<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended July 27, 1996
Commission file number: 015230
MICHAEL ANTHONY JEWELERS, INC.
(Exact name of registrant as specified in its charter)
Delaware No. 132910285
(State of Incorporation) (I.R.S. Employer Identification No.)
115 South MacQuesten Parkway
Mount Vernon, New York 105501724
(Address of principal executive offices)
Registrant's telephone number, including area code:
(914) 699-0000
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 .
------ ------
CLASS
-----
Common Stock, Par Value $.001 Number of Shares
Outstanding as of
September 4, 1996
-----------------
8,253,909
<PAGE> 2
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
INDEX
-----
PAGE
----
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets,
July 27, 1996 (Unaudited) and
January 27, 1996........................................... 3
Consolidated Condensed Statements of Operations
Six-Month Period Ended
July 27, 1996 and July 29, 1995 (Unaudited) ............... 4
Consolidated Condensed Statement of Changes in
Stockholders' Equity, Six-Month Period Ended
July 27, 1996 (Unaudited).................................. 5
Consolidated Condensed Statements of Cash Flows,
Six-Month Period Ended
July 27, 1996 and July 29, 1995 (Unaudited)................ 6
Notes to Consolidated Condensed Financial
Statements................................................... 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................ 10-14
PART II OTHER INFORMATION:
Items 1 Through Item 6 ....................................... 15
Signature Page............................................... 16
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<PAGE> 3
MICHAEL ANTHONY JEWELERS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
------
<TABLE>
<CAPTION>
(Unaudited)
July 27, January 27,
1996 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 9,582 $ 6,673
Accounts receivable:
Trade (less allowances of $1,177 and $1,575, respectively) 17,843 30,062
Other 48 47
Inventories 21,198 19,698
Prepaid expenses and other current assets 1,192 1,169
Deferred taxes 855 855
-------- --------
Total current assets 50,718 58,504
PROPERTY, PLANT AND EQUIPMENT - net 18,328 18,441
INTANGIBLES - net 1,013 998
OTHER ASSETS 1,054 703
-------- --------
$ 71,113 $ 78,646
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 2,248 $ 4,575
Current portion of long-term debt
and lease liability 3,296 3,272
Accrued expenses 2,831 3,980
Taxes payable 162 541
-------- --------
Total current liabilities 8,537 12,368
-------- --------
LONG-TERM DEBT 15,639 18,401
-------- --------
CAPITAL LEASE LIABILITY 548 791
-------- --------
DEFERRED TAXES 1,038 1,038
-------- --------
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; 8,274,000 and
9,239,000 shares issued and outstanding as of
July 27, 1996, and January 27, 1996, respectively 8 9
Additional paid-in capital 31,717 35,170
Retained earnings 13,689 14,306
Treasury stock, 20,000 and 965,200 shares as of July 27, 1996
and January 27, 1996, respectively (63) (3,437)
-------- --------
Total stockholders' equity 45,351 46,048
-------- --------
$ 71,113 $ 78,646
======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
-3-
<PAGE> 4
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
July 27 July 29, July 27, July 29,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 27,706 $ 24,902 $ 56,909 $ 52,161
COST OF GOODS SOLD 23,641 21,628 47,891 43,677
-------- -------- -------- --------
GROSS PROFIT ON SALES 4,065 3,274 9,018 8,484
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,482 4,137 8,817 8,649
-------- -------- -------- --------
OPERATING (LOSS)/INCOME (417) (863) 201 (165)
OTHER INCOME/(EXPENSES):
Gold consignment fee, net (312) (448) (663) (862)
Interest expense (410) (451) (839) (908)
Interest income 125 135 285 258
Other income 6 75 20 83
-------- -------- -------- --------
Total Other Income/(Expense) (591) (689) (1,197) (1,429)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (1,008) (1,552) (996) (1,594)
INCOME TAX BENEFIT (383) (621) (379) (648)
-------- -------- -------- --------
NET LOSS $ (625) $ (931) $ (617) $ (946)
======== ======== ======== ========
LOSS PER SHARE $ (0.08) $ (0.11) $ (0.08) $ (0.11)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES 8,256 8,502 8,265 8,570
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
-4-
<PAGE> 5
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained Treasury Stock
Shares Dollars Capital Earnings Shares Dollars Total
------ ------- ------- -------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance -
January 27, 1996 9,239 $ 9 $ 35,170 $ 14,306 (965) $ (3,437) $ 46,048
Purchase of treasury stock -- -- -- -- (20) (80) (80)
Retirement of treasury stock (965) (1) (3,453) -- 965 3,454 --
Net loss -- -- -- (617) -- -- (617)
-------- -------- -------- -------- -------- -------- --------
Balance -
July 27, 1996 8,274 $ 8 $ 31,717 $ 13,689 (20) $ (63) $ 45,351
======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
-5-
<PAGE> 6
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
July 27, July 29,
1996 1995
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (617) $ (946)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 1,917 1,830
Provision for accounts receivable 70 180
Provision for sales returns (187) (280)
(Increase)/decrease in operating assets:
Accounts receivable 12,335 5,175
Inventories (1,500) (3,120)
Prepaid expenses and other current assets (23) (272)
Other assets (508) (130)
Intangibles (118) (626)
Increase/(decrease) in operating liabilities:
Accounts payable (2,327) (1,103)
Accrued expenses (1,149) 390
Taxes payable (379) (394)
---- ----
Net cash provided by operating activities 7,514 704
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment - net (1,535) (2,979)
-------- --------
Net cash used in investing activities (1,535) (2,979)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
and capital lease liabilities (2,990) (2,518)
Proceeds from long term debt -- 6,000
Purchase of treasury stock (80) (673)
--------- --------
Net cash (used in)/provided by
financing activities (3,070) 2,809
-------- --------
INCREASE IN CASH AND EQUIVALENTS 2,909 534
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 6,673 5,815
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 9,582 $ 6,349
======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest and gold consignment fees $ 1,676 $ 1,784
Taxes $ 0 $ 0
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
-6-
<PAGE> 7
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED JULY 27, 1996
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 27, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The unaudited interim consolidated condensed balance sheet as of July 27,
1996 and the consolidated condensed statements of operations for the six
months ended July 27, 1996 and July 29, 1995, and the consolidated
condensed statements of cash flows for the six months ended July 27, 1996
and July 29, 1995, and related notes have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations. The accompanying unaudited interim consolidated condensed
financial statements and related notes should be read in conjunction with
the financial statements and related notes included in the 1996 Annual
Report to Stockholders of Michael Anthony Jewelers, Inc. (the "Company").
The information furnished reflects, in the opinion of the management of the
Company, all adjustments, consisting of normal recurring accruals, which
are necessary to present a fair statement of the results for the interim
periods presented.
The interim figures are not necessarily indicative of the results to be
expected for the fiscal year due to the seasonal nature of the business.
Earnings Per Share
------------------
Earnings per share for all periods presented were computed on a primary
basis using the weighted average number of shares of common stock
outstanding. Options and warrants outstanding were not materially dilutive.
Reclassifications
-----------------
Certain reclassifications were made to the prior year's financial
statements to conform to the current year's presentation.
2. PRODUCT PRICING
---------------
The Company's products, the principal component of which is gold, are
generally sold at prices which are based on the market price of gold on the
date merchandise is shipped to the customer.
-7-
<PAGE> 8
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED JULY 27, 1996
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 27, 1996 IS UNAUDITED)
2. PRODUCT PRICING (Continued)
---------------------------
Therefore, the Company's sales volume is significantly influenced by the
market price of gold. The selling prices for certain customers may be fixed
for a specific period of time. In such cases, the Company is able to shift
a substantial portion of the risks of gold price fluctuation by hedging
against changes in the price of gold by entering into forward contracts or
purchasing futures or options on futures.
The Company's consigned gold inventory is hedged against the effects of
price fluctuations. The Company has entered into arrangements with certain
gold lenders (the "Gold Lenders") pursuant to which the Company does not
purchase gold from the Gold Lenders until receipt of a purchase order from,
or shipment of jewelry to, its customers. These arrangements permit the
Company to match the sales price of the product with the price the Company
pays for the gold.
The average price of gold in the current quarter was $386 per ounce as
compared to $387 per ounce for the quarter ended July 29, 1995.
3. INVENTORIES
-----------
Inventories consist of:
<TABLE>
<CAPTION>
July 27, January 27,
1996 1996
---- ----
(Unaudited)
(In thousands)
<S> <C> <C>
Finished goods $50,229 $56,621
Work in process 22,362 15,240
Raw materials 6,430 8,537
-------- -------
79,021 80,398
Less:
Consigned gold 57,823 60,700
-------- -------
$21,198 $19,698
======== =======
Inventories as of July 27, 1996 and January 27, 1996 excluded 150,100 and 149,300 ounces of
gold on consignment, respectively.
</TABLE>
-8-
<PAGE> 9
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
FORM 10-Q FOR QUARTER ENDED JULY 27, 1996
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 27, 1996 IS UNAUDITED)
4. STOCK REPURCHASE PROGRAM
------------------------
In December 1995, the Company announced a Common Stock repurchase program
pursuant to which the Company may repurchase up to 750,000 shares of Common
Stock. As of September 4, 1996, the Company had repurchased a total of
80,000 shares on the open market for an aggregate price of approximately
$220,000, of which 60,000 shares have been retired. Effective May 24, 1996
the Board of Directors authorized the Company to retire 965,200 shares of
Common Stock, previously held as Treasury Stock.
5. NEW ACCOUNTING STANDARD
-----------------------
Pursuant to Statement of Financial Accounting Standards No. 123 "Accounting
for Stock Based Compensation," ("FASB 123") the Company has elected not to
change to the fair value method of accounting for employees' stock-based
transactions. As permitted by FASB 123, the Company will be permitted to
continue to account for such transactions under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," but will be
required to disclose in a note to the financial statements, the proforma
net income and earnings per share as if the Company had applied the new
standard.
-9-
<PAGE> 10
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 27, 1996 IS UNAUDITED)
RESULTS OF OPERATIONS FOR THE THREE MONTHS
- ------------------------------------------
ENDED JULY 27, 1996 AND JULY 29, 1995
- -------------------------------------
Net sales for the three months ended July 27, 1996 were approximately
$27,706,000, an increase of 11% from net sales of approximately $24,902,000 for
the comparable period last year. The increase in sales was from the retail
segment of the Company's customer base.
Gross profit margin increased to approximately 14.7% of net sales for the three
months ended July 27, 1996 compared to approximately 13.2% for the comparable
period last year. The increase in gross margin for the current period was
attributable to a change in the product mix.
Selling, general and administrative expenses for the three months ended July 27,
1996 were approximately $4,482,000, an increase of $345,000 or 8.3% from
approximately $4,137,000 for the comparable period last year. The increase is
primarily attributable to increases in (i) showroom supplies, (ii) royalty and
licensing related fees and (iii) payroll and payroll related expenses. These
increases were offset in part by reductions in (i) bad debt expenses and (ii)
some miscellaneous expenses. As a percentage of sales, selling, general and
administrative expenses decreased to approximately 16.2% for the three months
ended July 1996 compared to 16.6% in the comparable period of the prior year.
Other expenses for the three months ended July 27, 1996 were approximately
$591,000, a decrease of $98,000 or 14.2% compared to approximately $689,000 for
the comparable period last year. Gold consignment fees decreased $136,000 due to
the lower level of consignment inventory compared to the prior year. Interest
expense decreased $41,000 due to the Company's principal payments on its long
term debt, in January 1996 and May 1996.
As a result of the above factors, the Company had a net loss of $625,000 for the
three months ended July 27, 1996, compared to a net loss of $931,000 for the
comparable period last year.
-10-
<PAGE> 11
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 27, 1996 IS UNAUDITED)
RESULTS OF OPERATIONS FOR THE SIX MONTHS
- ----------------------------------------
ENDED JULY 27, 1996 AND JULY 29, 1995
- -------------------------------------
Net sales for the six months ended July 27, 1996 were approximately $56,909,000,
an increase of 9% from net sales of approximately $52,161,000 for the comparable
period last year. The increase in sales was from the retail segment of the
Company's customer base.
Gross profit margin decreased to approximately 15.9% of net sales for the six
months ended July 27, 1996 compared to approximately 16.3% for the comparable
period last year. The decrease in gross margin was primarily attributable to
close-out sales of excess inventory and the liquidation of discontinued
inventory.
Selling, general and administrative expenses for the six months ended July 27,
1996 were approximately $8,817,000, an increase of $168,000 or 2% from
approximately $8,649,000 for the comparable period last year. The increase is
primarily attributable to higher (i) showroom supplies, (ii) royalty and
licensing related fees and (iii) payroll and payroll related expenses. These
increases were offset in part by reductions in (i) advertising expenses, (ii)
bad debt expenses and (iii) some miscellaneous expenses. As a percentage of
sales, selling, general and administrative expenses decreased to approximately
15.5% for the six months ended July 1996 compared to 16.6% in the comparable
period of the prior year.
Other expenses for the six months ended July 27, 1996 were approximately
$1,197,000, a decrease of $232,000 or 16.2% as compared to approximately
$1,429,000 for the comparable period last year. Gold consignment fees decreased
$199,000 due to the lower level of consignment inventory compared to the prior
year. Interest expense decreased $69,000 due to the Company's principal payments
on its long term debt, in January 1996 and May 1996.
As a result of the above factors, the Company had a net loss of $617,000 for the
six months ended July 27, 1996, compared to a net loss of $946,000 for the
comparable period last year.
-11-
<PAGE> 12
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 27, 1996 IS UNAUDITED)
Liquidity and Capital Resources
- -------------------------------
The Company relies on a gold consignment program, short-term and long-term
borrowings and internally generated funds to finance its operations. 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 $106,899,000. 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 July 27, 1996, the Company held 150,100 ounces of gold on
consignment with a market value of $57,823,000.
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 July 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 $7,100,000. 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.
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
-12-
<PAGE> 13
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 27, 1996 IS UNAUDITED)
Liquidity and Capital Resources (Continued)
- -------------------------------
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 January 28, 1996 until July 27, 1996, the
closing price of gold according to the Second London Gold Fix ranged from a low
of $381 per ounce to a high of nearly $415 per ounce. There can be no assurances
that fluctuations in the precious metals and credit 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.
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 7.00% per annum. The
various insurance company lenders are collectively referred to as the "Senior
Note Holders". 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 July 27, 1996, the
Company was in compliance with the covenants and $15,917,000 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 July 27, 1996, the
Company was in compliance with the covenants. As of July 27, 1996, $2,431,000 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 July 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, 1997, subject to annual renewal.
-13-
<PAGE> 14
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 27, 1996 IS UNAUDITED)
Liquidity and Capital Resources (Continued)
- -------------------------------
Cash and marketable securities increased from $6,673,000 at January 27, 1996 to
$9,582,000 at July 27, 1996. This increase was primarily due to the Company's
decrease in accounts receivable.
Cash flows from operations was $7,514,000 for the six months ended July 27,
1996. During the period accounts receivable decreased $12,335,000, due to
seasonal factors and aggressive collections. These cash inflows were reduced in
part by an inventory increase of $1,500,000, and a reduction of $2,327,000 in
accrued gold purchases, trade payables and accrued expenses. In total, cash
flows from operations increased $6,770,000 from the comparable period in the
prior year.
Cash flows from investing activities represented $1,535,000 for equipment
purchases as compared to $2,979,000 of equipment purchases from the comparable
period in the prior period. Cash outflows from financing were $3,070,000 for the
period, representing scheduled payments of long-term debt.
As part of its long-term strategic planning, the Company is negotiating an
agreement to expand its manufacturing and distribution facilities by acquiring
certain properties it is currently leasing from MacQuesten Realty Company
("MRC") (the "Leased Properties"). In the event the Company acquires any of such
properties, the Company may incur or assume additional long-term indebtedness in
order to finance their purchase.
For the balance of fiscal 1997, the Company projects capital expenditures of
approximately $1,800,000, 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.
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.
-14-
<PAGE> 15
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 through Item 5
Not applicable.
Item 6.
(a) Exhibits
--------
10.1 Agreement dated July 18, 1996 by and between the Company and
American Gem Processing.
10.2 Letter Agreement dated July 23, 1996 among the Company and
certain of the Senior Note Holders.
10.3 Letter Agreement dated July 23, 1996 among the Company and
certain Senior Note Holders.
10.4 Letter Agreeement dated July 23, 1996 among the Company and
certain Senior Note Holders.
10.5 Promissory Note dated July 31, 1996 issued by the Company to
The Chase Manhattan Bank.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
Not applicable.
-15-
<PAGE> 16
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
Dated: September 9, 1996 By:/s/Allan Corn
----------------------
Allan Corn
Senior Vice President and
Chief Financial Officer
-16-
<PAGE> 17
EXHIBIT INDEX
TO
FORM 10-Q FOR QUARTER ENDED JULY 27, 1996
Exhibit No.
-----------
10.1 Agreement dated July 18, 1996 by and between the
Company and American Gem Processing.
10.2 Letter Agreement dated July 23, 1996 among the
Company and certain of the Senior Note Holders.
10.3 Letter Agreement dated July 23, 1996 among the
Company and certain Senior Note Holders.
10.4 Letter Agreeement dated July 23, 1996 among the
Company and certain Senior Note Holders.
10.5 Promissory Note dated July 31, 1996 issued by the
Company to The Chase Manhattan Bank.
27 Financial Data Schedule
-17-
<PAGE> 1
1
AGREEMENT
THIS AGREEMENT ("Agreement") dated as of the 18 day of July, 1996 by and between
Michael Anthony Jewelers, Inc., a Delaware corporation ("MAJ") and American Gem
Processing, an Delaware Corporation ("AGC").
RECITALS
A. MAJ is engaged in the manufacture and sale of jewelry, including items
that utilize diamonds or colored stones.
B. AGC is engaged in the mining, processing and sale of American
Sapphires(TM) mined in Montana in various colors, carat weights and
clarities ("American Sapphires").
C. MAJ and AGC desire to enter into this Agreement to set forth the terms
on which AGC will supply American Sapphires(TM) to MAJ and MAJ will
purchase American Sapphires(TM) from AGC.
NOW THEREFORE, for and in consideration of the mutual promises and
agreements hereinafter set forth, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The initial term of this Agreement shall
commence as of the date set forth above and continue until January 25,
1997 (the "Term"). This Agreement may be renewed or extended in writing
by the parties under the terms and conditions set forth below in
Section 8.
2. COVERED PRODUCTS. This Agreement applies to the line of
American Sapphires(TM) mined and sold by AGC, as the same may exist
from time to time, as currently described on Exhibit A attached hereto
and by this reference incorporated herein.
3. SALES TO MAJOR RETAILERS. During the Term of this Agreement
and any extensions or renewals thereof, AGC will use reasonable efforts
to make all sales in the United States of American Sapphire(TM) to MAJ
for resale to retail accounts with either (a) 10 or more store
locations in the United States or (b) annual gross sales of jewelry and
jewelry related items in the United States of $20 million or more
("Major Retailers"). For purposes of this Agreement, Major Retailers
will include, but not be limited to, those accounts listed on Exhibit
B, attached hereto and incorporated herein by reference.
4. USE OF TRADEMARKS.
(a) During the Term of this Agreement, or any extensions or
renewals thereof, AGC grants MAJ an exclusive license to use the
following trademark in
<PAGE> 2
2
connection with MAJ's sale to Major Retailers of jewelry utilizing the
American Sapphire(TM): The American Sapphire Collection(TM) trademark
(Hereinafter, the "Trademark") ; provided that AGC retains all rights
regarding use of the Trademark for sales outside the United States, and
provided further that Landstroms Original Black Hills Gold Creations
("Landstroms") may use the term "American Sapphire" pursuant to the
agreement between Landstroms and AGC dated January 29, 1996, and
provided further that the Trademark may be used by Jewelry by Michael
Inc. of Spokane Washington and provided further that the Trademark may
be used by AGC for jewelry set by MAJ for sale by AGC to jewelers in
the United States with annual gross sales of jewelry and jewelry
related products of less than $20 million per year or with 9 or fewer
retail locations in the United States ( "Independent Jewelers").
(b) For a period of ninety (90) days after the Term of this
Agreement, as the same may be renewed or extended from time to time,
AGC grants MAJ a non-exclusive license to use the Trademark in
connection with MAJ's sale of jewelry utilizing any American
Sapphires(TM) to any of its customers that are Major Retailers.
(c) The rights granted with respect to the Trademark and the
power to protect the exclusiveness of the license granted is limited to
those rights and powers held by AGC as of the date hereof and acquired
by AGC during the term of this agreement or any extensions or renewals
thereof.
5. SUPPLY AND PURCHASE OF SAPPHIRES. In consideration for the
foregoing, and the other terms and conditions of this Agreement, MAJ
agrees to purchase from AGC, and AGC agrees to supply MAJ, with
American Sapphires(TM) as follows:
(a) No later than September 1, 1996, MAJ will purchase
American Sapphires(TM) from AGC for an aggregate purchase price of not
less than One Million Dollars ($1,000,000);
(b) Subject to the conditions set forth below, MAJ will make a
cash advance to AGC of One Million Dollars ($1,000,000) on or before
September 30, 1996 (the "Advance"), against which future purchases by
MAJ of American Sapphires(TM) from AGC will be applied;
(c) Payment of the Advance is contingent upon AGC delivering
to MAJ American Sapphires(TM) with a purchase price of an aggregate
amount of Three Million Dollars ($3,000,000) not later than August 1,
1996, in such colors and sizes as shall be mutually agreed upon by the
parties prior to such date. The Three Million dollars of American
Sapphires(TM) shall be in addition to the One Million Dollars of
American Sapphire(TM) purchased by MAJ pursuant to Section 5(a) above.
The American Sapphires supplied by AGC to MAJ pursuant to this
<PAGE> 3
3
Section 5(c) will remain the property of AGC until such time as the
jewelry containing the American Sapphires(TM) is sold by MAJ; however,
AGC will not file any type of UCC financing statement (notice or
otherwise) with respect to such American Sapphires(TM). MAJ will report
sales of the American Sapphires(TM) supplied by AGC to MAJ pursuant to
this Section 5(c) in accordance with Section 5(d). MAJ will pay AGC for
the American Sapphires(TM) supplied pursuant to this Section 5(c) by
off-setting the amount otherwise due and payable to AGC against the
Advance, then after the Advance has been utilized in full, in
accordance with the provisions of Section 5(d). Notwithstanding
anything to the contrary in this Agreement, MAJ will have the right, in
its sole discretion, to purchase for its own account, at any time, that
quantity of American Sapphires(TM) equivalent in value to the balance
outstanding on the Advance. Unless the parties hereto otherwise agree,
any remaining unsold memo sapphires shall be returned by MAJ to AGC by
February 15, 1997.
(d) Upon shipment of the American Sapphires(TM) pursuant to
Section 5(c), AGC will prepare a document labeled "Memo" which will
accompany the shipment and generally describe and identify the American
Sapphires(TM) contained in the shipment.
Every month MAJ will provide AGC with a sales report listing the
American Sapphires(TM) sold by MAJ during the previous month. Upon
receipt of the sales report, AGC will either (i) deduct the amount
otherwise due and payable by MAJ from the Advance until such time as
the Advance has a "zero" balance or (ii) after the Advance has been
paid in full, prepare an invoice setting forth the payment due from MAJ
based upon the sales report. MAJ will remit payment to AGC in the
amount of the invoice within thirty (30) days of MAJ's receipt of the
invoice;
(e) During the Term of the Agreement or any extensions or
renewals thereof, MAJ shall have the right to (i) stock balance up to
20% of any American Sapphire(TM) purchases made from AGC and (ii)
return any American Sapphires(TM) that do not meet the standards agreed
upon by the parties as to grading and size as set forth on Exhibit C,
attached hereto and incorporated herein by reference. MAJ acknowledges
that AGC produces natural sapphires that have natural variations in
clarity and color. Subject to the foregoing, MAJ will accept any
American Sapphire(TM) from AGC as long as it meets the aforementioned
grading and size standards;
(f) If net purchases of American Sapphire(TM) by MAJ during
the original Term exceed an aggregate of Three Million Dollars
($3,000,000) (including sales on asset and from memo), MAJ will receive
a five percent (5%) rebate on any purchases of American Sapphire (TM)
over Two Million Dollars (2,000,000) in the aggregate. For purposes
hereof, "net purchases" shall mean all purchases, less returns. The
provisions of this subsection apply only to the initial term of the
Agreement.
<PAGE> 4
4
(g) A copy of AGC's current price list is attached as
Exhibit A. AGC may change it's price list form time to time after at
least thirsty (30) days prior written notice to MAJ provided, however,
that at all times MAJ will receive at least a fifteen percent (15%)
discount off of AGC's regular price list, utilized in the normal course
of AGC's business. Notwithstanding anything to the contrary, AGC
covenants that the prices AGC will charge MAJ for American
Sapphires(TM) at any time during the Term of the Agreement or any
extensions or renewals thereof, including the pieces set forth on the
current price list, discounted as contemplated above, will be no
greater than the lowest prices AGC charges any of its other established
customers anywhere in the United States who purchase comparable
quantities of American Sapphires(TM) and have comparable sales programs
for American Sapphires(TM) during the same time period ("Most Favorable
Price"). Further, the price charged MAJ for any American Sapphire(TM)
will only be increased in amounts comparable to the increase applied to
AGC's other established customers, provided such increase does not
result in prices payable by MAJ which exceed the Most Favorable Price;
(h) Payment for all assets purchases from AGC will be made
within 30 days of receipt of the American Sapphires(TM) and the invoice
for such shipment from AGC. All American Sapphires(TM) purchased by MAJ
will be shipped by AGC, FOB destination and AGC will be responsible
for insuring the American Sapphires(TM) in transit to MAJ. Any
American Sapphires(TM) returned by MAJ to AGC shall be shipped by
MAJ, FOB destination, and MAJ will be responsible for insuring the
American Sapphires(TM) in transit.
6. ORDER PROCESSING.
(a) MAJ will use reasonable efforts to promote and sell the
American Sapphire(TM) in a line of jewelry manufactured and sold by
MAJ.
(b) AGC will use reasonable efforts to project the size,
color, cut and delivery date of future calibrated inventory and supply
MAJ with a written copy of such projections each month during the Term
of this Agreement or any extensions or renewals thereof. AGC will also
provide MAJ with information as to AGC's current inventory as such
information is available to AGC in the normal course of its business;
(c) For a period of 10 business days after MAJ receives each
monthly or other inventory report from AGC, MAJ will have the first
right to purchase all or any part of such inventory as set forth in
said report (and not previously disclosed to MAJ or "reserve" such
inventory on terms mutually agreed upon by AGC and MAJ). In the event
MAJ desires to purchase or reserve any such inventory pursuant to
mutually agreed terms, MAJ will notify AGC in writing with either a
purchase order or letter as to its intention to purchase at a future
date.
<PAGE> 5
5
7. SALES AND MARKETING. MAJ and AGC will (a) cooperate with
each other in good faith to promote the American Sapphire(TM) and
(b) use their respective reasonable efforts to sell jewelry with
American Sapphires(TM), including the following:
(i) AGC personnel will use reasonable efforts to assist MAJ
with sales calls on MAJ's customers as requested by MAJ, at AGC's
expenses on an "as available" basis as determined by AGC;
(ii) AGC personnel will assist MAJ at trade shows as mutually
agreed upon by the parties;
(iii) AGC will participate with MAJ in 50/50 cooperative
advertising for certain of MAJ's customers for which AGC's contribution
is an aggregate amount equal to at least two percent (2%) of AGC's
gross sales to MAJ during the Term of this Agreement or any extensions
or renewals thereof. AGC and MAJ will jointly approve any advertising
materials that include pictures of American Sapphires(TM) or use of the
Trademark;
(iv) AGC will participate with MAJ in 50/50 cooperative trade
advertising as mutually agreed by the parties;
(v) AGC will make available to MAJ and its customers selected
AGC promotional materials at AGC's cost, in quantities to be mutually
agreed by the parties;
(vi) Subject to the provisions of Section 10 below, MAJ will
provide AGC with a list of MAJ's customers who plan to use the
Trademark, AGC logos or tradenames, for AGC's written approval.
8. RIGHT OF FIRST REFUSAL. At the end of the original Term of
this Agreement, MAJ will have a right of first refusal for a period of
30 days in which to renew this Agreement, including the exclusivity
provisions of Sections 3 and 4, for a term ending January 31, 1998,
provided that MAJ commits to make purchases of Sapphires from AGC
during the period of January 26, 1997, to January 31, 1998, in an
aggregate amount of at least Nine Million Dollars ($9,000,000). If MAJ
elects to exercise its right of first refusal, it shall notify AGC in
writing of its election no later than February 24, 1997. Nothing
contained in this Agreement shall commit MAJ to make the further
purchases described in this Section 8.
9. REPRESENTATIONS AND WARRANTIES.
(a) MAJ represents and warranties to AGC:
<PAGE> 6
6
(i) MAJ is a corporation organized and existing and
in good standing under the Laws of the State of Delaware;
(ii) Neither the execution nor delivery of this
Agreement by MAJ, nor the consummation of the transactions
contemplated hereunder, will conflict with, or result in a
violation or breach of any term or provision of, or constitute
an event of default under, the Certificate of Incorporation,
or ByLaws of MAJ or a material agreement to which MAJ is a
party.
(b) AGC represents and warranties to MAJ:
(i) AGC is a corporation organized and existing
and in good standing under the Laws of the State of Delaware;
(ii) Neither the execution nor delivery of this
Agreement by AGC, nor the consummation of the transactions contemplated
hereunder, will conflict with, or result in a violation or breach of any term or
provisions of, or constitute an event of default under, the Certificate of
Incorporation, or ByLaws of AGC or a material agreement to which AGC is a party;
(iii) The American Sapphires(TM), when purchased
and paid for by MAJ, will be sold by AGC free and clear of all liens,
encumbrances, restrictions, charges and claims of any kind whatsoever.
10. CONFIDENTIALITY. The parties acknowledge that during the Term of this
Agreement or any extensions or renewals thereof, each of them may learn or
obtain access to certain confidential information or trade secrets of the other,
including, but not limited to, customer names, addresses, contacts and lists,
pricing information, methods of manufacturer, financial data, marketing plans
and technical data but excluding information that is generally known to or
observable by the public or obtainable from public sources, including but not
limited to filings with public agencies, or information which is available from
trade and other publications available to the public. ["Confidential
Information"]. Each party further acknowledges that the other party has a
proprietary interest in maintaining the confidential nature of its Confidential
Information and agrees not to, either during the Term or thereafter, disclose
the Confidential Information or use the Confidential Information for any purpose
other than is required by the terms of this Agreement.
11. INDEMNIFICATION.
(a) AGC will defend, indemnify and hold harmless MAJ, its
successors and assigns, directors, officers, employees and agents from and
against all suits, losses, claims, causes of action, judgments, damages,
penalties, costs, expenses, (including attorney's fees and expenses) which may
be asserted, alleged, demanded,
<PAGE> 7
7
claimed, recovered or otherwise incurred or sustained by MAJ as a result of
MAJ's use of the Trademark in accordance with this Agreement.
(b) If, for any reason whatsoever, a court of competent
jurisdiction or government agency issues an order or injunction, whether final,
preliminary or temporary, that prevents MAJ from using, purchasing or selling
all or part of any American Sapphires(TM), AGC, at its expense, shall at least
take one of the following actions within thirty (30) days after issuance of such
an order: (1) procure for MAJ the right to continue using, purchasing, or
selling the American Sapphires(TM), (2) replace or modify the American
Sapphires(TM) so they can again be used, purchased or sold by MAJ, provided that
such modification or replacement does not materially degrade the quality of the
American Sapphires(TM), (3) after reasonable attempts have been made with
respect to the foregoing alternatives, refund the purchase price paid to AGC by
MAJ for any remaining American Sapphires(TM);
(c) The foregoing covenants and indemnification shall remain
in full force and effect beyond the Term for a period of two years, and be
applicable to any purchaser, assignee or succeeding entity of either AGC or MAJ.
12. FORCE MAJEURE. In the event MAJ is unable to take delivery of the American
Sapphires(TM) due to an Act of God or circumstances beyond its control, such as
a fire, strike, or other calamity that damages MAJ's production facilities such
that those facilities can not manufacture jewelry for a period of 30 days or
more, then MAJ shall be relieved to the purchase requirements in Section 5 for
such time as MAJ's manufacturing processes are disrupted.
13. NOTICES. All notices hereunder shall be in writing and shall be deemed
given if delivered personally or mailed by registered or certified mail (return
receipt requested) or by a nationally recognized overnight courier service to
the parties at the following addressees (or such other address as to which a
party may notify the other):
If to MAJ: Michael Paolercio, CEO
Michael Anthony Jewelers, Inc.
115 S. MacQuesten Parkway
Mount Vernon, New York 10550
Telecopy: (914) 699-2335
If to AGC: Greg Dahl, Chairman and CEO
American Gem Corporation
130 Neil Avenue
Helena, Montana 59604
Telecopy: (406) 442-4096
<PAGE> 8
All notices shall be deemed to have been given upon the earlier to
occur of (i) two days after deposited in the U.S. Mail, addressed and posted as
herein set forth or (ii) one day after sent by overnight carrier.
14. MISCELLANEOUS. This Agreement (including the exhibits hereto) constitutes
the entire agreement and supersedes all prior agreements, written or oral,
between the parties with respect to the subject matter hereof. No waiver,
amendment or supplement of this Agreement shall be effective unless in writing
and signed by MAJ and AGC. This Agreement may be executed in one or more
counterparts, all of which when taken together, shall be considered one and the
same document. This Agreement shall be governed by and construed in accordance
with the Laws of the State of New York.
15. RESOLUTION OF DISPUTES. Should at any time any dispute arise between the
parties to this Agreement with respect to their rights, obligations, duties or
requirements, under or by virtue of the provisions of this Agreement, said
dispute shall be referred to and consent and approval of each of the parties
hereto is expressly given to refer said dispute for determination to, the
American Arbitration Association in the City of New York, New York, in
accordance with its Commercial Arbitration Rules then pertaining and the
judgment upon the award may be entered in any Court having jurisdiction thereof.
The arbitration fees assessed for such arbitration shall be paid by the losing
party or parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and do each hereby warrant and represent that its respective signatory whose
signature appears below is duly authorized by all necessary and appropriate
corporate action to execute this Agreement.
MICHAEL ANTHONY JEWELERS, INC. AMERICAN GEM CORPORATION
BY: /s/ Michael Paolercio BY: /s/ Greg Dahl
----------------------- -------------
Michael Paolercio, CEO Greg Dahl, Chairman and CEO
<PAGE> 1
Exhibit 10.2
July 23, 1996
Northwestern National Life Insurance Company
Northern Life Insurance Company
ReliaStar Bankers Security Life Insurance Company as Successor By
Merger to The North Atlantic Life Insurance Company of America
c/o ReliaStar Investment Research, Inc.
100 Washington Avenue South
Suite 800
Minneapolis, Minnesota 55401-2121
Gentlemen:
Reference is made to the Note Purchase Agreement (as heretofore amended, the
"1987 Agreement") among Northwestern National Life Insurance Company
("Northwestern"), Northern Life Insurance Company ("Northern"), The North
Atlantic Life Insurance Company of America ("North Atlantic") (collectively, the
"Lenders") and Michael Anthony Jewelers, Inc. (the "Company"), dated as of
December 15, 1987, pursuant to which Northwestern purchased a 10.5% Senior Note
of the Company in the original principal amount of $4,000,000 and North Atlantic
purchased a 10.5% Senior Note of the Company in the original principal amount of
$1,000,000.
The Company requests that the 1987 Agreement be amended in the following
respect, such amendment to be effective as of the date hereof:
Negative Covenant
- -----------------
Paragraph 5(b) of the 1987 Agreement, as the same has been amended, shall be
deleted in its entirety and there shall be substituted in lieu thereof the
following in Paragraph 5:
(b) FIXED CHARGE COVERAGE. Permit the ratio of Total Pretax Income
available for Fixed Charges to Total Fixed Charges (the "Fixed
Charge Ratio") for any twelve month fiscal year end period to
be less than 175%, provided that the Fixed Charge Ratio may be
less than 175% at fiscal year end if the Fixed Charge Ratio
for the previous fiscal year was at least 175% at fiscal year
end; provided further, that the Fixed Charge Ratio may be less
than 175%, but in no event less than 100%, for any four fiscal
quarter period.
The amendment set forth herein shall supersede in its entirety the amendment of
Paragraph 5(b) set forth in that certain letter amendment dated February 16,
1995 among the Lenders and the Company.
<PAGE> 2
Except as amended hereby, the 1987 Agreement shall remain in full force and
effect.
If you agree to amending the 1987 Agreement in the manner set forth above,
please so indicate by executing the form of acknowledgment set forth below. The
amendment shall then take effect as of the date hereof.
This letter amendment may be executed in one or more counterparts, all of which
together shall constitute but one instrument.
Very truly yours,
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ Allan Corn
--------------
Allan Corn, Chief Financial Officer
By: /s/ Michael A. Paolercio, Treasurer
-----------------------------------
Michael A. Paolercio, Treasurer
Agreed to and accepted as
of the date first above
written on behalf of
Northwestern National Life Insurance Company
By: /s/ James Wittich
------------------
Title: Authorized Representative
-------------------------
Northern Life Insurance Company
By: /s/ James Wittich
-----------------
Title: Assistant Treasurer
-------------------
ReliaStar Bankers Security Life Insurance Company as Successor By
Merger to The North Atlantic Life Insurance Company of America
By: /s/ James Wittich
-----------------
Title: Vice President
--------------
MFD/mh:
fran\nnlic
<PAGE> 1
Exhibit 10.3
July 23, 1996
Northern Life Insurance Company
Northwestern National Life Insurance Company
c/o ReliaStar Investment Research, Inc.
100 Washington Avenue South
Suite 800
Minneapolis, Minnesota 55401-2121
Gentlemen:
Reference is made to the Note Purchase Agreement (the "1995 Agreement") among
Northern Life Insurance Company and Northwestern National Life Insurance Company
(collectively, the "Lenders") and Michael Anthony Jewelers, Inc. (the
"Company"), dated as of February 16, 1995, pursuant to which the Lenders
purchased Senior Notes of the Company in the original aggregate principal amount
of $6,000,000.
The Company requests that the 1995 Agreement be amended in the following
respect, such amendment to be effective as of the date hereof:
Negative Covenant
- -----------------
Paragraph 5(b) of the 1995 Agreement, as the same has been amended, shall be
deleted in its entirety and there shall be substituted in lieu thereof the
following in Paragraph 5:
(b) FIXED CHARGE COVERAGE. Permit the ratio of Total Pretax Income
available for Fixed Charges to Total Fixed Charges (the "Fixed
Charge Ratio") for any twelve month fiscal year end period to
be less than 175%, provided that the Fixed Charge Ratio may be
less than 175% at fiscal year end if the Fixed Charge Ratio
for the previous fiscal year was at least 175% at fiscal year
end; provided further, that the Fixed Charge Ratio may be less
than 175%, but in no event less than 100%, for any four fiscal
quarter period.
Except as amended hereby, the 1995 Agreement shall remain in full force and
effect.
If you agree to amending the 1995 Agreement in the manner set forth above,
please so indicate by executing the form of acknowledgment set forth below. The
amendment shall then take effect as of the date hereof.
<PAGE> 2
This letter amendment may be executed in one or more counterparts, all of which
together shall constitute but one instrument.
Very truly yours,
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ Allan Corn
--------------
Allan Corn, Chief Financial Officer
By: /s/ Michael A. Paolercio
-------------------------
Michael A. Paolercio, Treasurer
Agreed to and accepted as
of the date first above
written on behalf of
Northern Life Insurance Company
By: /s/ James Wittech
-----------------
Title: Assistant Treasurer
-------------------
Northwestern National Life Insurance Company
By: /s/ James Wittech
-----------------
Title: Authorized Representative
-------------------------
MFD/mh:
fran\nthrn
<PAGE> 1
Exhibit 10.4
July 23, 1996
Northern Life Insurance Company
Royal Maccabees Life Insurance Company
ReliaStar Bankers Security Life Insurance Company as Successor By
Merger to The North Atlantic Life Insurance Company of America
Farm Bureau Life Insurance Company of Michigan
FB Annuity Company
Farm Bureau Mutual Insurance Company of Michigan
c/o ReliaStar Investment Research, Inc.
100 Washington Avenue South
Suite 800
Minneapolis, Minnesota 55401-2121
Gentlemen:
Reference is made to the Note Purchase Agreement (as heretofore amended, the
"1992 Agreement") among Northern Life Insurance Company ("Northern"), Royal
Maccabees Life Insurance Company ("Royal Maccabees"), The North Atlantic Life
Insurance Company of America ("North Atlantic"), Farm Bureau Life Insurance
Company of Michigan ("Farm Bureau Life"), FB Annuity Company ("FB Annuity"),
Farm Bureau Mutual Insurance Company of Michigan ("Farm Bureau Mutual", and,
together with Northern, Royal Maccabees, North Atlantic, Farm Bureau Life, and
FB Annuity, collectively the "1992 Lenders") and Michael Anthony Jewelers, Inc.
(the "Company"), dated as of May 1, 1992, pursuant to which the 1992 Lenders
purchased 8.61% Senior Notes of the Company in the original aggregate principal
amount of $10,000,000.
The Company requests that the 1992 Agreement be amended in the following
respect, such amendment to be effective as of the date hereof:
Negative Covenant
- -----------------
Paragraph 5(b) of the 1992 Agreement, as the same has been amended, shall be
deleted in its entirety and there shall be substituted in lieu thereof the
following in Paragraph 5:
(b) Fixed Charge Coverage. Permit the ratio of Total Pretax Income
available for Fixed Charges to Total Fixed Charges (the "Fixed
Charge Ratio") for any twelve month fiscal year end period to
be less than 175%, provided that the Fixed Charge Ratio may be
less than 175% at fiscal year end if the Fixed Charge Ratio
for the previous fiscal year was at least 175% at fiscal year
end; provided further, that the Fixed Charge Ratio may be less
than 175%, but in no event less than 100%, for any four fiscal
quarter period.
<PAGE> 2
The amendment set forth herein shall supersede in its entirety the amendment of
Paragraph 5(b) set forth in that certain letter amendment dated February 16,
1995 among the Lenders and the Company.
Except as amended hereby, the 1992 Agreement shall remain in full force and
effect.
If you agree to amending the 1992 Agreement in the manner set forth above,
please so indicate by executing the form of acknowledgment set forth below. The
amendment shall then take effect as of the date hereof.
This letter amendment may be executed in one or more counterparts, all of which
together shall constitute but one instrument.
Very truly yours,
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ Allan Corn
--------------
Allan Corn, Chief Financial Officer
By: Michael A. Paolercio
--------------------
Michael A Paolercio, Treasurer
Agreed to and accepted as
of the date first above
written on behalf of
Northern Life Insurance Company
By: /s/ James Wittich
-----------------
Title Assistant Treasurer
-------------------
Royal Maccabees Life Insurance Company
By: __________________
Title: __________________
ReliaStar Bankers Security Life Insurance Company as Successor By
Merger to The North Atlantic Life Insurance Company of America
By: /s/ James Wittich
------------------
Title: Vice President
--------------
<PAGE> 1
Exhibit 10.5
PROMISSORY NOTE
$15,000,000 NEW YORK, NEW YORK
JULY 31, 1996
FOR VALUE RECEIVED, MICHAEL ANTHONY JEWELERS, INC. (the "Debtor"),
HEREBY PROMISES TO PAY to the order of The Chase Manhattan Bank (the "Bank"), at
its offices located at 10 111 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 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 each 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 Bank'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, 1997 (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 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
- 1 -
<PAGE> 2
of manifest error, shall be rebuttaly 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 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
thereto. 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.
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 by 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
- 2 -
<PAGE> 3
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
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 lawful 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.
- 3 -
<PAGE> 4
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, or 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), make 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 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 laws 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.
- 4 -
<PAGE> 5
"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 11:00 a.m., 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 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 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
such Loan, however, the Interest Period
shall not extend 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.
- 5 -
<PAGE> 6
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.
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
- 6 -
<PAGE> 7
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, endorsers 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: /ss/ Michael A. Paolercio
-------------------------
Title: Treasurer
By: /ss/ Allan Corn
---------------
Title: Chief Financial Officer
MFD/mh:
fran\pncmb
- 7 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR MICHAEL ANTHONY JEWELERS, INC. AND IS QUALILFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-START> APR-28-1996
<PERIOD-END> JUL-27-1996
<CASH> 9,582
<SECURITIES> 0
<RECEIVABLES> 19,020
<ALLOWANCES> (1,177)
<INVENTORY> 21,198
<CURRENT-ASSETS> 50,718
<PP&E> 36,784
<DEPRECIATION> 18,455
<TOTAL-ASSETS> 71,113
<CURRENT-LIABILITIES> 8,537
<BONDS> 16,187
<COMMON> 0
0
8
<OTHER-SE> 45,343
<TOTAL-LIABILITY-AND-EQUITY> 71,113
<SALES> 27,706
<TOTAL-REVENUES> 0
<CGS> 23,641
<TOTAL-COSTS> 4,065
<OTHER-EXPENSES> (131)
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 722
<INCOME-PRETAX> (1,008)
<INCOME-TAX> (383)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (625)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
</TABLE>
