  proceeding by a
                  party  does  not  waive  the  right of that  party  to  demand
                  arbitration   hereunder.   Disputes   may   include,   without
                  limitation, tort claims, counterclaims, disputes as to whether
                  a matter is subject to  arbitration,  claims  brought as class
                  actions,  claims arising from credit documents executed in the
                  future,  or  claims  arising  out  of or  connected  with  the
                  transaction reflected by this Agreement.

               (b)Arbitration  shall be  conducted  under  and  governed  by the
                  Commercial   Financial   Disputes   Arbitration   Rules   (the
                  "Arbitration Rules") of the American  Arbitration  Association
                  (the  "AAA")  and Title 9 of the U.S.  Code.  All  arbitration
                  hearings shall be conducted in Charlotte,  North  Carolina.  A
                  hearing  shall begin within 90 days of demand for  arbitration
                  and all hearings shall be concluded  within 180 days of demand
                  for  arbitration.  These time  limitations may not be extended
                  unless a party shows cause for extension and then no more than
                  a total  extension of 60 days.  The expedited  procedures  set
                  forth in Rule 51 et seq.  of the  Arbitration  Rules  shall be
                  applicable to claims of less than  $1,000,000.  All applicable
                  statutes of limitation shall apply to any Dispute.  A judgment
                  upon  the  award   may  be   entered   in  any  court   having
                  jurisdiction.   The  panel  from  which  all  arbitrators  are
                  selected  shall be  comprised of licensed  attorneys  selected
                  from the Commercial Financial Dispute Arbitration Panel of the
                  AAA. The single  arbitrator  selected for expedited  procedure
                  shall be a retired  judge  from the  highest  court of general
                  jurisdiction, state or federal, of the state where the hearing
                  will be conducted or if such person is not available to serve,
                  the single arbitrator may be a licensed attorney.  The parties
                  hereto do not waive  applicable  Federal or state  substantive
                  law except as provided herein.  Notwithstanding the foregoing,
                  this arbitration provision does not apply to disputes under or
                  related to interest rate protection agreements entered into by
                  any Lender and Borrower.

               (c)Notwithstanding the preceding binding arbitration  provisions,
                  the parties  hereto  agree to  preserve,  without  diminution,
                  certain  remedies  that the Agent or the Lenders may employ or
                  exercise  freely,  independently  or  in  connection  with  an
                  arbitration  proceeding  or after  an  arbitration  action  is
                  brought.  The Agent and the  Lenders  shall  have the right to
                  proceed in any court of proper jurisdiction or by self-help to
                  exercise or prosecute the following  remedies,  as applicable:
                  (i) all  rights  to  foreclose  against  any real or  personal
                  property  or  other  security  by  exercising  a power of sale
                  granted under any loan document or under  applicable law or by
                  judicial  foreclosure  and sale,  including  a  proceeding  to
                  confirm  the  sale;  (ii) all  rights of  self-help  including
                  peaceful  occupation of real property and collection of rents,
                  set-off,  and peaceful  possession of personal  property;  and
                  (iii) obtaining  provisional or ancillary  remedies  including
                  injunctive  relief,  sequestration,  garnishment,  attachment,
                  appointment of receiver and filing an  involuntary  bankruptcy
                  proceeding.  Preservation of these remedies does not limit the
                  power of an arbitrator  to grant similar  remedies that may be
                  requested by a party in a Dispute.

               (d)The parties  hereto agree that they shall not have a remedy of
                  punitive or exemplary damages against the other in any Dispute
                  and hereby  waive any right or claim to punitive or  exemplary
                  damages  they  have now or which  may  arise in the  future in
                  connection  with any Dispute,  whether the Dispute is resolved
                  by arbitration or judicially.

               (e)By  execution  and  delivery  of this  Agreement,  each of the
                  parties hereto accepts,  for itself and in connection with its
                  properties,  generally and unconditionally,  the non-exclusive
                  jurisdiction relating to any arbitration proceedings conducted
                  under the Arbitration  Rules in Charlotte,  North Carolina and
                  irrevocably  agrees to be bound by any final judgment rendered
                  thereby in connection with this Agreement from which no appeal
                  has been taken or is available.

SECTION 7.  RATIFICATION:  EFFECT ON REVOLVING CREDIT  AGREEMENT.  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,
except that all  references  contained  therein to "Term Loan  Agreement"  shall
refer to the Term Loan Agreement as modified by this First Modification.  To the
extent that any of the amendments of the Term Loan  Agreement  contained in this
First  Modification  are  amendments of  provisions  which are  incorporated  by
reference in the Revolving  Credit  Agreement,  the Revolving  Credit  Agreement
shall be deemed to be similarly amended.

SECTION 8. 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.

SECTION 9. LOAN AGREEMENT  REPRESENTATIONS  AND WARRANTIES.  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 10. 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)Executed  Documents.  The  Agent  shall  have  received  executed
               originals  of (i)  this  First  Modification  together  with  the
               Consent attached hereto,  (ii) Term Notes in favor of each of the
               Lenders  (other than the  Assigning  Lender)  and (iii)  recorded
               modifications of the Mortgages.

            (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
               resolutions   adopted  by  the  Board  of   Directors   and  sole
               shareholder of such Guarantor authorizing the execution, delivery
               and performance by such Guarantor of this First Modification, (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
               and any other documents executed in connection therewith.

            (c)Certificates  of Borrower  and  Guarantors.  The Agent shall have
               received a certificate  from each entity  comprising the Borrower
               and from each Guarantor,  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 such entity 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  such  entity  has  satisfied  each of the
               closing conditions set forth in this Section 9.

            (d)Opinion of  Counsel to the  Borrower  and  Guarantors.  The Agent
               shall have  received  the opinion of counsel for the Borrower and
               the Guarantors  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.

            (e)Modification  of Revolving  Credit  Agreement.  All conditions to
               the Third  Modification of Amended and Restated  Revolving Credit
               Agreement and Assignment dated as of the date hereof by and among
               the  Borrower,   the  Lenders  and  the  Agent  shall  have  been
               fulfilled.

SECTION 11.  ASSIGNMENT AND  ASSUMPTION.  The Assigning  Lender hereby sells and
assigns,  without  recourse,  to the  New  Lender,  and the  New  Lender  hereby
purchases and assumes, without recourse, from the Assigning Lender, effective as
of the  date  hereof,  such  interests  in the  Assigning  Lender's  rights  and
obligations under the Term Loan Agreement  (including,  without limitation,  the
Term Loans  owing to the  Assigning  Lender  which are  outstanding  on the date
hereof) as shall be  necessary in order to give effect to the  reallocations  of
the Term Loans effected by the amendment to Section  2.1(a),  (b) and (c) of the
Term Loan Agreement pursuant to Section 3 hereof. From and after the date hereof
(i) the New  Lender  shall be a party to and be bound by the  provisions  of the
Term Loan  Agreement  (as amended  hereby)  and, to the extent of the  interests
assigned  hereby,  have the rights and  obligations  of a Lender  thereunder and
under the other Loan  Documents  and (ii) the  Assigning  Lender  shall,  to the
extent of the interests  assigned hereby,  relinquish its rights and be released
from its  obligations  under the Term Loan Agreement.  The Assigning  Lender (i)
represents  and  warrants  that it is the  legal  and  beneficial  owner  of the
interest being assigned by it hereunder and that such interest is free and clear
of any adverse claim;  (ii) makes no  representation  or warranty and assumes no
responsibility  with respect to any  statements,  warranties or  representations
made in or in connection  with the Loan  Documents or the  execution,  legality,
validity,  enforceability,   genuineness,  sufficiency  or  value  of  the  Loan
Documents or any other instrument or document  furnished  pursuant thereto;  and
(iii) makes no  representation  or warranty and assumes no  responsibility  with
respect  to  the  financial  condition  of  any  Borrower  or  Guarantor  or the
performance or observance by any Borrower or Guarantor of any of its obligations
under the Loan Documents or any other instrument or document  furnished pursuant
thereto.  The New Lender (i)  confirms  that it has  received a copy of the Term
Loan  Agreement  (as amended  hereby)  together  with such other  documents  and
information  as it has deemed  appropriate  to make its own credit  analysis and
decision  to enter  into this  Third  Modification;  (ii)  agrees  that it will,
independently  and without  reliance upon the Agent, the Assigning Lender or any
other  Lender  and based on such  documents  and  information  as it shall  deem
appropriate at the time,  continue to make its own credit decisions in taking or
not taking action under the Term Loan  Agreement;  (iii) appoints and authorizes
the Agent to take such action as agent on its behalf and to exercise such powers
and  discretion  under the Term Loan  Agreement as are delegated to the Agent by
the terms  thereof,  together with such powers and  discretion as are reasonably
incidental  thereto;  (iv) agrees that it will perform in accordance  with their
terms all of the  obligations  that by the terms of the Term Loan  Agreement are
required to be performed by it as a Lender;  and (v) attaches any U.S.  Internal
Revenue  Service or other forms  required  under the Term Loan  Agreement or the
Revolving Credit Agreement.

SECTION 12.  MODIFICATION TO FOREIGN EXCHANGE  AGREEMENT.  The Borrower and FUCC
hereby  agree to modify the  Foreign  Exchange  Agreement  as  follows:  (a) all
references  to the "Term Loan  Agreement"  contained  therein shall refer to the
Term Loan Agreement as modified pursuant to this First  Modification and (b) the
reference to "$7,750,000.08"  contained in the third WHEREAS paragraph on page 1
shall be changed to "$7,500,000".

SECTION  13.  FEES.  The  Borrower  agrees to pay to the Agent,  for the ratable
benefit  of the  Lenders,  a fee on the date of this  First  Modification  in an
amount equal to $26,250.

SECTION 14.  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 15. COUNTERPARTS. This First  Modification may be executed in any number
of counterparts which, when taken together, shall constitute one original.

SECTION  16.  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 17.  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 Agreements or any other Loan
Documents 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 18. 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.


<PAGE>


            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/  Richard A. Asta
                              -----------------------------------------------
                              Title: Treasurer





                              DIXON TICONDEROGA INC.,
                              an Ontario corporation

                              By:     /s/  Richard A. Asta
                              -----------------------------------------------
                              Title: Treasurer





                              AGENT:

                              FIRST UNION COMMERCIAL CORPORATION,
                              a North Carolina corporation, as Agent

                              By: /s/ Robert L. Dean
                              ----------------------
                              Title:   VP





<PAGE>


                              EXISTING LENDERS:

                              FIRST UNION COMMERCIAL CORPORATION,
                              a North Carolina corporation, as a Lender

                              By: /s/ Robert L. Dean
                              ----------------------
                              Title:   VP



                              BANKBOSTON, N.A.,
                              a national banking association

                              By: /s/ Stephen Y. McGehee
                              --------------------------
                              Title: Managing Director





                              NATIONAL BANK OF CANADA,
                              a Canadian chartered bank

                              By:  /s/ E. Lynn Forgosh      /s/ Frank Johnson
                              --------------------------------------------------
                              Title:  Group  V.P.                Group V.P.



                              NEW LENDER:

                              LASALLE BANK NATIONAL ASSOCIATION

                              By: /s/ Meg Marion
                              ------------------
                              Title: Senior V.P.



<PAGE>


                                     CONSENT
                                     -------

This  Consent  (the  "Consent"),  dated  September  30,  1999,  is  delivered in
connection  with the  First  Modification  of  Amended  and  Restated  Term Loan
Agreement   and   Assignment,   dated  as  of  the  date   hereof   (the  "First
Modification").  Each of the  undersigned  hereby  confirms  and agrees that the
Guaranty  previously  executed by it is, and shall continue to be, in full force
and effect,  and hereby  ratifies and  confirms in all respects its  obligations
thereunder, except that upon the effectiveness of, and on and after the date of,
the First  Modification,  all  references  in each  Guaranty  to the "Term  Loan
Agreement"  shall  mean  the  Term  Loan  Agreement  as  modified  by the  First
Modification and any reference to "$7,750,000" shall refer to "$7,500,000".



                              DIXON EUROPE, LIMITED

                              By: /s/ Richard A. Asta
                              -----------------------
                              Title: Secretary





                              GRUPO DIXON, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:



                              VINCI de MEXICO, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:




                              VINCI MANUFACTURA, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:



<PAGE>


                              COMERCIALIZADORA DIXON, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:




                              SERVIDIX, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:




                              DIXON INDUSTRIAL MEXICO, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:




                              DIXON TICONDEROGA de MEXICO, S.A. de C.V.

                              By: /s/ Diego Cespedes Creixell
                              -------------------------------
                              Title:



<PAGE>


                                                                 Exhibit (10) j

                            DIXON TICONDEROGA COMPANY
                            195 INTERNATIONAL PARKWAY
                             HEATHROW, FLORIDA 32746


                                                  Dated as of November 18, 1999


TO EACH OF THE PURCHASERS LISTED IN
     THE ATTACHED SCHEDULE A

                               Amendment No. 1 to
                       Note and Warrant Purchase Agreement

Ladies and Gentlemen:

      Reference is made to the Note and Warrant Purchase Agreement,  dated as of
September 26, 1996 (the "Note  Agreement"),  among Dixon Ticonderoga  Company, a
Delaware  corporation (the "Company"),  and The Equitable Life Assurance Society
of the United States,  John Hancock Mutual Life Insurance  Company and Signature
1A (Cayman), Ltd. (collectively,  the "Purchasers"). The Purchasers hold 100% of
the Notes  outstanding  under the Note Agreement.  Capitalized terms used herein
without definition have the meanings specified therefor in the Note Agreement.

      The Company  requests the consent of the Purchasers to certain  amendments
of the Note  Agreement,  and the  Purchasers  are  willing  to  consent  to such
amendments, on the terms and subject to the conditions set forth herein.

The parties agree as follows:

1.     Amendments.  1.1.  Amendment of Section  10.1(b).  Section 10.1(b) of the
       Note, Agreement is hereby amended and restated to read in its entirety as
       follows:

            "(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 $42,500,000;"

      1.2.  Amendment of Section 10.1(h).  Section 10.1(h) of the Note Agreement
            is hereby amended and restated to read in its entirety as follows:

            "(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 $8,000,000;"

      1.3.  Amendment to Section 10.4(b).  Section 10.4(b) of the Note Agreement
            is hereby amended and restated to read in its entirety as follows:

            "(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 or 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 $7,000,000."

      1.4.  Amendment of Section  10.6.  Section  10.6 of the Note  Agreement is
            hereby amended and restated to read in its entirety as follows:

            "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, 1997 and on or
                 prior to September 30,  1998);  and 2.30 to 1.0 (if the date of
                 determination occurs after September 30, 1998)."

      1.5.  Amendment  of Certain  Definitions.  The following defined term is
            hereby amended and restated to read in its entirety as follows:

            "Consolidated   Interest  and  Dividend   Coverage  Ratio:  for  any
            Reference  Period,  the  ratio of (a) (x) for  purposes  of  section
            10.1(k), Adjusted EBIT and (y) for purposes of section 10.6, EBITDA,
            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."

      1.6.  Additional Definitions.  The  following  defined  term is hereby
            added to section 14 of the Note Agreement in the appropriate
            alphabetical order:

           "EBITDA:  has the  meaning  specified  in the Credit  Agreement as in
           effect on September 30, 1999."

2.     Conditions to  Effectiveness.  The  effectiveness  of the  amendments and
       other agreements contemplated hereby is subject to the fulfillment to the
       satisfaction of the Purchasers of the following conditions:

      2.1.  No  Defaults.  As of the date  hereof  (after  giving  effect to the
            amendments  provided herein), no Event of Default or Potential Event
            of Default shall have occurred or be continuing.

      2.2.  Representations  and Warranties.  The representations and warranties
            of the Company contained in the Note Agreement shall be correct when
            made and at the  date  hereof,  except  to the  extent a  particular
            representation  and warranty  expressly relates solely to an earlier
            date.

      2.3.  Credit   Agreement.   The  amendments  to  the  several   agreements
            constituting  the Credit  Agreement as defined in the Note Agreement
            shall  be  reasonably  satisfactory  in form  and  substance  to the
            Purchasers.  A complete and correct  copy of each such  agreement as
            amended  in effect on the  effective  date  hereof  shall  have been
            delivered to the Purchasers,  and no other agreements or instruments
            shall exist relating to the terms of such borrowings.

      2.4.  Consents,  Agreements.  The Company  shall have  obtained  all other
            consents and waivers  necessary in connection with the  transactions
            contemplated  hereby, and such consents and waivers shall be in full
            force and effect on the date hereof.  A complete and correct copy of
            each of such consents and waivers  shall have been  delivered to the
            Purchasers.

      2.5.  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 the Purchasers and their special  counsel,  and the
            Purchasers  and their  special  counsel shall have received all such
            counterpart originals or certified or other copies of such documents
            as it or they may reasonably request.

      2.6. Fees.

            (a)  The Company shall have paid to each Purchaser (or to the Person
                 designated  by such  Purchaser  for payment in Schedule  A), in
                 immediately  available  funds, a transaction fee equal to .125%
                 of the  aggregate  principal  amount of the Notes  held by such
                 Purchaser  on  the  date  hereof,   by  crediting  the  account
                 specified  below  its name in  Schedule  A for the  payment  of
                 transaction fees.

            (b)  The Company shall have paid the fees and  disbursements  of the
                 Purchasers'  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
                 hereof.

3.     Ratification. Except as amended hereby, all of the provisions of the Note
       Agreement shall remain in full force and effect.

4.     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. THIS AGREEMENT 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.

                         [signatures on following page]


<PAGE>


      If the Purchasers  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 the Purchasers and the Company.

                              Very truly yours,

                              DIXON TICONDEROGA COMPANY


                              By:  /s/ Richard A. Asta
                              ------------------------
                              Title:  CFO

The foregoing Amendment is
hereby agreed to as of the
date hereof.

THE EQUITABLE LIFE ASSURANCE SOCIETY
  OF THE UNITED STATES


By:    /s/  Peter C. Gummeson
------------------------------
Name:  Peter C. Gummeson
Title: Senior Vice President



JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY


By:    /s/ D. Donovan
-----------------------------
Name:  D. Donovan
Title: Sr. Investment Officer



SIGNATURE 1A (CAYMAN), LTD.

By:  John Hancock Mutual Life Insurance Company, Portfolio Advisor


By:    /s/ George A. Braun
--------------------------
Name:  George A. Braun
Title: Vice President


<PAGE>


                                   SCHEDULE A


                             SCHEDULE OF PURCHASERS



The Equitable Life Assurance Society of the United States

John Hancock Mutual Life Insurance Company

Signature 1A (Cayman), Ltd.


<PAGE>


                                                                    Exhibit (21)


                         1999 ANNUAL REPORT ON FORM 10-K

                           SUBSIDIARIES OF THE COMPANY

All of the Registrant's subsidiaries as of September 30, 1999, are listed below.
Subsidiaries of a subsidiary are indented.  All subsidiaries are included in the
consolidated financial statements of the Registrant.

                                                   State Or        Percentage of
                                               Jurisdiction of        Voting
                                                 Organization       Securities
                                                                      Owned
                                               ----------------  ---------------

Dixon Ticonderoga, Inc.                             Canada             100%

   Grupo Dixon, S.A. de C.V.  (Subsidiary of
   Dixon Ticonderoga, Inc.)                         Mexico              97%

    Dixon Ticonderoga de Mexico, S.A. de
    C.V.  (Subsidiary of Grupo Dixon, S.A. de C.V.) Mexico             100%


    Vinci de Mexico, S.A. de C.V.
    (Subsidiary of Grupo Dixon, S.A. de C.V.)       Mexico             100%


    Vinci Manufactura, S.A. de C.V.
    (Subsidiary of Grupo Dixon, S.A. de  C.V.)      Mexico             100%
    C.V.)

    Comercializadora Dixon, S.A. de C.V.
    (Subsidiary of Grupo Dixon, S.A. de  C.V.)      Mexico             100%
    C.V.)

    Servidix, S.A. de C.V.  (Subsidiary of
    Grupo Dixon, S.A. de C.V.)                      Mexico             100%

Dixon Industrial Mexico, S.A. de C.V.               Mexico             100%

Ticonderoga Graphite, Inc. (a)                      New York           100%

Dixon Europe, Limited                               United Kingdom     100%



(a)  Inactive

<PAGE>
Exhibit (27)