-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EGZbVJOvgAWFAGexjcKydYTS7xGR6LDy2Iqh/g5JnZK1/OOAyvWJzJT14ugua3VA 8xze3OX9Sgzn1v/IIWeIYQ== 0000950152-96-001781.txt : 19960426 0000950152-96-001781.hdr.sgml : 19960426 ACCESSION NUMBER: 0000950152-96-001781 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960127 FILED AS OF DATE: 19960425 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICHAEL ANTHONY JEWELERS INC CENTRAL INDEX KEY: 0000799515 STANDARD INDUSTRIAL CLASSIFICATION: JEWELRY, PRECIOUS METAL [3911] IRS NUMBER: 132910285 STATE OF INCORPORATION: DE FISCAL YEAR END: 0128 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10645 FILM NUMBER: 96550770 BUSINESS ADDRESS: STREET 1: 115 SO MACQUESTEN PKWY CITY: MOUNT VERNON STATE: NY ZIP: 10550 BUSINESS PHONE: 9146990000 MAIL ADDRESS: STREET 1: 115 SOUTH MACQUESTEN PKWY STREET 2: 115 SOUTH MACQUESTEN PKWY CITY: MOUNT VERNON STATE: NY ZIP: 10550 10-K 1 MICHAEL ANTHONY 10-K 1 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 January 27, 1996 Commission File Number 0-15230 MICHAEL ANTHONY JEWELERS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 13-2910285 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 115 SOUTH MACQUESTEN PARKWAY 10550 MOUNT VERNON, NEW YORK (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (914) 699-0000 ----------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $.001 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Indicate 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 this Form 10-K or any amendments to this Form 10-K. [ ] 2 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of April 17, 1996. COMMON STOCK, PAR VALUE $.001 8,273,901 (Title of each class) (Number of Shares) Aggregate market value of common stock held by non-affiliates at April 17, 1996: $21,614,121* DOCUMENTS INCORPORATED BY REFERENCE: Part III - Portions of registrant's Definitive Proxy Statement for Annual Meeting of Stockholders for Fiscal 1996 (to be filed within 120 days of end of Fiscal Year). Part IV - Certain exhibits to (i) registrant's Registration Statement on Form S-1 (File No. 33-8289), (ii) registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1991, (iii) registrant's Current Report on Form 8-K filed on June 24, 1992, (iv) registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993, (v) registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, (vi) registrant's Registration Statement on Form S-3 (File No. 33-71308), (vii) registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, (viii) registrant's Transition Report on Form 10-K for the transition period from July 1, 1994 to January 28, 1995, (ix) registrant's Quarterly Report on Form 10-Q for the quarter ended April 29, 1995, (x) registrant's Quarterly Report on Form 10-Q for the quarter ended July 29, 1993, and (xi) registrant's Quarterly Report on Form 10-Q for the quarter ended October 28, 1995. - -------------------- * Excludes holdings, among others, of RoseAnn Bosco, Allan Corn, Frances Durden, David Harris, Donald R. Miller, Michael Anthony Paolercio, Greg Torski, Michael K.L. Wager and Fredric R. Wasserspring who should not be deemed affiliates for any other purpose. 3 PART I ------ ITEM 1. BUSINESS. General - ------- Michael Anthony Jewelers, Inc. (the "Company") is a leading designer, manufacturer and distributor of gold jewelry in the United States. The Company sells its jewelry directly to major retailers, wholesalers, mass merchandisers, discount stores, catalogue distributors and television home shopping networks. The Company manufactures approximately 8,000 different styles of jewelry targeted towards the middle market, which generally retail between $20 and $200. The Company's products include rope chain, bracelets, charms, pendants, earrings, rings and watches, which jewelry is sold in over 20,000 retail locations nationwide. Most of the Company's products are manufactured at its Mount Vernon, New York facility. The Company utilizes manufacturing processes that combine modern technology and mechanization with handcraftsmanship. In order to better meet its customers' needs, the Company has developed a wide range of customer service programs, such as inventory management assistance through electronic data interchange, customized packaging, bar-coding and computerized analysis of sales and marketing trends. As a result of its vertical integration and customer service programs, the Company is able to be responsive to its customers' needs and manufacture and deliver most orders on a timely and more cost-effective basis than many of its competitors. The Company was organized as a Delaware corporation in 1986 and is the successor to Michael Anthony Jewelers, Inc., a New York corporation, organized in 1977. Change in Fiscal Year - --------------------- On November 4, 1994, the Company announced that it was changing its fiscal year end from June 30th to the last Saturday in January, effective with the seven month period ended January 28, 1995. Accordingly, references in this Form 10-K to the "Transition Period" refer to the seven month transition period from July 1, 1994 through January 28, 1995. References in this Form 10-K to a year (i) prior to 1994 preceded by the word "fiscal" refer to the twelve months ended June 30th of such year and (ii) after 1995 preceded by the word "fiscal" refer to the year ended on the last Saturday in January. Product Lines - ------------- The Company offers a broad selection of handcrafted gold and silver jewelry. Many of the Company's products carry the "Ma" trademark, which has become widely recognized in the jewelry industry and with certain consumers. One of the Company's largest product lines is an extensive selection of casted gold charms and pendants. The charms and pendants manufactured by the Company include religious symbols; popular sayings ("talking charms"); sport themes and team 4 logos; animal motifs; nautical, seashore, western, musical, zodiac and other thematic figures; initials; and abstract artistic creations. The M.A.J. manufacturing division manufactures gold rope chain and designs gold tubing and bangle blanks used in the production of bangle bracelets. The M.A.E. manufacturing division manufactures gold earrings and gold locks used in the production of rope chain. The Company also manufactures a line of mens and ladies 14 karat gold watches under the "Michael Anthony" brand name. The tables below set forth the approximate percentage of (i) sales and (ii) kilos shipped in fiscal year 1996, the Transition Period and in fiscal year 1994 and 1993, respectively, attributable to each of the Company's product categories.
FISCAL 1996 Product Category - ---------------- Approximate Approximate % of Kilos % of Sales Shipped ----------- ----------- Casted................................ 45 34 Chains................................ 42 51 Earrings.............................. 6 4 Other items........................... 7 11 --- --- Total 100% 100% === === TRANSITION PERIOD Product Category - ---------------- Approximate Approximate % of Kilos % of Sales Shipped ----------- ----------- Casted................................ 43 34 Chains................................ 42 52 Earrings.............................. 5 4 Other items........................... 10 10 --- --- Total 100% 100% === === FISCAL 1994 Product Category - ---------------- Approximate Approximate % of Kilos % of Sales Shipped ----------- ----------- Casted................................ 45 35 Chains................................ 40 49 Earrings.............................. 7 6 Other items........................... 8 10 --- --- Total 100% 100% === ===
2 5
FISCAL 1993 Product Category - ---------------- Approximate Approximate % of Kilos % of Sales Shipped ----------- ----------- Casted................................ 39 32 Chains................................ 46 51 Earrings.............................. 9 7 Other items........................... 6 10 --- --- Total 100% 100% === ===
The Company's jewelry line includes licensed products manufactured pursuant to arrangements with such licensors as National Football League Properties, Inc., NBA Properties, Inc., Major League Baseball Properties, Inc., NHL Enterprises, Inc., ACOP (Atlanta Centennial Olympics), Mattel (Barbie(R)), Cathy(R), Playboy Enterprises, Inc., General Motors Corporation (Cadillac(R)), Warner Bros., Inc. (licensors of Looney Tunes(R) characters), United Features Syndicate (Peanuts(R)) and many nationally recognized colleges, including Notre Dame and the University of Miami. The Company manufactures jewelry products, particularly charms, pendants and pins, depicting the popular logos and symbols associated with these licensors. The Company pays each of these licensors a royalty ranging from 6% to 12% on sales of the licensed products. During the fiscal year ended January 27, 1996, the Company's licensed products represented approximately 8% of the Company's net sales. The Company maintains an in-house design staff which utilizes CAD/CAM (computer aided design/computer aided manufacturing) technology to enhance its design, modeling and production capabilities. The equipment is utilized for the design of the Company's new products and for modifying the scale of existing Company designs. The Company's policy is to obtain proprietary protection for its products and designs whenever possible. The Company updates its product catalogue each year by adding new designs and eliminating less popular styles. Items removed from the Company's current catalogue generally remain available on a special order basis. Manufacturing Process - --------------------- At the Company's manufacturing facility in Mount Vernon, New York, manufacturing processes combine modern technology and mechanization with handcraftsmanship to produce fashionable and affordable gold jewelry. The manufacturing processes utilized by the Company include the casting (or lost wax) method, a photo-etching process which has allowed the Company to enter the lower priced segment of the market through production of ultra-light products and the diamond-cut process, a technique which produces a sparkling effect on a finished piece of gold jewelry. 3 6 The Company's rope chain product is manufactured by machinery designed in accordance with a patented process. The equipment is capable of operating 24 hours a day and requires minimal direct labor costs, which has enabled the Company to become one of the lowest cost producers of rope chain in the United States. During fiscal 1996, the Company manufactured approximately 95% of its products from gold bullion and other raw materials and purchased approximately 5% of its product as semi-finished or finished goods. The Company does not believe the loss of any supplier would have a material adverse effect on its business. Alternative sources of supply for the goods purchased by the Company are readily available. Backlog - ------- Orders from the Company's retail customers typically have shipment dates that range from 24 hours to 60 days. Substantially all of the Company's wholesale customers' orders are for immediate shipment and generally are shipped within 7 days of receipt. As of April 16, 1996, the aggregate dollar value of the Company's backorders was approximately $8,500,000. The Company expects that substantially all of the current backlog will be shipped in the next 45 days. Management of the Company does not believe that backlog is indicative of the Company's future results of operations, as backlog as of any given date is not necessarily indicative of sales trends. Marketing and Sales - ------------------- The Company markets and sells its jewelry primarily through its in-house sales force. Sales are made by the Company's sales personnel primarily at the Company's showroom in Mount Vernon, New York and direct presentations at customers' locations. Products are promoted through the use of catalogues, advertisements in trade publications, trade show exhibitions and cooperative advertising allowances with certain customers. The Company's marketing strategy includes a campaign to increase brand recognition for the "Michael Anthony" name. This campaign includes advertising in consumer magazines and a specially selected and packaged line of karat gold jewelry, including watches, sold by the Company to certain retailers under the "Michael Anthony" name. The Company believes that there is growing brand recognition of the "Michael Anthony" name and the "Ma" trademark with consumers and that this recognition has enhanced sales of its products. The Company's jewelry is sold primarily to discount stores, jewelry chain stores, department stores, catalogue retailers, television home shopping network and wholesalers. The Company assists its customers in allocating their purchasing budget among the items in the various product lines by advising them of items having higher consumer demand as determined by the Company's computerized market analysis. Prices vary on the basis of service required by customers. The Company ships its products in bulk to wholesale distributors and for certain retail chains, such as Wal*Mart, K-Mart, Sears, J.C. Penney, Zales, Service Merchandise and 4 7 Montgomery Ward, the Company pre-packages and price-tags most items, and then ships an order of many different items to distribution centers and stores in the chain. The Company provides additional services to certain of its customers to meet their specific marketing needs, such as tagging, boxing and point-of-sale displays. The Company also ships its jewelry to a limited number of customers on a consignment basis. Under these arrangements, the Company delivers its products under consignment, and upon sale, the customer pays the Company for the consigned merchandise. Consigned merchandise is subject to the Company's own consignment arrangements with its gold lenders (the "Gold Lenders"). See ITEM 1. "BUSINESS - SUPPLY; RELATED FINANCING ARRANGEMENTS" AND ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES." During the fiscal year ended January 27, 1996, sales to the five largest of the Company's customers aggregated approximately 49% of total net sales. The Company's two largest customers were Wal*Mart Stores, Inc. and Sterling Jewelers, Inc. (a division of Signet Group PLC and the owner of Kay Jewelers and J.B. Robinson Jewelers), accounting for approximately 17% and 12% of net sales, respectively. The Company has no long term contractual commitments with any of its customers, nor are any of the Company's customers subject to any contractual provisions or other restrictions which preclude them from purchasing products from the Company's competitors. The Company reduces gross sales by the amount of returns and discounts to determine net sales each month. The Company establishes each month a reserve for returns based on its historical experience, the amount of gross sales and the customer base. The total of actual returns and the provision for the returns reserve amounted to approximately 14% of gross sales in fiscal 1996, 16% of gross sales for the Transition Period and 10% of gross sales for fiscal 1994. For further information regarding the reserve for returns, see Note 1 - Notes to Consolidated Financial Statements. Patents and Trademarks - ---------------------- The Company manufactures its rope chain using machinery that is designed in accordance with patented processes. The Company also maintains certain trademarks and generally applies for copyrights covering the design of its charms and other selected products. The level of copyright protection available under the law for the Company's proprietary designs and products varies depending upon a number of factors, including the distinctiveness of the product and originality of design. There can be no assurance that the Company's patents, trademarks and copyrights will prevent competitors from producing products that are substantially similar to those of the Company. See ITEM 1. "BUSINESS - PRODUCT LINES." 5 8 Competition - ----------- The jewelry industry is highly competitive, both in the United States and on a global basis. The Company encounters competition primarily from manufacturers with national and international distribution capabilities and, to a lesser extent, from small regional suppliers of jewelry. Management believes that the Company is well positioned in the industry and has a reputation for responsive customer service, high-quality and well-designed jewelry with broad consumer appeal. The principal competitive factors in the industry are price, quality, design and customer service. The Company's specialized customer service programs are important competitive factors in sales to non-traditional jewelry retailers, including television shopping networks and discount merchandisers. The Company believes that its infrastructure which enables it to offer these programs, combined with low cost manufacturing capabilities, provide the Company with competitive strengths that distinguish it from most of its current competitors. The recent trend towards consolidation at the retail level in the jewelry industry may increase the level of competition facing the Company. Seasonal Nature of Business - --------------------------- The Company's business is seasonal in nature. Presented below are the Company's net sales for each quarter of fiscal 1996, for the first quarter of the Transition Period and the four month period ended January 28, 1995 and for each quarter of fiscal 1994:
Net % of ($ in thousands) Sales Net Sales ----- --------- Fiscal 1996 First Quarter $27,260 19% Second Quarter $24,902 17% Third Quarter $47,037 32% Fourth Quarter $46,058 32% Transition Period First Quarter $34,101 37% Four Months ended $59,220 63% January 28, 1995 Fiscal 1994 First Quarter $27,779 19% Second Quarter $55,102 39% Third Quarter $28,492 20% Fourth Quarter $31,414 22%
6 9 While the Company's net sales are subject to seasonal fluctuation, this fluctuation is mitigated to a degree by the early placement of orders by many of the Company's customers, particularly for the Christmas holiday season. In addition, the Company markets holiday and seasonal products year-round for such occasions as Mother's Day, Valentine's Day, Father's Day, religious holidays and school graduations. Supply; Related Financing Arrangements - -------------------------------------- Gold acquired for manufacture is at least .995 fine and is then combined with other metals to produce 14 karat and 10 karat gold. The term "karat" refers to the gold content of alloyed gold, measured from a maximum of 24 karats (100% fine gold). Varying quantities of metals such as silver, copper, nickel and zinc are combined with fine gold to produce 14 karat gold of different colors. These alloys are in abundant supply and are readily available to the Company. The Company utilizes gold consignment arrangements with the Gold Lenders to supply substantially all of its gold needs. Under the terms of those arrangements, the Company is entitled to lease the lesser of (i) an aggregate of 250,000 ounces of fine gold or (ii) consigned gold with an aggregate value equal to $106,215,000. The consigned gold is secured by certain property of the Company including inventory and machinery and equipment. The Company pays the Gold Lenders a consignment fee based on the dollar value of ounces of gold outstanding under their respective agreements, which value is based on the daily Second London Gold Fix. The Company believes that its financing rate under the consignment arrangements is substantially similar to the financing rates charged to gold consignees similarly situated to the Company. At January 27, 1996, the Company held 149,324 ounces of gold on consignment with a market value of $60,700,000. The consignment agreements contain certain restrictive covenants relating to maximum usage, net worth, working capital and other financial ratios and each of the agreements requires the Company to own a specific amount of gold at all times. At January 27, 1996, the Company was in compliance with the covenants in its consignment agreements and the Company's owned gold inventory was valued at approximately $7,015,000. Management believes that the supply of gold available through the Company's gold consignment arrangements, in conjunction with the Company's owned gold, is sufficient to meet the Company's requirements. The consignment arrangements are terminable by the Company or the respective Gold Lenders upon 30 days notice. If any Gold Lender were to terminate its existing gold consignment arrangement, the Company does not believe it would experience an interruption of its gold supply that would materially adversely affect its business. The Company believes that other consignors would be willing to enter into similar arrangements if any Gold Lender terminates its relationship with the Company. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS AND FINANCIAL CONDITION AND RESULTS OF OPERATIONS." 7 10 Consigned gold is not included in the Company's inventory, and there is no related liability recorded. As a result of these consignment arrangements the Company is able to shift a substantial portion of the risk of market fluctuations in the price of gold to the Gold Lenders, since the Company does not purchase gold from the Gold Lenders until receipt of a purchase order from, or shipment of jewelry to, its customers. The Company then either locks in the selling price of the jewelry to its customers concurrently with the required purchase of gold from the Gold Lenders or hedges against changes in the price of gold by entering into forward contracts or purchasing futures or options on futures that are listed on the Commodity Exchange, Inc. ("COMEX"). While the Company believes its supply of gold is relatively secure, significant increases or rapid fluctuations in the cost of gold may result in reduced demand for the Company's products. From July 1, 1993 until January 27, 1996, the closing price of gold according to the Second London Gold Fix ranged from a low of $343 per ounce to a high of $406 per ounce. There can be no assurance that fluctuations in the credit and precious metals markets would not result in an interruption of the Company's gold supply or the credit arrangements necessary to allow the Company to support its accounts receivable and continue the use of consigned gold. Insurance - --------- The Company maintains primary all-risk insurance, with limits in excess of the Company's current inventory levels (including consigned gold), to cover thefts and damage to inventory located on the Company's premises and insurance on its goods in transit. The Company also maintains insurance covering thefts and damage to inventory located at the premises of its suppliers. The amount of coverage available under such policies is limited and may vary by location, but generally is in excess of the value of the gold held by a particular supplier. Additional insurance coverage is provided by some of the Company's suppliers. The Company also maintains fidelity insurance (insurance providing coverage against theft or embezzlement by employees of the Company). Employees - --------- As of January 27, 1996, the Company employed 554 persons, 446 of which were directly engaged in manufacturing and distribution operations, with the remaining 108 employees who were engaged in administration and sales. None of the Company's employees are covered by a collective bargaining agreement. The Company considers relations with its employees to be satisfactory; however, on or about March 28, 1996, Local 74 of the Service Employees International Union, AFL-C10 (the "Union") commenced an organizing effort of certain of the Company's employees. To date, the Company has not received a demand for recognition from the Union. 8 11 Environmental Matters - --------------------- The Company's manufacturing operations routinely involve the use of certain materials that are classified as hazardous. The Company's use of such materials is in compliance in all material respects with applicable federal, state and local laws and regulations concerning the environment, health and safety. The costs incurred by the Company in complying with such laws and regulations have not been material to the Company's results of operations. Acquisitions - ------------ While the Company intends to continue to aggressively market its gold jewelry product lines to its existing customer base, management of the Company believes opportunities exist to increase sales by expanding its customer base and exploring product lines that may utilize diamonds or colored stones (precious, semi-precious or synthetic). As part of the Company's strategy to increase sales to new and existing customers, in 1994 and 1995 the Company acquired two small jewelry manufacturers. As a result of these transactions, the Company increased its market share with an existing customer and added certain new customers. In order to further increase sales, the Company may consider acquiring one or more additional companies that manufacture and distribute jewelry products. ITEM 2. PROPERTIES. ---------- The manufacturing and distribution facilities of the Company are located in three adjacent buildings in Mount Vernon, New York having a total of approximately 74,000 square feet. Pursuant to lease agreements entered into in May 1991 and May 1995, respectively, with Michael Anthony Company, now known as MacQuesten Realty Company ("MRC"), a New York general partnership, the general partners of which are Michael Paolercio ("MP") and Anthony Paolercio ("AP"), the Company pays an average annual rent of approximately $606,000 over the term of the leases, plus real estate taxes and other occupancy costs. The Company believes that the terms of these lease arrangements with MRC are no less favorable than those that could have been obtained from an unaffiliated party. On December 1, 1994, the Company acquired its corporate headquarters premises in Mount Vernon, New York (the "Headquarters Property") from MRC. The Headquarters Property has approximately 71,000 square feet. A Special Real Estate Committee of the Board of Directors, comprised of the Company's independent, outside directors obtained an appraisal of the Headquarters Property, and after review of the appraisal and negotiation with MRC as to the terms of purchase of the Headquarters Property, recommended the acquisition to the Company's Board of Directors. On November 28, 1994, the Board of Directors voted unanimously, with MP abstaining and AP absent, to authorize the acquisition of the Headquarters Property. Under the terms of a Contract of Sale, dated 9 12 November 28, 1994, the Company acquired the Headquarters Property from MRC for the sum of $2,490,000. The Company funded the acquisition of the Headquarters Property with cash from its operations and subsequently financed the purchase with a mortgage loan from a bank. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." The offices and facilities of the Company are protected by state-of-the-art security systems, procedures and a security staff. ITEM 3. LEGAL PROCEEDINGS. ----------------- Legal proceedings to which the Company is a party are either routine litigation incidental to Michael Anthony's business or other litigation not material to the Company's business or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. --------------------------------------------------- Not applicable. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER ------------------------------------------------------------- MATTERS. ------- The Company's Common Stock is traded on the American Stock Exchange ("AMEX") under the symbol MAJ. The Company's Common Stock began its listing on AMEX on October 25, 1991. Prior to its listing on AMEX, the Company's Common Stock was traded in NASDAQ National Market System. The following table sets forth the high and low sale prices per share on AMEX for the fiscal year 1996, the Transition Period for the periods indicated and fiscal 1994.
Fiscal Year Ended January 27, 1996 High Low - ---------------------------------- ---- --- First Quarter......................................... 3 7/8 3 1/8 Second Quarter........................................ 3 1/2 2 5/8 Third Quarter......................................... 3 2 3/8 Fourth Quarter........................................ 3 1/8 2 1/2 Transition Period Ended January 28, 1995 High Low - ---------------------------------------- ---- --- First Quarter......................................... 6 3/8 5 Four Months ended January 28, 1995 ................... 7 3 1/2
10 13
Fiscal Year Ended June 30, 1994 High Low - ------------------------------- ---- --- First Quarter................................ 8 3/8 5 5/8 Second Quarter............................... 9 1/2 7 1/2 Third Quarter................................ 9 1/2 6 1/8 Fourth Quarter............................... 7 4 5/8
As of April 17, 1996, there were 235 holders of record of the Company's Common Stock (including brokers holding in street name). The Company has never paid a cash dividend. The Company anticipates that all of its earnings will be retained for use in its business and does not intend to pay cash dividends in the foreseeable future. In addition, the Company's senior secured note agreements contain covenants which limit the payment of dividends. Future dividend policy will depend upon, among other factors, the Company's earnings and its financial condition. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." On November 5, 1993, the Company filed a registration statement with the Securities and Exchange Commission for an offering of 2,000,000 shares of Common Stock of the Company and certain stockholders. On December 20, 1993, the Company sold 1,600,000 shares pursuant to the offering. On January 14, 1994, the underwriters partially exercised an over-allotment option whereby the Company sold an additional 7,600 shares. The net proceeds to the Company from the sale of the Common Stock were approximately $11,679,000 after deducting underwriting discounts, commissions, and expenses of the offering payable by the Company. The proceeds to the Company from this offering were used for working capital and general corporate purposes, including strategic acquisitions of other companies engaged in the manufacture and distribution of jewelry. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES." In connection with the Common Stock repurchase program that the Company announced in 1994 (the "1994 Stock Repurchase Program"), the Company repurchased a total of 441,600 shares of Common Stock for an aggregate price of approximately $1,439,000. The Company will not reissue these shares to the public. In November 1995, the Company discontinued its 1994 Stock Repurchase Program. In December 1995, the Company announced a new Common Stock Repurchase Program (the "1995 Stock Repurchase Program") pursuant to which the Company may repurchase up to 750,000 shares of Common Stock. As of April 17, 1996, the Company had repurchased a total of 60,000 shares of Common Stock under the 1995 Stock Repurchase Program for a total of approximately $159,000. 11 14 ITEM 6. SELECTED FINANCIAL DATA. ----------------------- The following selected financial data of the Company should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Form 10-K. 12 15
Year Ended June 30, ------------------------------------------------- Year Ended Seven Months Ended January 27, January 28, 1996 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- (In thousands, except per share amounts) STATEMENT OF OPERATIONS Net sales $145,257 $93,321 $142,787 $119,615 $112,748 $120,193 Cost of goods sold 121,195 76,782 114,151 97,509 92,028 96,646 -------- ------- -------- -------- -------- -------- Gross profit 24,062 16,539 28,636 22,106 20,720 23,547 Selling, general and administrative expenses 19,455 12,628 17,887 17,148 19,030 15,727 -------- ------- -------- -------- -------- -------- Operating income 4,607 3,911 10,749 4,958 1,690 7,820 Other (expense) income: Interest expense/gold consignment fee (3,835) (2,030) (3,157) (3,066) (2,629) (2,963) Other Income (expense) - net (1) 442 117 564 643 458 (1,194) -------- ------- -------- -------- -------- -------- Income/(loss) before income taxes 1,214 1,998 8,156 2,535 (481) 3,663 Income tax provision/(benefit) 486 774 3,176 964 (112) 1,532 -------- ------- -------- -------- -------- -------- Net income/(loss) $ 728 $ 1,224 $ 4,980 $ 1,571 $ (369) $ 2,131 ======== ======= ======== ======== ======== ======== Earnings/(loss) per share $ 0.09 $ 0.14 $ 0.63 $ 0.23 $ (0.06) $ 0.35 ======== ======= ======== ======== ======== ======== Weighted average number of shares 8,475 8,749 7,945 6,916 6,450 6,059 ======== ======= ======== ======== ======== ======== BALANCE SHEET DATA: Working capital $ 46,136 $42,778 $ 46,250 $ 31,311 $ 31,954 $ 22,793 Total assets (2) 78,646 72,039 69,962 53,707 52,733 41,906 Long-term debt and capital lease liability 19,192 13,282 13,210 15,824 18,009 8,456 Stockholders' equity 46,048 46,445 45,608 28,402 26,137 24,310
1. Other income (expense) - net for fiscal 1991 is comprised principally of expense associated with the proposed and subsequently terminated merger negotiations. No additional costs related to this matter were incurred. 2. The year ended January 27, 1996, the seven months ended January 28, 1995 and the years ending June 30, 1994, 1993, 1992 and 1991 do not include consigned inventory, which had approximate value of $60,700,000, $72,936,000, $70,818,000, $61,796,000, $39,345,000 and $39,623,000 respectively. 13 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS. --------------------- Introduction ------------ On November 3, 1994, the Company's Board of Directors approved a change in the fiscal year end of the Company from June 30th to a fiscal year ending on the last Saturday in January, effective for the seven month period ended January 28, 1995. As used below, (a) fiscal 1996 refers to the fiscal year ended January 27, 1996, (b) "Transition Period" refers to the seven months ended January 28, 1995 and (c) "fiscal 1994" and "fiscal 1993" refer to the fiscal years ended June 30, 1994 and 1993, respectively. Results of Operations --------------------- The following table sets forth, as a percentage of net sales, certain items appearing in the Company's Statements of Operations for the indicated fiscal years.
Year ended Seven Months Year Ended June 30, January 27, Ended January 28, ------------------ 1996 1995 1994 1993 ---- ---- ---- ---- Net sales.................................. 100.0% 100.0% 100.0% 100.0% Cost of sales.............................. 83.4 82.3 80.0 81.5 Selling, general and administrative expenses.................. 13.4 13.5 12.5 14.3 Interest and gold consignment fee expense.............................. 2.6 2.2 2.2 2.6 Other income............................... (.2) (.1) (.4) (.5) Income tax provision....................... .3 .8 2.2 0.8 Net income................................. .5% 1.3% 3.5% 1.3%
1996 vs. Twelve Months Ended January 28, 1995 (Unaudited) - -------------------------------------------------------- Net sales for fiscal 1996 were approximately $145,257,000, a decrease of 3% from net sales of approximately $149,583,000 for the comparable period in the prior year. The decrease in sales was primarily related to a significant reduction in volume of sales to the wholesale segment of the Company's customer base. This decrease was partly offset by an increase in volume of sales to the retail segment of the Company's customer base. Gross profit margin decreased to 16.6% of net sales in fiscal 1996 compared to 18.0% for the comparable period in the prior year. The decrease in the gross margin was due to the sale of discontinued and excess inventory, which represented approximately 5% of net sales, at margins 14 17 substantially below the Company's normal gross margin and an increased percentage of sales of the Company's rope chain which carries a lower gross margin than the Company's other products. Selling, general and administrative expenses for fiscal 1996 were approximately $19,455,000, compared to $19,454,000 for the comparable period in the prior year. As a percentage of net sales, these expenses increased to 13.4% in fiscal 1996 from 13.0% in the prior year. The increased percentage of selling expenses is primarily attributed to advertising expenses that came from additional support required by the Company's retail customers and the Company's effort to increase its brand name recognition through advertising placed directly in a consumer magazine. Other income and expenses for fiscal 1996 were approximately $3,393,000, an increase of $604,000 or 22% from $2,789,000 for the comparable period in the prior year. Interest expense (including gold consignment fees) was approximately $3,835,000, an increase of $579,000, or 18%, from $3,256,000 for the comparable period in the prior year. This increase was primarily due to (i) higher consignment rates, (ii) a higher average level of consigned inventory, and (iii) the new loans placed in February and October 1995. The higher consignment rates had a negative impact later in the fiscal year. The higher average level of consigned inventory had a more significant impact in the beginning of the fiscal year. The increase in gold consignment fees was partially offset by lower interest expense due to principal payments in February and May 1995 on the Company's other long-term debt and lower interest expense on the Company's short-term borrowings. The effective tax rates for fiscal 1996 and the comparable period in the prior year were 40% and 36.6%, respectively. As a result of the above factors, the Company's net income for fiscal 1996 was approximately $728,000 compared to $2,978,000 for the comparable period in the prior year. Transition Period vs. Seven Months Ended January 29, 1994 (Unaudited) - -------------------------------------------------------------------- Net sales for the Transition Period were approximately $93,321,000, an increase of 8% from net sales of approximately $86,524,000 for the comparable period in the prior year. The increase in net sales was primarily related to increased shipments to the retail segment of the Company's customer base and also to increased sales of the Company's rope chain product line. Gross profit margin decreased to 17.7% of net sales for the Transition Period, as compared to 21.1% for the comparable period in the prior year. The decrease in gross margin was attributable to a change in the Company's product mix and an average increase in the price of gold of approximately 2%. Selling, general and administrative expenses for the Transition Period were approximately $12,628,000, an increase of 13.9% from $11,086,000 for the comparable period in the prior year. The 15 18 increase is primarily attributed to increased salaries, advertising, and retail displays and packaging supplies to which the Company committed in anticipation of higher sales. Interest expense (including gold consignment fees) for the Transition Period was $2,030,000, an increase of $99,000, or 5%, from the prior comparable period. The increase is attributed to the costs to finance the Company's increased inventory position. Interest income decreased by $44,000 for the Transition Period compared to the comparable period of the prior year. This was due to lower amounts of funds available for short-term investments, which was a result of higher accounts receivable levels and capital expenditures. As a result of the above factors, the Company's net income for the Transition Period was $1,224,000, as compared to $3,227,000 for the comparable period of the prior year. 1994 vs. 1993 - ------------- Net sales for fiscal 1994 were approximately $142,787,000, an increase of approximately 19% from net sales of approximately $119,615,000 for fiscal 1993. The increase in net sales primarily was a result of increased sales to retail customers. The sales increase was attributable in part to an increase of approximately 10% in the average price of gold as compared to fiscal 1993. Gross profit margin increased to 20% of net sales in fiscal 1994, as compared to 18.5% of net sales in fiscal 1993. The increase in gross profit margin was attributable primarily to increased sales to retailers where the Company has higher gross margins. Selling, general and administrative expenses for fiscal 1994 were approximately $17,887,000, an increase of approximately 4.3% from $17,148,000 for fiscal 1993. Included in selling, general and administrative expenses for fiscal 1993 was a charge of $2,059,000 which was related to the termination of the Company's employment arrangements with two executives and compensation expense related to the earnout provisions of the terminated employees' employment agreements. If it were not for this charge in fiscal 1993, selling, general and administrative expenses would have increased in fiscal 1994 by $2,798,000 or approximately 18.5%. The increase is primarily attributable to (i) higher advertising, royalties and retail support costs which were related to the Company's increased sales for fiscal 1994 and (ii) increased salaries and benefits. As a percent of sales, excluding the termination expense, selling, general and administrative expenses decreased to approximately 12.5% of net sales for fiscal 1994 as compared to 12.6% of net sales for fiscal 1993. Interest expense (including gold consignment fees) for fiscal 1994 was $3,157,000, an increase of $91,000 from fiscal 1993, due to higher consignment levels needed to support the Company's increased sales. Interest income increased by $41,000 for fiscal 1994, as compared to fiscal 1993 as a result of the Company's temporary investment of certain of the proceeds from its common stock offering in fiscal 1994. 16 19 As a result of the above factors, the Company's net income for fiscal 1994 was $4,980,000, as compared to $1,571,000 for fiscal 1993. Liquidity and Capital Resources - ------------------------------- The Company relies on a gold consignment program, short-term and long-term borrowings and internally generated funds to finance increased inventories and accounts receivable. The Company fills most of its gold supply needs through gold consignment arrangements with the Gold Lenders. Under the terms of those arrangements, the Company is entitled to lease the lesser of (i) an aggregate of 250,000 ounces of fine gold or (ii) consigned gold with an aggregate value equal to $106,215,000. The consigned gold is secured by certain property of the Company including inventory and machinery and equipment. The Company pays the Gold Lenders a consignment fee based on the dollar value of ounces of gold outstanding under their respective agreements, which value is based on the daily Second London Gold Fix. The Company believes that its financing rate under the consignment arrangements is substantially similar to the financing rates charged to gold consignees similarly situated to the Company. As of January 27, 1996, the Company held 149,324 ounces of gold on consignment with a market value of $60,700,000. The consignment agreements contain certain restrictive covenants relating to maximum usage, net worth, working capital and other financial ratios and each of the agreements requires the Company to own a specific amount of gold at all times. At January 27, 1996, the Company was in compliance with the covenants in its consignment agreements and the Company's owned gold inventory was valued at approximately $7,015,000. Management believes that the supply of gold available through the Company's gold consignment arrangements, in conjunction with the Company's owned gold, is sufficient to meet the Company's requirements. The consignment agreements are terminable by the Company or the respective Gold Lenders upon 30 days notice. If any Gold Lender were to terminate its existing gold consignment arrangement, the Company does not believe it would experience an interruption of its gold supply that would materially adversely affect its business. The Company believes that other consignors would be willing to enter into similar arrangements if any Gold Lender terminates its relationship with the Company. During fiscal 1996, the Company entered into a consignment agreement with a new Gold Lender and amended its existing consignment agreements with its other Gold Lenders. As of February 29, 1996, one of the Company's Gold Lenders terminated its gold consignment arrangement with the Company as a result of its decision to discontinue its involvement in the jewelry industry. Consigned gold is not included in the Company's inventory, and there is no related liability recorded. As a result of these consignment arrangements, the Company is able to shift a substantial portion of the risk of market fluctuations in the price of gold to the Gold Lenders, since the Company does not purchase gold from the Gold Lenders until receipt of a purchase order from, or shipment of jewelry to its customers. The Company then either locks in the selling price of the jewelry to its 17 20 customers concurrently with the required purchase of gold from the Gold Lenders or hedges against changes in the price of gold by entering into forward contracts or purchasing futures or options on futures that are listed on the COMEX. While the Company believes its supply of gold is relatively secure, significant increases or rapid fluctuations in the cost of gold may result in reduced demand for the Company's products. From July 1, 1993 until January 27, 1996, the closing price of gold according to the Second London Gold Fix ranged from a low of $343 per ounce to a high of nearly $406 per ounce. There can be no assurances that fluctuations in the precious metals markets and credit would not result in an interruption of the Company's gold supply or the credit arrangements necessary to allow the Company to support its accounts receivable and continue the use of consigned gold. In each of 1987 and 1992, the Company issued $10,000,000 principal amount of senior secured notes with various insurance companies, which accrue interest at 10.5% and 8.61% per annum, respectively. In February 1995, the Company issued an additional $6,000,000 principal amount of senior secured notes with various insurance companies, which currently accrue interest at 7.38% per annum. These notes are secured by the Company's accounts receivable, machinery and equipment, inventory (secondary lien to the Gold Lenders) and proceeds. In addition, the note purchase agreements contain certain restrictive financial covenants and restrict the payment of dividends. At January 27, 1996, the Company was in compliance with the covenants and $18,528,000 of principal remained outstanding under the notes issued in 1987, 1992 and 1995. On October 6, 1995, the Company obtained a loan from a bank in the amount of $2,500,000. As collateral for the loan, the Company granted the bank a first mortgage on the Company's corporate headquarters. The mortgage has a ten-year term and interest on the mortgage will accrue at 8% per annum. In addition, the mortgage contains certain restrictive financial covenants. At January 27, 1996, the Company was in compliance with the covenants. As of January 27, 1996, $2,478,000 of principal remained outstanding under the mortgage. In September 1994, the Company entered into a line of credit arrangement with a commercial bank (the "Line of Credit"), under which the Company may borrow up to $15,000,000. The Line of Credit is secured by certain assets of the Company, including accounts receivable and inventory. As of January 27, 1996, there was no amount outstanding under the Line of Credit. The Line of Credit has been renewed and currently expires on July 31, 1996, subject to annual renewal. Management believes that the Line of Credit will be renewed; however, if the current lender decides not to renew the Line of Credit, the Company believes that other lenders would be willing to enter into a similar arrangement. On November 5, 1993, the Company filed a registration statement with the Securities and Exchange Commission for an offering of 2,000,000 shares of Common Stock of the Company and certain stockholders. On December 20, 1993, the Company sold 1,600,000 shares pursuant to the offering. On January 14, 1994, the underwriters partially exercised an over-allotment option whereby the Company sold an additional 7,600 shares. The net proceeds to the Company from the sale of the 18 21 Common Stock were approximately $11,679,000 after deducting underwriting discounts, commissions, and expenses of the offering payable by the Company. The proceeds to the Company from this offering were used for working capital and general corporate purposes, including strategic acquisitions of other companies engaged in the manufacture and distribution of jewelry. During fiscal 1996, cash from operating activities was approximately $821,000. This was primarily attributable to net income of $728,000 which included depreciation and amortization of $4,009,000, offset by an increase in accounts receivable of $3,735,000. The increase in accounts receivable was due to an increase of sales in the fourth quarter in addition to customers placing orders later in the season. Cash of approximately $4,616,000 was utilized for investing purposes during fiscal 1996, primarily to purchase machinery and equipment of approximately $3,225,000 and for building and leasehold improvements of $1,250,000. During fiscal 1996, cash provided by financing activities totalled $4,653,000. This was primarily attributed to the issuance of $6,000,000 of senior secured notes and $2,500,000 in mortgage financing for the Company's corporate headquarters. This was offset by $2,722,000 in payments of debt and $1,125,000 utilized to repurchase common stock. As part of its long-term strategic planning, the Company is reviewing a plan to expand its manufacturing and distribution facilities and to acquire certain properties it is currently leasing from MRC (the "Leased Properties"). In the event the Company were to acquire any of such properties, the Company may incur or assume additional long-term indebtedness in order to finance their purchase. For fiscal 1997, the Company projects capital expenditures of approximately $2,600,000, which includes certain improvements on its leased and owned properties, but does not include any other expenses related to the possible acquisition of the Leased Properties. See ITEM 2. "PROPERTIES" and ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS". Except with respect to financing for the possible acquisition of its Leased Properties as discussed above, the Company believes that its long-term debt and existing lines of credit provide sufficient funding for the Company's operations. In the event that the Company requires additional financing during fiscal 1997, it will be necessary to fund this requirement through expanded credit facilities with its existing or other lenders. The Company believes that such additional financing can be arranged. 19 22 New Accounting Standards - ------------------------ In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS No. 121), effective for financial statements for fiscal years beginning after December 15, 1995. The Company will adopt SFAS No. 121 in fiscal 1997. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which requires adoption of the disclosure provisions no later than fiscal years beginning after December 15, 1995 and adoption of the recognition and measurement provisions for nonemployee transactions no later than after December 15, 1995. The new standard defines a fair value method of accounting for stock options and other equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Pursuant to the new standard, companies are encouraged, but are not required, to adopt the fair value method of accounting for employees stock-based transactions. Companies are also permitted to continue to account for such transactions under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but would be required to disclose in a note to the financial statements pro forma net income and, if presented, earnings per share as if the Company had applied the new method of accounting. The accounting requirements of the new method are effective for all employee awards granted after the beginning of the fiscal year of adoption. The Company has not yet determined if it will elect to change to the fair value method, nor has it determined the effect the new standard will have on net income and earnings per share should it elect to make such a change. Adoption of the new standard will have no effect on the Company's cash flows. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ------------------------------------------- See Item 14 and pages F-1 through F-22 and S-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE. -------------------- Not applicable. 20 23 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. -------------------------------------------------- The information contained under the heading "Election of Directors" of the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. ---------------------- The information contained under the heading "Executive Compensation" of the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. -------------------------------------------------------------- The information contained under the heading "Beneficial Ownership of Common Stock" of the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders is incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ---------------------------------------------- The information contained under the heading "Certain Transactions" of the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders is incorporated herein by reference. See also ITEM 2. "PROPERTIES". 21 24 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K. -------------------------------------------------------------- (a) The following documents are filed as a part of this Report:
Page ---- (1) Financial Statements: Independent Auditors' Report......................... F-1 Consolidated Balance Sheets.......................... F-2 Consolidated Statements of Operations................ F-3 Consolidated Statements of Changes in Stockholders' Equity............................... F-4 Consolidated Statements of Cash Flows................ F-5 Notes to Consolidated Financial Statements........... F-7 (2) Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts...... S-1
All other schedules are omitted as the required information is inapplicable or is presented in the consolidated financial statements or related notes. The financial statement schedule should be read in conjunction with the financial statements in the 1996 Annual Report to Stockholders. (3) Exhibits:
Exhibit No. Description Page No. ----------- ----------- -------- 3.1 Certificate of Incorporation of Registrant, as Incorporated by reference to Exhibit 3.1 to amended Amendment No. 2 to the Company's Registration Statement on Form S-3 (File No. 33-71308) (the "1993 Registration Statement") 3.1.1 Certificate of Merger of Michael Anthony Incorporated by reference to Exhibit 3.1.1 of Jewelers,Inc. (New York) and Michael Anthony the Company's Annual Report on Form 10-K for Jewelers, Inc. (Delaware) the fiscal year ended June 30, 1993 (the "1993 Form 10-K")
22 25 3.2 Amended and Restated By-Laws of Registrant Incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 29, 1995 4.1 Form of Common Stock Certificate Incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 (File No. 33-8289) (the "1986 Registration Statement") 4.2 Form of Common Stock Purchase Incorporated by reference to Exhibit 3.4 to the Warrant Certificate 1986 Registration Statement 10.1 1986 Incentive Stock Option Plan of Registrant Incorporated by reference to Exhibit 10.14 to the 1986 Registration Statement 10.2 Note Purchase Agreement, dated as of December Incorporated by reference to Exhibit 10.3 of 15, 1987, between and among Registrant and the 1993 Form 10-K Northwestern National Life Insurance Company, Northern Life Insurance Company and The North Atlantic Life Insurance Company of America 10.3 Security Agreement, dated as of December 30, Incorporated by reference to Exhibit 10.4 of 1987, between and among Registrant and the 1993 Form 10-K Northwestern National Life Insurance Company, Northern Life Insurance Company and The North Atlantic Life Insurance Company of America 10.4 $5,000,000 Senior Note due 1998 of Registrant Incorporated by reference to Exhibit 10.5 of in favor of Northwestern National Life the 1993 Form 10-K Insurance Company 10.5 $4,000,000 Senior Note due 1998 of Registrant Incorporated by reference to Exhibit 10.6 of in favor of Northern Life Insurance Company the 1993 Form 10-K
23 26 10.6 $1,000,000 Senior Note due 1998 of Registrant in Incorporated by reference to Exhibit 10.7 of favor of The North Atlantic Life Insurance Company the 1993 Form 10-K 10.7 Lease dated as of May 1, 1991 between Michael Incorporated by reference to Exhibit 10.46 Anthony Company and Registrant to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1991 (the "1991 Form 10-K") 10.8 Lease dated as of May 1, 1991 between Michael Incorporated by reference to Exhibit 10.47 Anthony Company and Registrant to the 1991 Form 10-K 10.9 Note Purchase Agreement, dated as of June 5, 1992, Incorporated by reference to Exhibit 8 to among the Registrant and the holders of the the Company's Current Report on Form 8-K Registrant's Senior Notes due 2002 (the "2002 dated June 24, 1992 (the "1992 Form 8-K") Notes") 10.10 Security Agreement, dated as of June 5, 1992, among Incorporated by reference to Exhibit 9 to the Registrant and the holders of the 2002 Notes the 1992 Form 8-K 10.11 $3,500,000 Senior Note due 2002 of the Registrant Incorporated by reference to Exhibit 10 to in favor of Northern Life Insurance Company the 1992 Form 8 K 10.12 $3,000,000 Senior Note due 2002 of the Registrant Incorporated by reference to Exhibit 11 to in favor of Royal Maccabees Life Insurance Company the 1992 Form 8-K 10.13 $1,000,000 Senior Note due 2002 of the Registrant Incorporated by reference to Exhibit 12 to in favor of The North Atlantic Life Insurance the 1992 Form 8-K Company of America 10.14 $1,000,000 Senior Note due 2002 of the Registrant Incorporated by reference to Exhibit 13 to in favor of Farm Bureau Life Insurance Company of the 1992 Form 8-K Michigan
24 27 10.15 $1,000,000 Senior Note due 2002 of the Registrant Incorporated by reference to Exhibit 14 to in favor of FB Annuity Company the 1992 Form 8-K 10.16 $500,000 Senior Note due 2002 of the Registrant in Incorporated by reference to Exhibit 15 to favor of FB Annuity Company the 1992 Form 8-K 10.17 1993 Long Term Incentive Plan of the Registrant Incorporated by reference to Exhibit 19.01 to the Company's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1993 10.18 1993 Non-Employee Directors' Stock Option Plan of Incorporated by reference to Exhibit 19.02 the Registrant to the Company's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1993 10.19 Agreement dated as of June 14, 1993 between the Incorporated by reference to Exhibit 10.36 Registrant and Fredric R. Wasserspring of the 1993 Form 10-K 10.20 Consignment Agreement dated as of August 20, 1993 Incorporated by reference to Exhibit 10.40 between the Registrant and Fleet Precious Metals of the 1993 Form 10-K Inc. Security Agreement dated as of August 20, 1993 Incorporated by reference to Exhibit 10.39 10.21 among the Registrant, Fleet National Bank and Fleet of the 1993 Form 10-K Precious Metals Inc. 10.22 Amended and Restated Consignment Agreement dated as Incorporated by reference to Exhibit 10.41 of August 20, 1993 between the Registrant and Rhode of the 1993 Form 10-K Island Hospital Trust National Bank 10.23 Amended and Restated Consignment Agreement dated as Incorporated by reference to Exhibit 10.44 of August 20, 1993 between the Registrant and of the 1993 Form 10-K ABN-AMRO Bank N.V., New York Branch ("ABN")
25 28 10.24 Amended and Restated Security Agreement dated as Incorporated by reference to Exhibit 10.46 of August 20, 1993 between the Registrant and to the 1993 Form 10-K Rhode Island Hospital Trust National Bank ("RIHT") 10.25 Amended and Restated Intercreditor Agreement dated Incorporated by reference to Exhibit 10.47 as of August 20, 1993, among the Registrant, RIHT, to the 1993 Form 10-K ABN, Swiss Bank Corporation, New York Branch, Mase Westpac, Inc., the Mocatta Group, a division of Standard Chartered Bank ("Mocatta"), Fleet, the holders of the Registrant's Senior Notes due 1998 and the holders of the Registrant's 2002 Notes 10.26 First Amendment to 1993 Long Term Incentive Plan Incorporated by reference to Exhibit 10.48 of the Registrant dated as of September 21, 1993 to the 1993 Form 10-K 10.27 Second Amendment to Assignment of Trademarks and Incorporated by reference to Exhibit 10.49 Service Marks as Collateral dated as of July 12, to the 1993 Form 10-K 1990 between the Registrant and RIHT, individually and as agent 10.28 Consignment Agreement dated as of January 31, 1994 Incorporated by reference to Exhibit 10.46 (effective as of May 16, 1994 between the to the Company's Annual Report on Form 10-K Registrant and Credit Suisse, New York Branch for the fiscal year ended June 30, 1994 (the ("Credit Suisse") "1994 Form 10-K") 10.29 First Amendment to Amended and Restated Security Incorporated by reference to Exhibit 10.47 Agreement dated as of May 16, 1994 among the to the 1994 Form 10-K Registrant, RIHT, individually and as agent
26 29 10.30 Second Amendment to Amended and Restated Incorporated by reference to Exhibit 10.48 Intercreditor Agreement dated as of May 16, 1994 to the 1994 Form 10-K among the Registrant, RIHT, ABN, Swiss Bank Corporation, New York Branch, WestPac, Mocatta, Credit Suisse, Fleet, the holders of the Registrant's Senior Notes due 1998 and the holders of the Registrant's 2002 Notes 10.31 Third Amendment to Assignment of Trademarks and Incorporated by reference to Exhibit 10.49 Service Marks as Collateral dated as of May 16, 1994 to the 1994 Form 10-K between the Registrant and RIHT individually and as agent 10.32 Consignment Agreement dated as of September 1,1994 Incorporated by reference to Exhibit 10.50 between the Registrant and Deutsche Bank Sharps to the 1994 Form 10-K Pixley ("Deutsche Bank") 10.33 Second Amendment to Amended and Restated Security Incorporated by reference to Exhibit 10.53 Agreement dated as of September 1, 1994 among the to the 1994 Form 10-K Registrant, RIHT, individually and as agent 10.34 Third Amendment to Amended and Restated Incorporated by reference to Exhibit 10.54 Intercreditor Agreement dated as of September 1, to the 1994 Form 10-K 1994 among the Registrant, RIHT, ABN, Mocatta, Fleet, Credit Suisse, Deutsche Bank, the holders of the Registrant's Senior Notes due 1998, the holders of the Registrant's 2002 Notes and Chemical Bank 10.35 Fourth Amendment to Assignment of Trademarks and Incorporated by reference to Exhibit 10.55 Service Marks as collateral dated as of September 1, to the 1994 Form 10-K 1994 between the Registrant and RIHT, individually and as agent 10.36 Third Amendment to Amended and Restated Consignment Incorporated by reference to Exhibit 10.56 Agreement dated as of September 1, 1994 between the to the 1994 Form 10-K Registrant and RIHT
27 30 10.37 Fourth Amendment to Amended and Restated Consignment Incorporated by reference to Exhibit 10.51 to Agreement dated as of November 22, 1994 between the the Company's Transition Report on Form Registrant and RIHT 10-K for the transition period ended January 28, 1995 (the "1995 Form 10-K") 10.38 Contract of Sale dated as of November 28, 1994 Incorporated by reference to Exhibit 10.52 between Michael Anthony Company and the Registrant to the Company's 1995 Form 10-K 10.39 Note Purchase Agreement dated as of February 15, Incorporated by reference to Exhibit 10.53 1995, among the Registrant and the holders of the to the Company's 1995 Form 10-K Registrant's Senior Notes due 2004 (the "2004 Notes") 10.40 Security Agreement, dated as of February 15, 1995, Incorporated by reference to Exhibit 10.54 among the Registrant and the holders of the 2004 to the Company's 1995 Form 10-K Notes 10.41 $5,000,000 Senior Note due 2004 of the Registrant in Incorporated by reference to Exhibit 10.55 favor of Northern Life Insurance Company. to the Company's 1995 Form 10-K 10.42 $1,000,000 Senior Note due 2004 of the Registrant in Incorporated by reference to Exhibit 10.56 favor of Northwestern National Life Insurance Company to the Company's 1995 Form 10-K 10.43 Third Amendment to Amended and Restated Security Incorporated by reference to Exhibit 10.57 Agreement dated as of February 15, 1995 among the to the Company's 1995 Form 10-K Registrant, RIHT, individually and as agent, ABN, Mocatta, Fleet, Credit Suisse and Deutsche Bank 10.44 Fourth Amendment to Amended and Restated Incorporated by reference to Exhibit 10.58 Intercreditor Agreement dated as of February 15, to the Company's 1995 Form 10-K 1995 among the Registrant, RIHT, ABN, Mocatta, Fleet, Credit Suisse, Deutsche Bank, the holders of the Registrant's Senior Notes due 1998, the holders of the Registrant's 2002 Notes, the holders of the Registrant's 2004 Notes and Chemical Bank
28 31 10.45 Fifth Amendment to Amended and Restated Consignment Incorporated by reference to Exhibit 10.59 Agreement dated as of February 15, 1995 between the to the Company's 1995 Form 10-K Registrant and RIHT 10.46 Amended Security Agreement dated as of March 29, Incorporated by reference to Exhibit 10.61 1995 between the Registrant and Chemical Bank to the Company's 1995 Form 10-K 10.47 Lease dated as of May 1, 1995 between the Registrant Incorporated by reference to Exhibit 10 to and Michael Anthony Company the Company's Quarterly Report on Form 10-Q for the quarter ended April 29, 1995 10.48 Loan Agreement dated October 6, 1995 between First Incorporated by reference to Exhibit 10.1 Fidelity Bank, National Association ("First to the Company's Quarterly Report on Form Fidelity") and Registrant 10-Q for the quarter ended October 28, 1995 (the "October 1995 Form 10-Q") 10.49 Mortgage Note in principal amount of $2,500,000 Incorporated by reference to Exhibit 10.2 dated October 6, 1995 issued by Registrant in favor to the October 1995 Form 10-Q of First Fidelity 10.50 Mortgage and Security Agreement dated October 6, Incorporated by reference to Exhibit 10.3 1995 by Registrant for the benefit of First Fidelity to the October 1995 Form 10-Q 10.51 Consignment Agreement dated October 20, 1995 between Incorporated by reference to Exhibit 10.4 Registrant and Union Bank of Switzerland ("UBS") to the October 1995 Form 10-Q 10.52 Fourth Amendment to Amended and Restated Security Incorporated by reference to Exhibit 10.5 Agreement dated October 20, 1995 among Registrant, to the October 1995 Form 10-Q UBS and Registrant's other gold lenders. 10.53 Fifth Amendment to Amended and Restated Security Incorporated by reference to Exhibit 10.6 Agreement dated October 20, 1995 among Registrant, to the October 1995 Form 10-Q UBS and Registrant's other lenders.
29 32 10.54 Fifth Amendment to Assignment of Trademarks and Incorporated by reference to Exhibit 10.7 Service Marks dated October 20, 1995 among to the October 1995 Form 10-Q Registrant, UBS and Registrant's other lenders 10.55 Seventh Amendment to Amended and Restated Incorporated by reference to Exhibit 10.8 Consignment Agreement dated October 20, 1995 between to the October 1995 Form 10-Q Registrant and Rhode Island Hospital Trust National Bank 10.56 Assignment of Trademarks and Service Marks as Filed as an Exhibit to this Form 10-K on Collateral, dated July 12, 1990, between Registrant page 58 and Rhode Island Hospital Trust National Bank, individually and as agent 10.57 First Amendment to Assignment of Trademarks and Filed as an Exhibit to this Form 10-K on Service Marks as Collateral dated as of June 5, page 62 1992, between Registrant and Rhode Island Hospital Trust National Bank, individually and as agent 10.58 Promissory Note of the Registrant dated February 1, Filed as an Exhibit to this Form 10-K on 1996 in favor of Chemical Bank page 66 10.59 Deferred Compensation Plan dated as of March 4, 1996 Filed as an Exhibit to this Form 10-K on page 73 21 Subsidiaries of the Registrant Filed as an Exhibit to this Form 10-K on page 87 27 Financial Data Schedule Filed as an Exhibit to this Form 10-K on page 88
REPORT ON FORM 8-K ------------------ (b) Not applicable 30 33 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MICHAEL ANTHONY JEWELERS, INC. By: /s/ Michael Paolercio ---------------------------------------- Michael W. Paolercio, Co-Chairman of the Board and Chief Executive Officer Date: April 25, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Michael Paolercio Co-Chairman of the Board April 25, 1995 (Michael W. Paolercio) and Chief Executive Officer (Pricnipal Execuitve Officer) /s/ Anthony Paolercio Co-Chairman of the Board April 25, 1996 (Anthony Paolercio, Jr.) and Executive Vice President /s/ Fredric R. Wasserspring President, Chief Operating April 25, 1996 (Fredric R. Wasserspring) Officer and Director /s/ Allan Corn Chief Financial Officer, April 25, 1996 (Allan Corn) Senior Vice President and Director (Principal Accounting Officer) /s/ Michael A. Paolercio Senior Vice President, April 25, 1996 (Michael Anthony Paolercio) Treasurer and Director /s/ Michael K.L. Wager Director April 25, 1996 (Michael K.L. Wager) /s/ David Harris Director April 25, 1996 (David Harris) /s/ Donald Miller Director April 25, 1996 (Donald Miller)
31 34 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Michael Anthony Jewelers, Inc. Mount Vernon, New York We have audited the accompanying consolidated balance sheets of Michael Anthony Jewelers, Inc. and subsidiaries as of January 27, 1996 and January 28, 1995 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year ended January 27, 1996, for the seven-month period ended January 28, 1995, and for each of the two years in the period ended June 30, 1994. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Michael Anthony Jewelers, Inc. and subsidiaries as of January 27, 1996 and January 28, 1995, and the results of their operations and their cash flows for the year ended January 27, 1996, for the seven-month period ended January 28, 1995 and for each of the two years in the period ended June 30, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Parsippany, New Jersey April 12, 1996 F-1 35 MICHAEL ANTHONY JEWELERS, INC CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS January 27, January 28 ------ 1996 1995 ------------ --------- CURRENT ASSETS: Cash and equivalents $ 6,673 $ 5,815 Accounts receivable: Trade (less allowances of $1,575 and $1,400, respectively) 30,062 26,671 Other 47 150 Inventories 19,698 20,150 Prepaid expenses and other current assets 1,169 659 Deferred taxes 855 651 ----------- --------- Total current assets 58,504 54,096 PROPERTY, PLANT AND EQUIPMENT - net 18,125 16,281 INTANGIBLES - net 998 705 OTHER ASSETS 1,019 957 ----------- --------- $78,646 $72,039 =========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Accounts payable - trade $ 4,575 $ 4,989 Current portion of long-term debt and lease liability 3,272 2,680 Accrued expenses 3,980 3,255 Taxes payable 541 394 ----------- --------- Total current liabilities 12,368 11,318 ----------- --------- LONG-TERM DEBT 18,401 12,528 ----------- --------- CAPITAL LEASE LIABILITY 791 754 ----------- --------- DEFERRED TAXES 1,038 994 ----------- --------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock - par value $1.00 per share; 1,000,000 shares authorized; none issued - - Common stock - par value $.001 per share; 20,000,000 shares authorized; 9,239,000 shares issued and outstanding as of January 27, 1996, and January 28, 1995, respectively 9 9 Additional paid-in capital 35,170 35,170 Retained earnings 14,306 13,578 Treasury stock, 965,200 and 577,700 shares as of January 27, 1996 and January 28, 1995, respectively (3,437) (2,312) ----------- --------- Total stockholders' equity 46,048 46,445 ----------- --------- $78,646 $72,039 =========== =========
The accompanying notes are an integral part of these consolidated financial statements. F-2 36 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Seven Months Year Ended Ended Year Ended June 30, January 27, January 28, ---------------------- 1996 1995 1994 1993 ----------- ---------- ---------- ----------- NET SALES $145,257 $ 93,321 $142,787 $119,615 COST OF GOODS SOLD 121,195 76,782 114,151 97,509 -------- -------- -------- -------- GROSS PROFIT ON SALES 24,062 16,539 28,636 22,106 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 19,455 12,628 17,887 17,148 -------- -------- -------- -------- OPERATING INCOME 4,607 3,911 10,749 4,958 -------- -------- -------- -------- OTHER INCOME (EXPENSES): Gold consignment fee (2,006) (1,031) (1,487) (1,313) Interest expense (1,829) (999) (1,670) (1,753) Interest income 359 100 426 385 Other income 83 17 138 258 -------- -------- -------- -------- Total other income (expenses) (3,393) (1,913) (2,593) (2,423) -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 1,214 1,998 8,156 2,535 INCOME TAX PROVISION 486 774 3,176 964 -------- -------- -------- -------- NET INCOME $ 728 $ 1,224 $ 4,980 $ 1,571 ======== ======== ======== ======== EARNINGS PER SHARE $ .09 $ .14 $ .63 $ .23 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF SHARES 8,475 8,749 7,945 6,916 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 37 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS)
Common Stock Additional Treasury Stock ---------------- Paid-In Retained Deferred ------------------- Shares Dollars Capital Earnings Compensation Shares Dollars Total ------ ------- ---------- -------- ------------ ------ -------- -------- Balance -June 30, 1992 7,320 $ 7 $22,028 $ 5,803 $ (1,544) (40) $ (157) $ 26,137 Purchase of treasury - - - - - (424) (1,682) (1,682) stock Amortization of deferred compensation - - - - 1,344 - - 1,344 Deferred compensation forfeited - - - - 200 (50) (200) - Cancellation of shares (50) - (200) - - 50 200 - Exercise of stock options (including related income tax 230 1 1,031 - - - - 1,032 benefit) Net income - - - 1,571 - - - 1,571 ----- ------- -------- ------- ---------- ----- --------- -------- Balance - June 30, 1993 7,500 8 22,859 7,374 - (464) (1,839) 28,402 Exercise of stock options (including related income tax benefit) 113 - 547 - - - - 547 Public stock offering (net of underwriters' discounts and offering costs of $1,182) 1,608 1 11,678 - - - - 11,679 Net income - - - 4,980 - - - 4,980 ----- ------- -------- ------- ---------- ----- --------- -------- Balance - June 30, 1994 9,221 9 35,084 12,354 - (464) (1,839) 45,608 Exercise of stock options (including related income tax benefit) 18 - 86 - - - - 86 Purchase of treasury stock - - - - - (114) (473) (473) Net income - - - 1,224 - - - 1,224 ----- ------ -------- ------- ---------- ----- --------- -------- Balance - January 28, 1995 9,239 9 35,170 13,578 - (578) (2,312) 46,445 Purchase of treasury stock - - - - - (387) (1,125) (1,125) Net income - - - 728 - - - 728 ----- ------ -------- ------- ---------- ----- --------- -------- Balance - January 27, 1996 9,239 $ 9 $35,170 $14,306 $ - (965) $(3,437) $46,048 ===== ====== ======== ======= ========== ===== ========= ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 38 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Seven Months Year Ended Ended Year Ended June 30, January 27, January 28, --------------------- 1996 1995 1994 1993 ----------- ----------- --------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 728 $1,224 $4,980 $1,571 Adjustments to reconcile net income to net cash provided by/(used in) operating activities: Depreciation and amortization 4,009 1,948 2,802 3,175 Provision for accounts receivable 247 211 (70) 577 Provision for sales returns 200 369 (1,098) 214 Deferred tax benefit (160) (70) (41) (929) Loss on disposal of property, plant and equipment 48 - - - Provision for deferred compensation - - - 1,344 (Increase)/decrease in operating assets: Accounts receivable (3,735) (1,606) (11,480) 352 Inventories 452 (159) (3,576) (4,982) Prepaid expenses and other current assets (593) 422 (164) (309) Other assets (833) (451) (74) 151 Increase/(decrease) in operating liabilities: Accounts payable (414) (48) 696 (6) Accrued expenses 725 656 219 435 Taxes payable 147 42 311 (179) --------- ------- ------ -------- Net cash provided by/(used in) operating activities 821 2,538 (7,495) 1,414 --------- ------ ------ -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (4,616) (5,675) (3,046) (2,593) Purchase of marketable securities - - (3,870) (33,809) Sale of marketable securities - 1,869 5,124 42,777 --------- ------ ------ -------- Net cash (used in)/provided by investing activities (4,616) (3,806) (1,792) 6,375 --------- ------ ------ -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt and capital lease liabilities (2,722) (171) (2,613) (1,349) Proceeds from mortgage 2,500 - - - Borrowings of long-term debt 6,000 - - - Purchase of treasury stock (1,125) (125) - (1,682) Proceeds from stock issuance including related income tax benefit - 86 547 1,031 Proceeds from public offering - - 11,679 - --------- -------- ------ -------- Net cash provided by/(used in) financing activities 4,653 (210) 9,613 (2,000) --------- ------- ------ -------- NET INCREASE/(DECREASE) IN CASH 858 (1,478) 326 5,789 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 5,815 7,293 6,967 1,178 --------- ------ ------ -------- CASH AND EQUIVALENTS AT END OF PERIOD $6,673 $5,815 $7,293 $6,967 ======= ====== ====== ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 39 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Seven Months Year Ended Ended January 27, January 28, Year Ended June 30, ------------------------ 1996 1995 1994 1993 ----------- --------- --------- --------- SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES: Liability incurred for acquisition of equipment $ 200 $ 307 $ - $ 325 Capital lease obligations 524 - $ - $ 414 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: Purchase of treasury stock $ - $ 348 $ - $ - Deferred compensation forfeited $ - $ - $ - $ 200 Cancellation of common stock $ - $ - $ - $ 200 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest and gold consignment fees $ 3,701 $1,929 $3,101 $3,149 Income taxes $ 475 $ 789 $2,790 $2,061
The accompanying notes are an integral part of these consolidated financial statements. F-6 40 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------------------------------- Nature of Operations -------------------- Michael Anthony Jewelers, Inc. ("the Company") and its subsidiaries is a marketer and manufacturer of more than 8,000 styles of handcrafted gold jewelry. The Company's customers include discount stores, jewelry chain stores, department stores, catalogue retailers, television shopping networks and wholesalers. The Company's products are sold in over 20,000 retail locations nationwide. Basis of Consolidation ---------------------- The accompanying consolidated financial statements include the accounts of Michael Anthony Jewelers, Inc. and its subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated. The Company changed its fiscal year end from June 30 to the last Saturday in January, effective for the seven months ended January 28, 1995 (the "Transition Period"). Selected Financial Data for the Twelve Months Ended January 28, 1995: -------------------------------------------------------------------- The following sets forth unaudited financial data for the twelve months ended January 28, 1995, the comparable prior year to the year ended January 27, 1996 (in thousands): Net sales $149,583 Operating income 7,484 Income before income taxes 4,695 Provision for income taxes 1,717 Net income 2,978
Inventories and Cost of Goods Sold ---------------------------------- Inventories are valued at lower of cost (first-in first-out method) or market. The Company satisfies a majority of its gold supply needs through gold consignment agreements with financial institutions that lease gold to the Company ("gold lenders"), whereby the gold lenders have agreed to consign fine gold to the Company (see Note 4). In accordance with the terms of the agreements, the Company has the option of repaying the gold lenders in an equivalent number of ounces of fine gold or cash based upon the then quoted market price of gold. The principal component of cost of goods sold is the cost of the gold bullion and other raw materials used in the production of the Company's jewelry. Other components of cost of goods sold include direct costs incurred by the Company in its manufacturing operations, depreciation, freight and insurance. F-7 41 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------------------------------- (Continued) Property, Plant and Equipment ----------------------------- Property, plant and equipment are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, five to fifteen years for machinery and equipment and thirty years for building. Leasehold improvements are amortized over the lesser of the estimated life of the asset or the lease. Intangibles ----------- Intangible assets (net of accumulated amortization of $1,002,000 and $795,000 as of January 27, 1996 and January 28, 1995, respectively) consist of patents which are amortized on a straight-line basis over the lives of the patents, approximately 14 years, and a covenant-not-to-compete which is amortized on a straight-line basis over the life of the covenant of five years. Revenue Recognition ------------------- Revenue from sales to customers (other than consignment) is recognized at the time the merchandise is shipped. Merchandise sold under consignment arrangements between the Company and certain customers is not recognized as revenue by the Company until the products are sold by the consignee. In certain cases, the Company accepts payment for merchandise in either cash or gold. Additionally, the Company enters into arrangements for certain customers of its rope chain and tubing products whereby the gold value of the finished product is transferred in the form of fine gold ounces from the customer to the Company. The value of the finished product that exceeds the gold content value is recovered as revenue and the related cost to manufacture is recorded as an expense ("tolling arrangements"). Allowance for Sales Returns --------------------------- The Company reduces gross sales by the amount of discounts and returns to determine net sales. Each month the Company estimates a reserve for returns based on historical experience and the amount of gross sales. The reserve is adjusted periodically to reflect the Company's actual return experience. Catalog Costs ------------- Catalog costs are charged to expense as incurred, the only exception being major catalog revisions. At January 27, 1996, in connection with a significant catalog revision, approximately $250,000 had been capitalized and will be amortized over the units of catalogs shipped, up to a maximum of two years. Since the catalog distribution will commence subsequent to January 27, 1996, there was no amortization for the year ended January 27, 1996 pertaining to this revision. Included in the statements of operations is $82,000, $90,000 and $257,000 of amortization expense for the year ended January 27, 1996, the seven month period ended January 28, 1995, and the year ended June 30, 1994, respectively, related to a 1993 catalog revision. Cash Equivalents ---------------- Highly liquid investments with maturities of three months or less at the date of acquisition are classified as cash equivalents. F-8 42 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------------------------------- (Continued) Financial Instruments --------------------- The Company utilizes derivative financial instruments, including commodity futures, forwards and options on futures, to limit its exposure to fluctuations in the price of gold. The Company does not hold or issue such instruments for trading purposes. Gains and losses on all instruments are included in the determination of income currently as a component of cost of goods sold. There were no significant derivative financial instruments outstanding at January 27, 1996 or January 28, 1995. The company's exposure to market risk related to the derivative financial instruments is limited to fluctuations in the price of gold. The Company is also exposed to credit loss in the event of nonperformance by the counterparties to the instruments; however, the risk of credit loss is not significant. Earnings Per Share ------------------ Earnings per share for all periods presented were computed on a primary basis using the weighted average number of common shares outstanding. Options and warrants outstanding were not materially dilutive. New Accounting Standard ----------------------- In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which requires adoption of the disclosure provisions no later than fiscal years beginning after December 15, 1995 and adoption of the recognition and measurement provisions for nonemployee transactions no later than after December 15, 1995. The new standard defines a fair value method of accounting for stock options and other equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Pursuant to the new standard, companies are encouraged, but are not required, to adopt the fair value method of accounting for employees stock-based transactions. Companies are also permitted to continue to account for such transactions under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but would be required to disclose in a note to the financial statements pro forma net income and, if presented, earnings per share as if the company had applied the new method of accounting. The accounting requirements of the new method are effective for all employee awards granted after the beginning of the fiscal year of adoption. The Company has not yet determined if it will elect to change to the fair value method, nor has it determined the effect the new standard will have on net income and earnings per share should it elect to make such a change. Adoption of the new standard will have no effect on the Company's cash flows. Use of 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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-9 43 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------------------------------- (Continued) Reclassifications ----------------- Certain reclassifications were made to the prior year's financial statements to conform to the current year's presentation. 2. INVENTORIES ----------- Inventories consist of:
January 27, January 28, 1996 1995 --------- --------- (In thousands) Finished goods $56,621 $60,411 Work in process 15,240 21,807 Raw materials 8,537 10,868 -------- -------- 80,398 93,086 Less: Consigned gold 60,700 72,936 -------- -------- $19,698 $20,150 ======= =======
At January 27, 1996 and January 28, 1995 inventories excluded approximately 149,300 and 192,700 ounces of gold on consignment, respectively. 3. PROPERTY, PLANT AND EQUIPMENT ----------------------------- Property, plant and equipment consist of the following:
January 27, January 28, 1996 1995 ---------- ----------- (In thousands) Machinery and equipment $27,118 $23,718 Leasehold improvements 3,781 3,079 Building 2,711 2,087 Land 1,070 545 --------- -------- 34,680 29,429 Less: Accumulated depreciation and amortization 16,555 13,148 -------- ------- $18,125 $16,281 ======= =======
F-10 44 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. GOLD CONSIGNMENT AGREEMENTS --------------------------- The Company has gold consignment agreements with gold lenders. During the year ended January 27, 1996, the Company entered into a consignment agreement with a new gold lender. In connection with the new consignment agreement, the Company amended its existing consignment agreements with the other gold lenders. Under the terms of the agreements, the Company is entitled to lease the lesser of an aggregate amount of 250,000 ounces, or an aggregate consigned gold value not to exceed $106,215,000. The consigned gold is secured by certain property of the Company including its inventory and equipment. Title to such consigned gold remains with the gold lenders until the Company purchases the gold. However, during the period of consignment, the entire risk of physical loss, damage or destruction of the gold is borne by the Company. The purchase price per ounce is based on the daily Second London Gold Fix. The Company pays the gold consignors a consignment fee based on the dollar value of gold ounces outstanding, as defined in the agreements. The consignment agreements are terminable by the Company or the respective gold lenders upon 30 days notice. If any gold lender were to terminate its existing gold consignment agreement, the Company does not believe it would experience an interruption of its gold supply that would materially adversely affect its business. The Company believes that other consignors would be willing to enter into similar arrangements if any gold lender terminates its relationship with the Company. The consignment agreements contain certain restrictive covenants relating to maximum usage, net worth, working capital, and other financial ratios and each of the agreements require the Company to own a specific amount of gold at all times. As of January 27, 1996, the Company was in compliance with these covenants and the Company's owned gold inventory was valued at approximately $7,015,000. 5. ACCRUED EXPENSES ---------------- Accrued expenses consist of the following:
January 27, January 28, 1996 1995 --------- --------- (In thousands) Accrued advertising $2,321 $1,539 Accrued payroll expenses 654 664 Accrued interest 643 541 Customer deposits payable 86 340 Other accrued expenses 276 171 ------ ------ $3,980 $3,255 ====== ======
F-11 45 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCAL STATEMENTS 6. LONG-TERM DEBT -------------- Long-term debt consists of the following:
January 27, January 28, 1996 1995 -------- ---------- (In thousands) Notes payable - insurance companies, interest at 10.5% payable quarterly, principal payable in annual installments of $1,500,000 to $1,750,000 through January 31, 1998 $4,750 $ 6,000 Notes payable - insurance companies, interest at 8.61% payable semi-annually, principal payable in annual installments of $1,111,000 through May 15, 2002 7,778 8,889 Notes payable - insurance companies, interest at 1.5% above the London Interbank Offered Rate, adjusted and payable quarterly (7.38% as of January 27, 1996), principal payable in annual installments of $1,000,000 commencing May 1999 through May 15, 2004 6,000 - Mortgage payable - interest at 8%, interest and principal of $24,000 payable monthly over a ten-year term through October 2005 2,478 - Promissory notes - interest at 6% payable annually, principal payable in annual installments of $100,000 through February 1997 200 - -------- ------- 21,206 14,889 Less: current portion 2,805 2,361 -------- ------- $18,401 $12,528 ======== =======
The notes payable are secured by the Company's accounts receivable, machinery and equipment, inventory (secondary lien to the gold lenders) and proceeds. The mortgage payable is secured by the Company's corporate headquarters building and land, having a net book value of approximately $4,521,000 at January 27, 1996, and certain equipment therein. The note purchase agreements contain certain restrictive financial covenants and limit the payment of dividends. Although the Company does not expect to pay dividends in the near future, approximately $4,239,000 would have been available for payment at January 27, 1996. Additionally, the mortgage agreement contains certain restrictive financial covenants. At January 27, 1996 the Company was in compliance with the covenants under the note agreements and mortgage agreement. F-12 46 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. LONG-TERM DEBT (Continued) -------------- Maturities of long-term debt as of January 27, 1996 are as follows (in thousands):
Year Ending January ------------------ 1997 $ 2,805 1998 2,813 1999 2,971 2000 2,230 2001 2,240 Thereafter 8,147 -------- $21,206 =======
7. LINE OF CREDIT -------------- At January 27, 1996, the Company had a $15,000,000 line of credit agreement with no borrowings outstanding. The line of credit is secured by certain assets of the Company, including accounts receivable and inventory. Borrowings under the facility bear interest at the bank's prime rate. The line of credit expires on July 31, 1996, subject to annual renewal. Management believes that the line of credit will be renewed; however, if the current lender decides not to renew the line, the Company believes that other lenders would be willing to enter into a similar arrangement. 8. FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- The carrying amounts and fair values of the Company's financial instruments are as follows:
January 27, 1996 --------------------------------- Carrying Fair Value Value --------- ----- (In thousands) Notes with insurance companies: 10.5% notes payable $4,750 $4,887 8.61% notes payable 7,778 7,909 1995 notes payable 6,000 6,000 Mortgage payable $2,478 $2,478 Promissory notes $200 $200
The fair values of the 10.5% and 8.61% notes payable were based on current rates available to the Company for debt with similar remaining maturities. The fair values of the 1995 notes payable, the mortgage payable and the promissory notes were assumed to reasonably approximate their carrying amounts since these instruments have been recently issued, contain variable interest rates, or have short maturities. The Company believes the carrying amount of the following financial instruments is equal to their fair value, due to their short period of maturity: cash, accounts receivable, accounts payable and accrued expenses. The Second London Gold Fix is used daily to value the ounces of gold and as such the carrying value of inventory approximates fair value. F-13 47 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAXES ------------ Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and for income tax purposes. Income tax provision/(benefit) consists of the following:
Transition Period Year Ended Ended Year Ended June 30, January 27, January 28, ----------------------- 1996 1995 1994 1993 ----------- ------ ------ ------ (In thousands) Current: Federal $565 $676 $2,532 $1,679 State and local 81 168 685 214 ------ ---- ------- ------- 646 844 3,217 1,893 Deferred income tax (160) (70) (41) (929) ------ ------ ------- ------ Total $ 486 $ 774 $3,176 $ 964 ====== ===== ====== ======
The following is a reconciliation of the federal statutory rate to the effective tax rate:
Transition Period Year Ended Ended Year Ended June 30, January 27, January 28, ---------------------- 1996 1995 1994 1993 ---------- ------- ------- ------ Statutory tax rate 34.0% 34.0% 34.0% 34.0% State and local taxes, net of federal benefit 5.0 5.5 5.5 2.6(a) Federal tax on state income tax refund - - - 1.9 Other 1.0 (0.8) (0.6) (0.5) ----- ------ ---- ----- 40.0% 38.7% 38.9% 38.0% ===== ===== ==== ===== (a) For the year ended June 30, 1993, "state and local taxes" include a benefit of $144,000 related to the settlement of a state audit on prior years tax returns.
F-14 48 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAXES (Continued) ------------ The tax effects of significant items comprising the Company's deferred tax liabilities and assets are as follows (in thousands):
January 27, January 28, 1996 1995 ----------- ----------- Non-current deferred tax liabilities: Difference between book and tax depreciation methods $1,038 $994 ------ ---- Current deferred tax assets: Reserves for sales returns and doubtful accounts 608 542 Inventory reserve 181 - Other 66 109 ------ ----- 855 651 ----- ----- Net deferred tax liabilities $183 $343 ====== ====
10. RELATED PARTY TRANSACTIONS -------------------------- In May 1991, the Company entered into two lease agreements with MacQuesten Realty Company ("MRC"), a partnership consisting of certain stockholders of the Company. Pursuant to the agreements, the Company agreed to rent the manufacturing and distributing facilities from MRC for a period of ten years, at an average annual rental of $478,000, plus real estate taxes and other occupancy costs. On December 1, 1994, under the terms of a Contract of Sale dated November 28, 1994, the Company acquired its corporate headquarters premises from MRC for $2,490,000. The Company funded the acquisition with cash from its operations and subsequently financed the purchase with a mortgage loan from a bank. In May 1995, the Company entered into another lease agreement with MRC. Pursuant to the agreement, the Company agreed to rent a manufacturing facility from MRC for a period of six years, at an average annual rental of $128,000, plus real estate taxes and other occupancy costs. F-15 49 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. LEASES AND COMMITMENTS ---------------------- (a) Leases The Company conducts its operations from leased manufacturing and distribution facilities. In addition to rent, the Company pays property taxes, insurance and certain other expenses relating to leased facilities and equipment. The Company also leases machinery and equipment. The following is a schedule of net minimum lease payments owed under capital and operating leases as of January 27, 1996:
Year Ending Capital Operating January Leases Leases --------- -------- ------- (In thousands) 1997 $538 $601 1998 489 632 1999 238 642 2000 111 673 2001 9 505 ------ ------ Minimum lease payments: 1,385 $3,053 ====== Less: Interest 127 ----- Present value of net minimum lease payments 1,258 Less: current portion 467 ----- $791 =====
The majority of the payments set forth above for operating leases are to MacQuesten Realty Company. The interest rates applicable to the capital leases range from 4.84% - 8.18%. Included in property, plant and equipment as of January 27, 1996, are capitalized assets with a carrying value of $842,000. Total capitalized lease amortization expense was $246,000, $126,000, $263,000 and $384,000 for the year ended January 27, 1996, the Transition Period and for the years ended June 30, 1994 and 1993, respectively. Rent expense for the year ended January 27, 1996, the Transition Period and for the years ended June 30, 1994 and 1993, respectively, amounted to $563,000, $420,000, $876,000 and $806,000, respectively, principally for manufacturing and distribution facilities. (b) The Company has a severance agreement with one executive. Pursuant to the terms of the agreement, severance payments will be determined by length of service. (c) The Company's product line includes licensed goods manufactured pursuant to two or three year agreements with licensors. Royalty fees range from 6% to 12% of net sales of these products, or a minimum guarantee, whichever is greater. The Company records the related expense over the units sold. F-16 50 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. LEASES AND COMMITMENTS (Continued) ---------------------- As of January 27, 1996, the future guaranteed royalty commitments are as follows:
Guaranteed Year Ending Royalty January Commitments ----------- ----------- (In thousands) 1997 $299 1998 60 --- $359 ====
12. STOCK PLANS ----------- INCENTIVE STOCK OPTION PLANS (1) During July 1986, the Company adopted the 1986 Incentive Stock Option Plan. The Plan, as amended, permits the granting of incentive stock options and non-qualified stock options to employees for the purchase of up to an aggregate of 500,000 shares of common stock. The option term is for a period not to exceed ten years from the date of grant. At January 27, 1996, all shares reserved under the plan had been granted. The changes in the number of shares under option and the option price per share are as follows: 1986 Incentive Stock Option Plan -------------------------------- Outstanding and exercisable, June 30, 1992 476,530 $3.50 - $4.50 Lapsed (50,933) $3.50 - $4.50 Exercised (225,164) $3.50 - $4.00 -------- Outstanding and exercisable, June 30, 1993 200,433 $3.50 - $4.00 Lapsed (2,800) $3.50 Exercised (103,133) $3.50 - $4.00 -------- Outstanding and exercisable, June 30, 1994 94,500 $3.50 - $4.00 Exercised (3,000) $3.625 ------ Outstanding and exercisable, January 28, 1995 91,500 $3.50 - $4.00 Lapsed (37,000) $3.50 - $4.00 ------- Outstanding and exercisable, January 27, 1996 54,500 $3.625 ========
F-17 51 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. STOCK PLANS (Continued) ----------- (2) During the year ended June 30, 1994, the Company adopted the 1993 Long-Term Incentive Plan and the 1993 Non-Employee Directors' Stock Option Plan. The Plans permit the granting of incentive stock options and non-qualified stock options to employees and non- employee directors for the purchase of up to an aggregate of 1,000,000 and 250,000 shares of common stock, respectively. The option term is for a period not to exceed five years from the date of grant. Long-Term Incentive Plan ------------------------ Outstanding at June 30, 1993 - Granted 242,500 $4.125 - $7.75 ------- Outstanding at June 30, 1994 242,500 $4.125 - $7.75 Granted 93,000 $4.125 - $7.75 Exercised (15,000) $4.125 -------- Outstanding at January 28, 1995 320,500 $4.125 - $7.75 Lapsed (27,000) $4.125 - $6.125 Granted 371,400 $2.625 - $3.23 ------- Outstanding at January 27, 1996 664,900 $2.625 - $7.75 =======
Options exercisable at January 27, 1996 were for 166,347 shares of common stock at a price between $4.125 - $7.75 a share. At January 27, 1996, shares for future option grants totalling 320,100 were available under the plan. Non-Employee Directors' Stock Option Plan Outstanding at June 30, 1993 - Granted 25,000 $4.187 - $8.00 ------ Outstanding at June 30, 1994 25,000 $4.187 - $8.00 Granted 10,000 $6.625 ------ Outstanding at January 28, 1995 35,000 $4.187 - $8.00 Lapsed (10,000) $6.625 - $8.00 Granted 15,000 $2.625 - $3.50 -------- Outstanding at January 27, 1996 40,000 $2.625 - $8.00 ========
Options exercisable at January 27, 1996 were for 11,667 shares of common stock at a price between $4.187 - $8.00 a share. At January 27, 1996, shares for future option grants totalling 210,000 were available under this plan. F-18 52 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. STOCK PLANS (Continued) ----------- WARRANTS (3) The Company has granted common stock purchase warrants. Of the 70,000 warrants outstanding as of January 27, 1996, 15,000 warrants were outstanding to three of the Company's directors. The changes in the number of shares under the stock purchase warrants and the price per share are as follows: Outstanding, June 30, 1992 105,000 $4.00 - $4.75 Lapsed (7,500) Granted 6,000 $3.25 Exercised (5,000) $4.00 --------- Outstanding and exercisable, June 30, 1993 98,500 $3.25 - $4.75 Granted 19,000 $4.00 - $7.50 Exercised (10,000) $4.75 -------- Outstanding and exercisable, June 30, 1994 107,500 $3.25 - $7.50 Granted 15,000 $6.25 -------- Outstanding and exercisable, January 28, 1995 122,500 $3.25 - $7.50 Lapsed (52,500) $4.00 - $4.50 ------- Outstanding and exercisable, January 27, 1996 70,000 $3.25 - $7.50 =========
13. RETIREMENT PLAN --------------- Effective January 1, 1992, the Company established a 401(k) Profit Sharing Plan and Trust for all eligible employees. Under the terms of the plan the employee may contribute 1% to 20% of compensation. There is no employer matching contribution. 14. SIGNIFICANT CUSTOMERS --------------------- Sales to the Company's two largest customers aggregated approximately 29%, 24%, 25% and 23% of net sales for the year ended January 27, 1996, the Transition Period and for the years ended June 30, 1994 and 1993, respectively. F-19 53 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. PUBLIC STOCK OFFERING --------------------- On December 20, 1993, the Company sold 1.6 million shares pursuant to an offering. On January 14, 1994, the underwriters partially exercised the over-allotment option, whereby the Company sold 7,600 shares. The remaining over-allotment option lapsed on January 20, 1994. The net proceeds from the offering of approximately $11,679,000 (net of underwriters' discounts and commission and expenses of approximately $1,182,000) were used for working capital and for general corporate purposes which included strategic acquisitions of other companies engaged in the manufacture and distribution of jewelry. 16. STOCK REPURCHASE PROGRAM ------------------------ In connection with the Common Stock repurchase program that the Company announced in 1990 (the "1990 Stock Repurchase Program"), the Company repurchased a total of 463,600 shares of Common Stock for an aggregate price of approximately $1,839,000. The Company will not reissue these shares to the public. In October 1993, the Company discontinued its 1990 Stock Repurchase Program. In May 1994, the Company announced a Common Stock repurchase program (the "1994 Stock Repurchase Program"), pursuant to which the Company could repurchase up to 500,000 shares of Common Stock. During the year ended January 27, 1996 and the Transition Period ended January 28, 1995, the Company had repurchased 114,100 and 327,500 shares, respectively, on the open market under the 1994 Stock Repurchase Program for approximately $473,000 and $966,000, respectively. The Company will not reissue these shares to the public. In November 1995, the Company discontinued its 1994 Stock Repurchase Program. In December 1995, the Company announced a Common Stock Repurchase Program, (the "1995 Stock Repurchase Program"), pursuant to which the Company may repurchase up to 750,000 shares of Common Stock. As of January 27, 1996, the Company had repurchased a total of 60,000 on the open market under the 1995 Stock Repurchase Program for an aggregate price of approximately $159,000. 17. DEFERRED COMPENSATION --------------------- Two executive officers and directors entered into agreements with the Company pursuant to which, among other things, on July 16, 1990, the two executives each received as part of their compensation for future employment a stock award of 625,000 shares of common stock, subject to vesting and risk of forfeiture. Such stock award was recorded as deferred compensation amounting to $5,000,000. As a result of this transaction, the Company issued 1,250,000 shares of common stock to the individuals. During the year ended June 30, 1992, 151,500 shares vested, and $606,000 of compensation expense was recorded. The Company paid an additional $2,100,000 to the individuals during the year ended June 30, 1991, representing the personal tax impact to the individuals as a result of the employment agreements. The $2,100,000 payment was recorded as a deferred asset and was amortized as the shares of common stock vested under the employment agreements. F-20 54 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. DEFERRED COMPENSATION (continued) --------------------- Additionally, during the year ended June 30, 1991, the two individuals, in the aggregate, purchased 1 million shares and 250,000 shares of common stock at $4.00 per share from the Company and from the majority stockholders, respectively. On September 23, 1992, the Board of Directors of the Company ratified an amendment effective June 30, 1992 to the employment agreements with the two executives. The amendment eliminated the vesting and risk of forfeiture of the common stock awards relating to the employment aspects of the agreements. The amendment resulted in 362,500 shares vesting and $2,010,000 was charged to expense during the year ended June 30, 1992 consisting of $1,450,000 of additional compensation expense and $560,000 of amortization of the deferred asset relating to the personal tax impact of the employees, which is included in selling, general and administrative expenses for the year ended June 30, 1993. All other provisions of the agreement remained in force. During the fiscal year ended June 30 1993, the Company terminated its employment agreements with the two executives. As part of the termination of the employment agreements, the Company authorized the vesting of 336,000 shares resulting in a charge of $2,059,000 to expense, consisting of $1,344,000 of additional compensation expense and $715,000 of amortization of the deferred asset relating to the personal tax impact of the employees, which is included in selling, general and administrative expenses for the year ended June 30, 1993. In addition, 50,000 shares of common stock previously awarded to one executive by the Company that had not yet vested were forfeited upon termination of the employment agreement. On April 15, 1993, the Company cancelled the 50,000 shares of common stock. During the year ended June 30, 1993, the Company purchased 375,000 shares of common stock at $4.00 per share for a total purchase price of $1,500,000 from one executive. 18. LEGAL PROCEEDINGS ----------------- The Company is involved in various legal claims and disputes, none of which is considered material and all of which, for the most part, are normal to the Company's business. In the opinion of management, the amount of losses that might be sustained, if any, from such claims and disputes would not have a material effect on the Company's financial statements. F-21 55 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19. SUMMARY OF QUARTERLY RESULTS (Unaudited) ----------------------------
Year Ended January 27, 1996 Transition Period Year Ended June 30, 1994 ---------------------------------------- --------------------- -------------------------------------- Quarter Ended Quarter Ended ---------------------------------------- -------------------------------------- (In thousands, 3 Months 4 Months except Ended Ended per share April July October January Sept. Jan. Sept. Dec. Mar. June amounts) 29, 29, 28, 27, 30, 18, 30, 31, 31, 30, 1995 1995 1995 1996 1994 1995 1993 1993, 1994 1994 ------- ------- -------- ------- ------- -------- -------- ------- -------- -------- Net sales (A) 27,260 24,902 47,037 46,058 $34,101 $59,220 $27,779 $55,102 $28,492 $31,414 Cost of goods sold 22,048 21,628 38,789 38,730 27,483 49,299 21,808 43,349 22,896 26,098 ------- ------- -------- ------- ------- ------- -------- ------- -------- ------- Gross profit 5,212 3,274 8,248 7,328 6,618 9,921 5,971 11,753 5,596 5,316 Selling, general & administrative expenses 4,493 4,137 5,431 5,394 4,257 8,371 4,085 5,601 4,286 3,915 ------- ------- -------- ------- ------- ------- -------- ------- -------- ------- Operating income/ (loss) 719 (863) 2,817 1,934 2,361 1,550 1,886 6,152 1,310 1,401 Other income (expense): Gold consignment fees (414) (448) (485) (659) (381) (650) (390) (439) (312) (346) Interest expense (456) (451) (428) (494) (365) (634) (426) (435) (391) (418) Interest income 124 135 55 45 76 24 62 24 183 157 Other - net 5 75 8 (5) 16 1 45 39 39 15 ------- ------- -------- ------- ------- ------- -------- ------- -------- ------- Total other income (expense) (741) (689) (850) (1,113) (654) (1,259) (709) (811) (481) (592) Income (loss) from operations before income taxes (22) (1,552) 1,967 821 1,707 291 1,177 5,341 829 809 Income taxes/(benefit) ( 9) (621) 776 340 683 91 485 2,182 341 168 ------- ------- -------- ------- ------- ------- -------- ------- -------- -------- Net income/ (loss) $ (13) $ (931) $ 1,191 $ 481 $ 1,024 $ 200 $ 692 $ 3,159 $ 488 $ 641 ======= ======= ======== ======= ======= ======= ======== ======= ======== ======== Earnings/(loss) per share(B) $ 0.00 $ (0.11) $ 0.14 $ 0.06 $ 0.12 $ 0.02 $ 0.10 $ 0.43 $ 0.06 $ 0.07 ======= ======= ======== ======= ======= ======= ======== ======= ======== ========
(A) The Company's net sales for the second quarter are subject to seasonal fluctuation. This fluctuation is mitigated to a degree by the early placement of orders for the holiday season. (B) Per share amounts do not always add because the figures are required to be independently calculated. F-22 56 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------- Additions Additions Balance at charged to charged Balance beginning costs and to other at end Description of period expenses accounts Deductions(A) of period - ---------------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts: Year ended January 27, 1996 $646 $247 $ - $(8) $901 Seven month period ended January 28, 1995 496 211 - 61 646 Year ended June 30, 1994 443 (70) 49 74 496 Year ended June 30, 1993 277 577 - 411 443 Allowance for sales returns: Year ended January 27, 1996 $754 $200 $ - $280 $674 Seven month period ended January 28, 1995 385 369 - - 754 Year ended June 30, 1994 525 1,098 - 1,238 385 Year ended June 30, 1993 581 214 - 270 525 (A) Allowances, returns and uncollectible accounts charged against the reserve, (net of collections on previously written-off accounts).
57 EXHIBIT INDEX -------------
Exhibit No. Description - ----------- ----------- 10.56 Assignment of Trademarks and Service Marks as Collateral, dated July 12, 1990, between Registrant and Rhode Island Hospital Trust National Bank, individually and as agent . . . . . . . . . . . . . . 10.57 First Amendment to Assignment of Trademarks and Service Marks as Collateral dated as of June 5, 1992, between Registrant and Rhode Island Hospital Trust National Bank, individually and as agent . . . . . . 10.58 Promissory Note of the Registrant dated February 1, 1996 in favor of Chemical Bank . . . . . . . . . . . 10.59 Deferred Compensation Plan dated as of March 4, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 21 Subsidiaries of the Registrant. . . . . . . . . . . . 27 Financial Data Schedule . . . . . . . . . . . . . . .
EX-10.56 2 EXHIBIT 10.56 1 EXHIBIT 10.56 ------------- ASSIGNMENT OF TRADEMARKS AND SERVICE MARKS AS COLLATERAL ------------------------------- THIS ASSIGNMENT made as of the 12th day of July, 1990, by and between MICHAEL ANTHONY JEWELERS, INC., a Delaware corporation (the "Company"), and RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, a national banking association (the "Agent"), individually and as agent for each of the following lenders (jointly and severally the "Lenders") in accordance with the terms of a Security Agreement dated as of May 23, 1990, as amended by a certain First Amendment dated as of the date hereof; RHODE ISLAND HOSPITAL TRUST NATIONAL BANK; ALGEMENE BANK NEDERLAND N.V., NEW YORK BRANCH; PRUDENTIAL-BACHE METAL CO. INC.; SWISS BANK CORPORATION, NEW YORK BRANCH; and NATIONAL WESTMINSTER BANK USA. RECITALS WHEREAS, the Company, MA Acquisition Corporation, a Delaware corporation ("MAC"), and each of the Lenders (other than National Westminster Bank USA) are parties to certain Consignment Agreements dated as of May 23, 1990, as amended by certain First Amendments dated as of the date hereof (hereinafter, as amended by such First Amendments and as the same may be amended hereafter from time to time, the "Consignment Agreements"); and WHEREAS, National Westminster Bank USA and the Company have entered or will enter into certain agreements and/or promissory notes, which agreements and/or promissory notes (hereinafter, as the same may be amended from time to time, the "NWB Agreements"); and WHEREAS, as additional security for the indebtedness, liabilities and obligations evidenced by the Consignment Agreements and NWB Agreements and any and all other indebtedness, obligations and liabilities of the Company to the Lenders now existing or hereafter arising, the Company has agreed to assign to the Lenders all of the Company's right, title and interest in and to its United States trademarks, service marks and trademark and service mark applications and the rights described and claimed therein, which are more particularly described and referenced on Exhibit A attached hereto and made a part hereof (collectively, the "Trademarks"); NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree as follows: 1 2 1. The Company does hereby assign and transfer and grant a lien and security interest unto the Lenders and the Agent (acting on behalf of itself and the other Lenders) as security for (1) performance by the Company of each and every obligation to be performed by it contained in, and payment of all amounts now or hereafter due under, the Consignment Agreements and the NWB Agreements; (2) performance of each and every obligation of the Company contained in this Assignment and payment of all sums now or hereafter due hereunder; and (3) payment and performance of any and all other indebtedness, obligations and liabilities of the Company to the Lenders of every kind and description, direct, indirect and contingent, now existing or hereafter arising, due or to become due (the foregoing obligations of the Company are hereinafter collectively referred to as the "Obligations"), all of the Company's right, title and interest in and to the Trademarks, together with the goodwill of the business relating to each and all of the Trademarks and the right to sue for and recover damages for past or future infringements of the Trademarks, the same to be held and enjoyed by the Lenders and the Agent for their own use and benefit and the use and benefit of their legal representatives, successors and assigns to the full end of the term of which the Trademarks are granted as fully and entirely as the same would have been held by the Company had this Assignment not been made; PROVIDED, HOWEVER, that until demand for payment has been made by the Lenders, the Company, may continue to use the Trademarks in its business, and all goodwill symbolized by the Trademarks shall accrue to the Company as if it had not made this Assignment, so long as the nature and quality of all services rendered and goods sold by the Company in connection with the Trademarks shall conform to standards not less than those currently set by the Company. The rights and remedies of the Lenders upon demand for payment with respect to the assignment and security interest granted herein are more fully set forth in a certain Security Agreement of even date herewith between the Company and the Lenders (the "Security Agreement"). The provisions of the Security Agreement are hereby incorporated herein by reference. 2. The Company agrees to maintain registration of the Trademarks and to otherwise protect the Trademarks from infringement. 3. The Company hereby agrees also to execute any further lawful document as reasonably requested by the Agent or the Lenders in order to effectuate fully the assignment contemplated by this Agreement. 4. Upon full payment, performance and observance of the Obligations, each of the Agent and the Lenders agrees at the Company's request to give their written consent to termination of this Assignment, and to execute and deliver to the Company all assignments and other 2 3 instruments of transfer as may be reasonably necessary or proper to reassign to the Company the Trademarks, such termination and reassignment to be at the Company's sole expense. 5. The date of this Assignment first set forth above is for identification purposes only and is the date this Assignment is deemed to have been delivered by the Company to the Lenders and the Agent. This Assignment was executed by the parties on the dates set forth in the acknowledgments below. 6. The Company irrevocably agrees to, and does hereby indemnify and hold harmless the Agent, the Lenders, any of their agents and employees, and each and all and any of them (the "Indemnified Parties"), against any and all losses, claims, actions, causes of action, damages or liabilities (including any amount paid in settlement of any action, commenced or threatened), joint or several, to which they, or any of them, may become subject under statutory law or at common law, and to reimburse the Indemnified Parties for any legal or other expenses reasonably incurred by it or them in connection with investigating, preparing for or defending against any actions, commenced or threatened, insofar as such losses, claims, damages, liabilities or actions arise out of or are related to this Assignment and the use by the Company of the Trademarks from and after the date of this Assignment. 7. This Assignment shall inure to the benefit of the successors and assigns of the Agent and the Lenders and shall be binding upon the successors and assigns of the Company. 8. This Assignment shall be construed in accordance with and governed by the laws of the State of New York. IN WITNESS WHEREOF, the Company, the Agent and the Lenders have caused this Assignment to be duly executed by their duly authorized officers, all of the day and year first above written. MICHAEL ANTHONY JEWELERS, INC. By: Allan Corn ----------------------------------------- Title: Vice President, Chief Financial Officer 3 4 RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, individually and as Agent for each of the Lenders By: /s/______________ Title: ALGEMENE BANK NEDERLAND N.V., NEW YORK BRANCH By: /s/_______________ Title: By: /s/_______________ Title: PRUDENTIAL-BACHE METAL CO. INC. By: /s/_______________ Title: SWISS BANK CORPORATION, NEW YORK BRANCH By: /s/________________ Title: By: /s/________________ Title: NATIONAL WESTMINSTER BANK USA By: /s/________________ Title: MFD/mh: fran\aot Assignment of Trademarks 4 EX-10.57 3 EXHIBIT 10.57 1 EXHIBIT 10.57 ------------- FIRST AMENDMENT TO ASSIGNMENT OF TRADEMARKS AND SERVICE MARKS AS COLLATERAL DATED AS OF JULY 12, 1990 THIS FIRST AMENDMENT made as of the 5th day of June, 1992, by and between MICHAEL ANTHONY JEWELERS, INC., a Delaware corporation (the "Company"), and RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, a national banking association (the "Agent"), individually and as agent for each of the following lenders: RHODE ISLAND HOSPITAL TRUST NATIONAL BANK; ABN AMRO BANK N.V. (formerly known as "ALGEMENE BANK NEDERLAND N.V."), NEW YORK BRANCH; PRUDENTIAL-BACHE METAL CO. INC. ("PBM"); SWISS BANK CORPORATION, NEW YORK BRANCH; MOCATTA METALS CORPORATION ("Mocatta"); MASE WESTPAC INC. ("Mase"); and NATIONAL WESTMINSTER BANK USA ("NWB") (jointly and severally the "Lenders"). W I T N E S S E T H T H A T: ----------------------------- WHEREAS, the Lenders (other than Mase and Mocatta), the Agent and the Company are parties to a certain Assignment of Trademarks and Service Marks As Collateral dated as of July 12, 1990 (the "Assignment"), pursuant to which the Company assigned, transferred and granted the Lenders and the Agent an interest in certain Trademarks (as defined therein and as described in Exhibit A attached hereto and thereto); and WHEREAS, the Company and Mocatta desire to add Mocatta as a "Lender" pursuant to the terms of the Assignment as Mocatta will be entering into a consignment arrangement with the Company; and WHEREAS, the Company and Mase desire to add Mase as a "Lender" pursuant to the terms of the Assignment and Mase will be entering into a consignment arrangement with the Company; and WHEREAS, each of Mocatta and Mase is willing to assume all obligations and liabilities under the Assignment as a Lender thereunder and to comply with the covenants and terms of such Assignment and any documents executed by the Agent and/or the Lenders in connection with the Assignment; and WHEREAS, PBM and the Company have terminated the consignment arrangement between PBM and the Company; and 1 2 WHEREAS, NWB and the Company have terminated the NWB Agreements (as defined in the Assignment); NOW, THEREFORE, in consideration of the premises and the agreement hereinafter set forth and for other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereto agree as follows: 1. The Agent, the Lenders and the Company hereby consent to the addition of Mocatta and Mase as parties to the Assignment, with Mocatta and Mase to be included as Lenders pursuant to the terms of the Assignment. 2. The Assignment is hereby amended from and after the date hereof so that the term "Lenders" as used therein and herein shall include each of Mocatta and Mase and each of Mocatta and Mase shall be entitled to all of the rights and benefits as a Lender thereunder and hereby assumes full liability for the performance and observance of all and singular of the covenants, agreements and conditions of the Assignment which are to be performed by the Lenders thereunder. 3. PBM is hereby deleted as a party to the Assignment and PBM is hereby released of any and all liability for the performance and observance of all and singular of the covenants, agreements and conditions of the Assignment which are to be performed by the Lenders thereunder. PBM shall no longer be entitled to any of the benefits ofd the Assignment and all references in the Assignment to "the Consignment Agreements" shall no longer include the Consignment Agreement dated as of May 23, 1990 between PBM and the Company. 4. NWB is hereby deleted as a party to the Assignment and NWB is hereby released of any and all liability for the performance and observance of all and singular of the covenants, agreements and conditions of the Assignment which are to be performed by the Lenders thereunder. NWB shall no longer be entitled to any of the benefits of the Assignment and all references in the Assignment to the "NWB Agreements" are hereby deleted. 5. Any necessary, conforming changes to the Assignment occasioned by reason of this Amendment shall be deemed to have been made. 6. This Amendment shall be binding upon the parties and their respective successors and assigns. 2 3 7. Except as specifically amended hereby, the Assignment shall remain in full force and effect. 8. This Amendment may be executed with one or more counterparts hereof, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed by their duly authorized officers as of the date first above written. MICHAEL ANTHONY JEWELERS, INC. By: Allan Corn -------------------------------- Title: Chief Financial Officer RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, individually and as Agent for each of the Lenders By: /s/____________________ Title: ABN AMRO BANK N.V., NEW YORK BRANCH By: /s/_____________________ Title: By: /s/_____________________ Title: PRUDENTIAL-BACHE METAL CO. INC. By: /s/_____________________ Title: 3 4 SWISS BANK CORPORATION, NEW YORK BRANCH By: /s/_____________________ Title: By: /s/_____________________ Title: NATIONAL WESTMINSTER BANK USA By: /s/_______________________ Title: MFD/mh: fran\firstamd First Amendment to Assignment of Trademarks 4 EX-10.58 4 EXHIBIT 10.58 1 EXHIBIT 10.58 ------------- PROMISSORY NOTE $15,000,000 New York, New York February 1, 1996 FOR VALUE RECEIVED, MICHAEL ANTHONY JEWELERS, INC. (the "Debtor"), HEREBY PROMISES TO PAY to the order of CHEMICAL BANK (the "Bank"), at its offices located at 111 West 40th Street, New York, New York, or at such other place as the Bank or any holder hereof may from time to time designate, the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000), or such lesser amount as may constitute the outstanding balance hereof, in lawful money of the United States, on the Maturity Date (as hereinafter defined) set forth on the Grid Schedule attached hereto (or earlier as hereinafter referred to), and to pay interest in like money at such office or place from the date hereof on the unpaid principal balance of each Loan (as hereinafter defined) made hereunder at a rate equal to the Applicable Interest Rate (as hereinafter defined) for such Loan, which shall be payable on the last day of the Interest Period relating to such Loan and, if such Interest Period is greater than three (3) months, at three (3) month intervals after such Loan is made, until such Loan shall be due and payable (whether at maturity, by acceleration or otherwise) and thereafter, on demand. Interest after maturity shall be payable at a rate of two percent (2%) per annum above the Bank's Prime Rate which rate shall be computed for actual number of days elapsed on the basis of a 360-day year and shall be adjusted as of the date of such change, but in no event higher than the maximum permitted under applicable law. "Prime Rate" shall mean the rate of interest as is publicly announced at the Banks's principal office from time to time as its Prime Rate. INTEREST/GRID SCHEDULE ---------------------- The Bank is authorized to enter on the Grid Schedule attached hereto (i) the amount of each Loan made from time to time hereunder, (ii) the date on which each Loan is made, (iii) the date on which each Loan shall be due and payable to the Bank which in no event shall be later than July 31, 1996 (the "Maturity Date"), (iv) the interest rate agreed between the Debtor and the Bank as the interest rate to be paid to the Bank on each Loan (each such rate, the "Applicable Interest Rate"), which rate, at the Debtor's option in accordance herewith, shall be at (a) the Prime Rate (the "Prime Rate Loan(s)"), (b) a fixed rate of interest determined by and available at the Bank in its sole discretion (the "Fixed Rate") for the 1 2 applicable Interest Period (the "Fixed Rate Loan(s)") or (c) the Adjusted Eurodollar Rate (as hereafter defined) plus 2.5% (the "Eurodollar Loan"), (v) the amount of each payment made hereunder, and (vi) the outstanding principal balance of the Loans hereunder from time to time, all of which entries, in the absence of manifest error, shall be rebuttably presumed correct and binding on the Debtor; PROVIDED, HOWEVER, that the failure of the Bank to make any such entries shall not relieve the Debtor from its obligations to pay any amount due hereunder. PREPAYMENT ---------- The Debtor shall not have the right to repay any Loan, other than Loans based on the Prime Rate, prior to the Maturity Date of such Loan. Except with respect to Prime Rate Loans, in the event the Debtor does prepay a Loan prior to the Maturity Date, the Debtor shall reimburse the Bank on demand for any loss incurred or to be incurred by it in the reemployment of the funds released by any prepayment. DISCRETIONARY LOANS BY THE BANK ------------------------------- The Bank may lend, in its sole discretion in each instance, such amounts (each a "Loan" and collectively the "Loans") as may be requested by the Debtor hereunder, which Loans shall in no event exceed $15,000,000 in aggregate principal amount outstanding at any time. Any Eurodollar Loan shall be in a minimum principal amount of $500,000 and in increments of $100,000. Each such request for a Loan shall be made by any officer of the Debtor or any person designated in writing by any such officer, all of which are hereby designated and authorized by the Debtor to request Loans and agree to the terms thereof (including without limitation the Applicable Interest Rate and Maturity Date with respect thereto). The Debtor shall give the Bank notice at least three (3) Business Days prior to the date hereof and the end of each Interest Period (as hereafter defined) specifying whether the Loan shall bear interest at the Prime Rate, the Fixed Rate or the Eurodollar Rate and the Interest Period applicable thereof. In the event the Debtor shall fail to provide such notice, the Loan shall be deemed to bear interest at the applicable Prime Rate and shall have an Interest Period of one month. The principal amount of each Loan shall be prepaid on the earlier to occur of the Maturity Date applicable thereto, or the date upon which the entire unpaid balance hereof shall otherwise become due and payable. 2 3 INCREASED COST -------------- If at any time after the date hereof, the Board of Governors of the Federal Reserve System or any political subdivision of the United States of America or any other government, governmental agency or central bank shall impose or modify any reserve or capital requirement on or in respect of loans made or deposits with the Bank or shall impose on the Bank or the Eurodollar market any other conditions affecting Fixed Rate Loans or Eurodollar Loans, and the result of the foregoing is to increase the cost to (or, in the case of Regulation D, to impose a cost on) the Bank of making or maintaining any Fixed Rate Loans or Eurodollar Loans or to reduce the amount of any sum receivable by the Bank in respect thereof, by an amount deemed by the Bank to be material, then, within 30 days after notice and demand by the Bank, the Debtor shall pay to the Bank such additional amounts as will compensate the Bank for such increased cost or reduction; PROVIDED, that the Debtor shall not be obligated to compensate the Bank for any increased cost resulting from the application of Regulation D as required by the definition of Adjusted Eurodollar Rate. Any such obligation by the Debtor to the Bank shall not be due and owing until the Bank has delivered written notice to the Debtor. Failure by the Bank to provide such notice shall not be deemed a waiver of any of its rights hereunder. A certificate of the Bank claiming compensation hereunder and setting forth the additional amounts to be paid to it hereunder and the method by which such amounts were calculated shall be conclusive in the absence of manifest error. INDEMNITY --------- The Debtor shall indemnify the Bank against any loss or expense which the Bank may sustain or incur as a consequence of the occurrence of any Event of Default or any loss or reasonable expense sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain any Fixed Rate Loan or Eurodollar Loan or any part thereof which the Bank may sustain or incur as a consequence of any default in payment of the principal amount of the Loan or any part thereof or interest accrued thereon. The Bank shall provide to the Debtor a statement, supported where applicable by documentary evidence, explaining the amount of any such loss or expense, which statement shall be conclusive absent manifest error. CHANGE IN LEGALITY ------------------ (a) Notwithstanding anything to the contrary contained elsewhere in this Note, if any change after the date hereof in any law or regulation or in the interpretation thereof by any governmental authority charged with the 3 4 administration thereof shall make it unlawful (based on the opinion of any counsel, whether in-house, special or general, for the Bank) for the Bank to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Debtor by the Bank, the Bank may require that all outstanding Eurodollar Loans made hereunder be converted to Prime Loans, whereupon all such Eurodollar Loans shall be automatically converted to Prime Loans as of the effective date of such notice as provided in paragraph (b) below. (b) For purposes of this Section, a notice to the Debtor by the Bank pursuant to paragraph (a) above shall be effective, if unlawful and if any Eurodollar Loans shall then be outstanding, on the last day of the then current Interest Period; otherwise, such notice shall be effective on the date of receipt by the Debtor. EVENTS OF DEFAULT ----------------- If the Debtor shall default in the punctual payment of any sum payable with respect to, or in the observance or performance of any of the terms and conditions of this Note, or any other agreement with or in favor of the Bank, or if a default or event of default that is accelerated shall occur for any reason under any such agreement, or in the event of default in any other indebtedness of the Debtor in excess of $100,000, or if the Bank shall, in its sole discretion, consider any of the obligations of the Debtor hereunder insecure, or if any warranty, representation or statement of fact made in writing to the Bank at any time by an officer, agent or employee of the Debtor is false or misleading in any material respect when made, or if the Debtor refuses upon the request of the Bank to furnish any information or to permit inspection of any of its books or records within a reasonable amount of time, or if the Debtor shall be dissolved or shall fail to maintain its existence in good standing, or if the usual business of the Debtor shall be suspended or terminated, of if any levy, execution, seizure, attachment or garnishment shall be issued, made or filed on or against any material portion of the property of the Debtor, or if the Debtor shall become insolvent (however defined or evidenced), made an assignment for the benefit of creditors or make or send a notice of intended bulk transfer, or if a committee of creditors is appointed for, or any petition or proceeding for any relief under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute now or hereafter in affect (whether at law or in equity) is filed or commenced by or against the Debtor or any material portion of its property which, if such petition or proceeding for relief is involuntarily commenced, shall not have been vacated, discharged or stayed or bonded pending appeal within 60 days from the entry thereof, or if any trustee or receiver is 4 5 appointed for the Debtor or any such property, then and in any such event, in addition to all rights and remedies of the Bank under applicable law and otherwise, all such rights and remedies cumulative, not exclusive and enforceable alternatively, successively and concurrently, the Bank may, at its option, declare any and all of the amounts owing under the Note to be due and payable, whereupon the maturity of the then unpaid balance hereof shall be accelerated and the same, together with all interest accrued hereon, shall forthwith become due and payable. DEFINITIONS ----------- A. ADJUSTED EURODOLLAR RATE "Adjusted Eurodollar Rate" shall mean, with respect to any Eurodollar Loan for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/8 of 1%) equal to the product of (i) the Eurodollar Rate in effect for such Interest Period and (ii) Statutory Reserves. "Eurodollar Rate" shall mean, with respect to any Eurodollar Loan for any Interest Period, the rate (rounded upwards, if necessary, to the next 1/8 of 1% at which dollar deposits approximately equal in principal amount to the Bank's Eurodollar Loan and for the maturity equal to the applicable Interest Period are offered by the Bank in immediately available funds in an Interbank Market for Eurodollars at approximately 11:00am, New York City time two Business Days prior to the commencement of such Interest Period. B. BUSINESS DAY A "Business Day" shall mean any day other than a Saturday, Sunday or other day on which the Bank is authorized or required by law or regulation to close, and which is a day on which transactions in dollar deposits are being carried out in London, England for Eurodollar Loans and New York City for Fixed Rate Loans and Prime Loans. C. INTEREST PERIOD (i) For Eurodollar Loans, "Interest Period" shall mean the period commencing on the date of move such Loan and ending 1, 2, 3 or 6 months (as selected by the Debtor and recorded on the grid attached hereto) after the date of 5 6 such Loan, however, the Interest Period shall not exceed past the Maturity Date. (ii) For Fixed Rate Loans, "Interest Period" shall mean the period requested by the Debtor and agreed to by the Bank, as available, however, the Interest Period shall not extend past the Maturity Date. (iii) For Prime Loans, "Interest Period" shall mean the period agreed to by the parties hereto, however, the Interest Period shall not extend past the Maturity Date. If any Interest Period would end on a day which shall not be a Business Day, such Interest Period shall be extended to the next succeeding Business Day. D. STATUTORY RESERVES "Statutory Reserves" shall mean a fraction (expressed as a decimal) the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any marginal, special emergency, or supplemental reserves) expressed as a decimal established by the Board of Governors of the Federal Reserve System and any other banking authority to which the Bank is subject, (a) with respect to the Adjusted Certificate of Deposit Rate, for new negotiable time deposits in dollars of over $100,000 with maturities approximately equal to the applicable Interest Period, and (b) with respect to the Adjusted Eurodollar Rate, for Eurocurrency Liabilities as defined in Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and as such shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to the Bank under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. 6 7 MISCELLANEOUS ------------- The Debtor hereby waives diligence, demand, presentment, protest and notice of any kind, and assents to extensions of the time of payment, release, surrender or substitution of security, or forbearance or other indulgence, without notice. This note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the party to be charged and consented to in writing by the party hereof. In the event the Bank or any holder hereof shall refer this note to an attorney for collection, the Debtor agrees to pay, in addition to unpaid principal and interest, all the costs and expenses incurred in attempting or effecting collection hereunder, including reasonable attorney's fees, whether or not suit is instituted. In the event of any litigation with respect to this Note, THE BORROWER WAIVES THE RIGHT TO A TRIAL BY JURY and all rights of setoff and rights to interpose counter-claims and cross-claims. The Debtor hereby irrevocably consents to the jurisdiction of the courts of the State of New York and of any Federal court located in such State in connection with any action or proceeding arising out of or relating to this Note. The execution and delivery of this Note has been authorized by the Board of Directors and by any necessary vote or consent of the stockholders of the Debtor. The Debtor hereby authorizes the Bank to complete this Note in any particulars according to the terms of the loan evidenced hereby. This Note shall be governed by and construed in accordance with the laws of the State of New York applicable to contract made and to be performed in such State, and shall be binding upon the successors and assigns of the Debtor and inure to the benefit of the Bank, its successors, endorsees and assigns. If any term or provision of this Note shall be held invalid, illegal or unenforceable the validity of all other terms and provisions hereof shall in no way be affected thereby. MICHAEL ANTHONY JEWELERS, INC. BY: /s/ Michael A. Paolercio ------------------------------------ Treasurer BY: /s/ Allan Corn ------------------------------------ Chief Financial Officer 7 EX-10.59 5 EXHIBIT 10.59 1 EXHIBIT 10.59 ------------- MICHAEL ANTHONY JEWELERS, INC. DEFERRED COMPENSATION PLAN FOREWORD Effective as of March 4, 1996, Michael Anthony Jewelers, Inc. adopted the Michael Anthony Jewelers, Inc. Deferred Compensation Plan to promote the interest of Michael Anthony Jewelers, Inc. and its affiliates by permitting Participants (as defined herein) to defer all or a portion of their compensation. SECTION 1 DEFINITIONS As used herein, the following terms shall have the following respective meanings, unless a different meaning is required by the context: 1.1 "APPROPRIATE FORM" means the written form provided or prescribed by the Trustees for the particular purpose. 1.2 "BOARD OF DIRECTORS" means the Board of Directors of Michael Anthony Jewelers, Inc. 1.3 "COMPANY" means Michael Anthony Jewelers, Inc. and any successor by merger, purchase, reorganization or otherwise. If the Board of Directors extends the Plan to any subsidiary or affiliate, that subsidiary or affiliate shall be deemed the Company with respect to its employees. 1.4 "COMPENSATION" means the total current and deferred cash compensation, in the form of salary, bonus, and/or commissions payable by the Company to a Participant. 1.5 "DEFERRAL AGREEMENT" means the Compensation deferral agreement between the Participant and the Company on the Appropriate Form and which shall comply with and be subject to the provisions of the Plan. Deferral Agreements may be executed for the Company by its Chief Executive Officer, Chief Operating Officer, or Chief Financial Officer. In any conflict between the terms of the Plan and the Deferral Agreements, the Plan shall control. - 1 - 2 1.6 "DEFERRED COMPENSATION ACCOUNT" means the account established for the benefit of the Participant pursuant to Section 3 of the Plan. 1.7 "EFFECTIVE DATE" means March 4, 1996. 1.8 "PARTICIPANT" means an employee who is eligible to participate in the Plan as provided in Section 2 hereof or a former employee whose Deferred Compensation Account has not been fully distributed. 1.9 "PLAN" means the Michael Anthony Jewelers, Inc. Deferred Compensation Plan as herein set forth, or as it may be amended from time to time. 1.10 "TRUSTEES" means the individuals then serving as Trustees under the Trust Agreement for Michael Anthony Jewelers, Inc. Deferred Compensation Plan. - 2 - 3 SECTION 2 ELIGIBILITY AND PARTICIPATION 2.1 ELIGIBILITY FOR PARTICIPATION Upon designation by the President or Chief Executive Officer of the Company, employees so designated may become Participants by completing and submitting the Appropriate Form by the appropriate deadline. The names of employees eligible to become Participants shall be set forth in an Appendix to the Plan. 2.2 CONTINUATION OF PARTICIPATION An employee who has become a Participant shall continue as a Participant as long as he or she continues to be designated as eligible and while the Plan is in effect, and thereafter as long as he or she is entitled to benefits under the Plan. 2.3 APPROPRIATE FORM Participation in the Plan shall be evidenced by a Deferral Agreement between the Participant and the Company. 2.4 CONTENTS AND EFFECT OF APPROPRIATE FORM In order to become a Participant, each employee shall complete the Appropriate Form and: (a) agree to the terms of the Plan; (b) designate a beneficiary on the Appropriate Form; (c) specify the amount or percentage of his or her otherwise payable Compensation to be deferred in accordance with Section 3; (d) specify the investment of his or her Deferred Compensation Account; and (e) elect payment under Section 4.2. - 3 - 4 SECTION 3 DEFERRAL OF COMPENSATION 3.1 IN GENERAL As of the Effective Date, the Company may commence to compensate each Participant for his or her services as an employee in the form of both current and deferred cash Compensation. The amount of the Participant's combined current and deferred cash Compensation may be adjusted from time to time by agreement of the Participant and the Company without altering the terms of his or her Deferral Agreement; however, the amount or percentages of such Compensation which shall be paid currently and deferred shall be controlled by the terms of the Deferral Agreement and shall be subject to the approval of the Company. 3.2 DEFERRALS (a) Prior to the Effective Date, the Participant shall elect the amount or percentage, if any, of his or her Compensation to be earned during the balance of 1996 which shall be deferred. (b) Prior to the first day of each calendar year after 1996 during which the Deferral Agreement is in effect, the Participant shall elect the amount or percentage, if any, of his or her Compensation to be earned (or, with respect to bonuses, to be paid) during such succeeding calendar year which shall be deferred. (c) Any election executed prior to the Participant's commencement of employment as an employee shall be effective as of such commencement date. Upon being designated as eligible to become a Participant, an employee shall be given 30 days to make a deferral election with respect to Compensation to be earned during his or her first year of Plan participation. (d) Notwithstanding the preceding provisions of this Section 3.2, the deferral percentage or amount in effect for the preceding calendar year shall remain in effect with respect to any calendar year for which no prior election has been filed. - 4 - 5 3.3 DEFERRED COMPENSATION ACCOUNTS The deferred portion of a Participant's Compensation will not be paid by the Company as it is earned by or becomes payable to the Participant. Instead, the Company shall, pursuant to Section 3.4, credit to such Participant's Deferred Compensation Account the amounts of deferred Compensation as such amounts are earned or become payable, and such deferred Compensation shall be paid in accordance with the previous election of the Participant, under the provisions of Section 4. 3.4 "GRANTOR TRUST" (a) The Company shall establish a "grantor trust" within the meaning of Sections 671 through 679 of the Code) to satisfy its obligations under Section 3.3. (b) Each Deferred Compensation Account established pursuant to Section 3.3 above shall be invested in such mutual fund(s) as are designated by the Participant (from among a selection of mutual funds made available by the Trustees from time to time). (c) Benefits under the Plan will be paid from the general assets of the Company. The "grantor trust" established by the Company shall not under any circumstances be deemed to be an asset of this Plan but, at all times, shall remain a part of the general assets of the Company, subject to claims of the Company's creditors. Neither a Participant nor his or her beneficiary shall have any interest in any specific asset of the Company as a result of the Plan. - 5 - 6 SECTION 4 PAYMENT OF DEFERRALS 4.1 PAYMENT OF DEFERRALS All amounts contributed to the Participant's Deferred Compensation Account shall be payable to the Participant (or, upon his death, to his beneficiary under such Deferred Compensation Account) upon the earliest to occur of the following: (a) The Participant's termination of employment due to retirement, death or any other reason; or (b) Pursuant to the Participant's election, January 1st of the third full calendar year beginning after the calendar year of the deferral (e.g., after a deferral of two full calendar years for years after the first year). 4.2 SUBSEQUENT DEFERRAL At the end of each two year deferral period, amounts previously deferred by a Participant shall automatically be re-deferred for an additional two year deferral period unless the Participant elects on the Appropriate Form to receive the deferred amounts as a lump sum. This election must be made prior to January 1st of the calendar year prior to the time they would be re-deferred under the prior sentence. There is no limit on how many times previous deferrals may be re-deferred. 4.3 FORM OF PAYMENT (a) All distributions pursuant to Section 4 to or on behalf of a Participant shall be paid in a lump sum in cash as soon as administratively possible after the date as of which the distribution is payable. (b) If a Participant dies before receiving payment of any amounts credited to his or her Deferred Compensation Account, the unpaid balance will be paid to his or her designated beneficiary. If both the Participant and his or her designated beneficiary die before such payment, the total amount standing to his or her credit in the Deferred Compensation Account shall be determined as of the date of the death of the designated beneficiary and shall be paid as promptly as possible in one lump sum to the estate of such designated beneficiary. - 6 - 7 If no such beneficiary has been designated, or if no designated beneficiary survives the Participant, the total amount standing to his or her credit in the Deferred Compensation Account shall be determined as of the date of the Participant's death and shall be paid as promptly as possible in one lump sum to the Participant's estate. 4.4 SPECIAL RULES UPON FINANCIAL HARDSHIP (a) Subject to the approval of the Trustees, a Participant who has incurred a "Financial Hardship" (as described below) may: (i) Reduce the amount or percentage, if any, of his or her Compensation to be earned during the current calendar year which shall be deferred; and/or (ii) Request distribution of an amount not in excess of the sum of the amounts credited to the Deferred Compensation Account to the extent that such distribution is necessary to meet the Financial Hardship. (b) A "Financial Hardship" will be deemed to occur upon the demonstration by the Participant that the funds are necessary because of: (i) Medical expenses described in Code Section 213(d) previously incurred by the Participant, the Participant's spouse, or any dependents of the Participant (as defined in Code Section 152) or necessary for those persons to receive medical care as described in Code section 213(d); (ii) The purchase (excluding mortgage payments) of a principal residence for the Participant; (iii) Payment of tuition and related fees and room and board for the next 12 months for post-secondary education for the Participant, his or her spouse, children, or dependents; (iv) The need to prevent the eviction of the Participant from his or her principal residence or foreclosure on the mortgage of the Participant's principal residence; or (v) Such other Financial Hardship as may be determined by the Trustees. - 7 - 8 SECTION 5 MISCELLANEOUS 5.1 PARTICIPANTS 100% VESTED - UNFUNDED PLAN Each Participant shall have a 100% nonforfeitable right to receive payments from the Company under the Deferral Agreement, such payments to be contributed or credited to his or her designated Deferred Compensation Account. Nothing contained in the Plan or Deferral Agreement and no action taken pursuant to the provisions of the Plan or Deferral Agreement shall create or be construed to create a "funded plan" for purposes of the Employee Retirement Income Security Act of 1974. Any Compensation deferred under the provisions of the Deferral Agreement (and any earnings thereon) shall continue for all purposes to be a part of the general funds of the Company, subject to the claims of creditors. To the extent that any person acquires a right to receive payments from the Company under the Deferral Agreement, such right shall be no greater than the right of any unsecured general creditor of the Company. 5.2 RESTRICTION AGAINST ASSIGNMENT It is a condition of the Plan, and all rights of each Participant and beneficiary shall be subject thereto, that no right or interest of any Participant or beneficiary in the Plan and no benefit payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any action by way of anticipating, alienating, selling, transferring, assigning, pledging, encumbering, or charging the same shall be void and of no effect; nor shall any such right, interest or benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled to such right, interest or benefit, except as specifically provided in this Plan. 5.3 NO EMPLOYMENT RIGHTS The establishment of the Plan shall not be construed as conferring any rights upon any employee for employment or continuation of employment, nor shall it be construed as limiting in any way the right of the Company to discharge any employee or to treat him or her without regard to the effect which such treatment might have upon him or her as a Participant under the Plan. - 8 - 9 5.4 DISCHARGE OF PLAN OBLIGATIONS The determination of the Trustees as to the identity of the proper payee of any benefit payment and the amount properly payable shall be conclusive, and payments in accordance with such determination shall constitute a complete discharge of all obligations of the Company with respect to such payment under the Plan. - 9 - 10 SECTION 6 ADMINISTRATION OF THE PLAN 6.1 ADMINISTRATION OF THE PLAN Administration of the Plan shall be the responsibility of the Trustees except to the extent that authority to act for it has otherwise been reserved to the Board of Directors. 6.2 RESPONSIBILITY OF TRUSTEES Subject to Section 6.1, the Trustees shall be responsible for the administration, operation and interpretation of the Plan. The Trustees shall establish rules from time to time for the administration of the Plan. They shall have the exclusive right to interpret the Plan and to decide any and all matters arising thereunder or in connection with the administration of the Plan, and they shall endeavor to act, whether by general rules or by particular decisions, so as not to discriminate in favor of any person or class of person. Such decisions, actions and records of the Trustees shall be conclusive and binding upon it and all persons having or claiming to have any right or interest in or under the Plan. The Trustees shall maintain accounts to the extent they deem necessary or appropriate showing the fiscal transactions of the Plan. 6.3 CLAIMS PROCEDURE In the event that any Participant or other payee claims to be entitled to a benefit under the Plan, and the Trustees determine that such claim should be denied in whole or in part, the Trustees shall, in writing, notify such claimant within 90 days of receipt of such claim that his or her claim has been denied, setting forth the specific reasons for such denial. Such notification shall be written in a manner reasonably expected to be understood by such Participant or other payee and shall set forth the pertinent sections of the Plan relied on, and where appropriate, an explanation of how the claimant can obtain review of such denial. Within 60 days after receipt of such notice, such claimant may request, by mailing or delivery of written notice to the Trustees, a review by the Trustees of the decision denying the claim. If the claimant fails to request such a review within such 60 day period, it shall be conclusively determined for all purposes of this Plan that the denial of such claim by the Trustees is correct. If such claimant requests a review within such 60 day period, the Participant or other payee shall have 30 days after filing a request for review to submit additional written material in support of the claim. Within 60 - 10 - 11 days after the later of its receipt of the request for review or the request to submit additional written material, the Trustees shall determine whether such denial of the claim was correct and shall notify such claimant in writing of its determination. If such determination is favorable to the claimant, it shall be binding and conclusive. If such determination is adverse to such claimant, it shall be binding and conclusive unless the claimant notifies the Trustees within 90 days after the mailing or delivery to him or her by the Trustees of their determination, that the claimant intends to institute legal proceedings challenging the determination of the Trustees, and actually institutes such legal proceedings within 180 days after such mailing or delivery. 6.4 LIMITATION ON LIABILITY The Trustees shall not be liable for any act or omission on their part, excepting only their own willful misconduct or gross negligence or except as otherwise expressly provided by applicable law. To the extent permitted by law, and not otherwise covered by insurance, Michael Anthony Jewelers, Inc. shall indemnify and save harmless the Trustees against any and all claims, demands, suits or proceedings in connection with the Plan that may be brought by Participants or their beneficiaries, or by any other person, corporation, entity, government or agency thereof; provided, however that such indemnification shall not apply with respect to acts or omissions of willful misconduct or gross negligence. The Board of Directors at the expense of the Company, may settle such claim or demand asserted, or suit or proceedings brought, against the Trustees when such settlement appears to be in the best interest of the Michael Anthony Jewelers, Inc. 6.5 AGENT FOR SERVICE OF PROCESS The Trustees or such other person as may from time to time be designated by the Trustees shall be the agent for service of process under the Plan. 6.6 DELIVERY OF ELECTIONS TO COMPANY All elections, designation, requests, notices, instructions and other communications required or permitted under the Plan from a Participant, beneficiary or other person to the Company shall be on the Appropriate Form, shall be mailed by first-class mail or delivered to such address as shall be specified by the Company, and shall be deemed to have been given or delivered only upon actual receipt thereof by the Company at such location. - 11 - 12 6.7 DELIVERY OF NOTICE TO PARTICIPANTS All notices, statements, reports and other communications required or permitted under the Plan from the Company to any employee, Participant, beneficiary or other person, shall be deemed to have been duly given when delivered to, or when mailed by first-class mail, postage prepaid, and addressed to such person at this address last appearing on the records of the Company. - 12 - 13 SECTION 7 AMENDMENT OR TERMINATION OF THE PLAN 7.1 AMENDMENT OF THE PLAN This Plan may be wholly or partially amended or otherwise modified at any time by the Board of Directors; provided, however, that no amendment or modification shall have any retroactive effect so as to deprive any person of any amounts credited to his or her Deferred Compensation Account. 7.2 TERMINATION OF THE PLAN The Plan may be terminated at any time by the Board of Directors; provided, however, that termination of the Plan shall not have any retroactive effect so as to deprive any person of his or her Deferred Compensation Account. - 13 - 14 SECTION 8 CONSTRUCTION OF THE PLAN 8.1 CONSTRUCTION OF THE PLAN The validity of the Plan or any of the provisions thereof shall be determined under and shall be construed according to the laws of the State of New York. 8.2 HEADINGS Headings or titles to sections or paragraphs in this document are for convenience of reference only and are not part of the Plan for any other purposes. IN WITNESS WHEREOF, and as evidence of the adoption of the Plan by the Company, it has caused the same to be signed by its officer duly authorized, and its corporate seal to be affixed this 4th day of March, 1996. ATTEST: MICHAEL ANTHONY JEWELERS, INC. By: /s/ Frances Durden By: /s/ FredricWasserspring ---------------------- ------------------------ Secretary President - 14 - EX-21 6 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following are the Company's subsidiaries as of April 24, 1996. All beneficial interests are wholly-owned by the Company and are included in the Company's consolidated financial statements. Name of Subsidiary State of Organization Date of Incorporation ------------------ --------------------- --------------------- F & F Acquisition Corp. New York 9-12-94 Mount Vernon Distributors, Inc. New York 10-15-93 EX-27 7 EXHIBIT 27
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR MICHAEL ANTHONY JEWELERS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR JAN-27-1996 JAN-29-1995 JAN-27-1996 6,673 0 31,637 (1,575) 19,698 58,504 34,680 16,555 78,646 12,368 19,192 9 0 0 46,039 78,646 145,257 0 121,195 24,062 (442) 246 3,835 1,214 486 0 0 0 0 728 9 0
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