<PAGE> 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 31, 1998
COMMISSION FILE NUMBER
015230
MICHAEL ANTHONY JEWELERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 132910285
(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. [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of April 10, 1998.
COMMON STOCK, PAR VALUE $.001 7,284,793
(TITLE OF EACH CLASS) ----------------
(NUMBER OF SHARES)
Aggregate market value of common stock held by nonaffiliates at April 10, 1998:
$11,947,523*
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE:
Part III Portions of registrant's Definitive Proxy Statement for Annual Meeting
of Stockholders for Fiscal 1998 (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. 338289), (ii) registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1993, (iii) registrant's Registration Statement on Form S-3
(File No. 3371308), (iv) registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1994, (v) registrant's Transition Report on Form 10-K for
the transition period from July 1, 1994 to January 28, 1995, (vi) registrant's
Annual Report on Form 10-K for the fiscal year ended January 27, 1996, (vii)
registrant's Quarterly Report on Form 10-Q for the quarter ended July 27, 1996,
(viii) registrant's Quarterly Report on Form 10-Q for the quarter ended October
26, 1996, (ix) registrant's Annual Report on Form 10-K for the fiscal year ended
February 1, 1997, (x) registrant's Quarterly Report on Form 10-Q for the quarter
ended May 3, 1997, (xi) registrant's Quarterly Report on Form 1-Q for the
quarter ended August 2, 1997 and (xii) registrant's Quarterly Report on Form
10-Q for the quarter ended November 1, 1997.
* Excludes holdings, among others, of Allan Corn, Frances Durden, Mark Hanna,
David Harris, Donald R. Miller, Michael Anthony Paolercio, Greg Torski and
Michael Wager who should not be deemed affiliates for any other purpose.
<PAGE> 3
PART I
ITEM 1. BUSINESS.
GENERAL
Michael Anthony Jewelers, Inc. (the "Company") is a leading designer,
marketer and manufacturer of affordable fine jewelry in the United States. The
Company sells its jewelry directly to jewelry chain stores, discount stores,
department stores, television home shopping networks, catalogue retailers, and
wholesalers. The Company manufactures jewelry targeted towards the middle
market, which generally retails between $20 and $200 and between $300 and $1,200
for watches. The Company's products include rope chain, bracelets, charms,
pendants, earrings, rings and watches, which 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, barcoding 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 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. During fiscal 1997, the Company changed its fiscal year end from the
last Saturday in January to the Saturday closest to the end of January,
effective with the fiscal year ended February 1, 1997. Fiscal years ended
January 31, 1998, February 1, 1997 and January 27, 1996 were comprised of 52, 53
and 52 weeks, respectively.
As used below, (a) fiscal 1998 refers to the fiscal year ended January
31, 1998, (b) fiscal 1997 refers to the fiscal year ended February 1, 1997 and
(c) fiscal 1996 refers to the fiscal year ended January 27, 1996.
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
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, gold
locks used in the production of 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 certain findings used to assemble
jewelry.
The Company also manufactures a line of men's and ladies' 18 and 14
karat gold watches under the "Michael Anthony" and "Marc Anton" brand names.
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The tables below set forth the approximate percentage of (i) sales and
(ii) kilos shipped in fiscal years 1998, 1997 and 1996, respectively,
attributable to each of the Company's product categories.
<TABLE>
<CAPTION>
APPROXIMATE
FISCAL 1998 APPROXIMATE % OF KILOS
PRODUCT CATEGORY % OF SALES SHIPPED
- ---------------- ---------- -------
<S> <C> <C>
Casted 42 34
Chains 42 51
Earrings 6 5
Other items 10 10
--- ---
Total 100% 100%
=== ===
</TABLE>
<TABLE>
<CAPTION>
APPROXIMATE
FISCAL 1997 APPROXIMATE % OF KILOS
PRODUCT CATEGORY % OF SALES SHIPPED
- ---------------- ---------- -------
<S> <C> <C>
Casted 44 37
Chains 43 50
Earrings 5 4
Other items 8 9
--- ---
Total 100% 100%
=== ===
</TABLE>
<TABLE>
<CAPTION>
APPROXIMATE
FISCAL 1996 APPROXIMATE % OF KILOS
PRODUCT CATEGORY % OF SALES SHIPPED
- ---------------- ---------- -------
<S> <C> <C>
Casted 45 34
Chains 42 51
Earrings 6 4
Other items 7 11
--- ---
Total 100% 100%
=== ===
</TABLE>
The Company's jewelry line includes licensed products manufactured
pursuant to arrangements with such licensors as Warner Bros., Inc. (licensors of
Looney Tunes(R) characters), National Football League Properties, Inc., Major
League Baseball Properties, Inc., NBA Properties, Inc., NHL Enterprises, Inc.,
United Features Syndicate (Peanuts(R)), Playboy Enterprises, Inc., Cathy(R) and
many nationally recognized colleges, including Notre Dame and the University of
Florida. 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 31,
1998, the Company's licensed products represented approximately 11% of the
Company's net sales.
The Company maintains an inhouse 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.
Management believes that the Company's future success will depend, in
part, on its ability to enhance its existing product lines and develop new
styles and products to meet an expanding range of customer requirements. As of
April 10, 1998, the Company's product development staff consisted of 16 full
time employees. The Company's product development expenses for fiscal 1998 were
approximately $1,004,000. The Company anticipates that it will continue to
commit substantial resources to product development in the future. The Company's
policy is to capitalize 50% of its product development costs. These costs are
amortized over two years.
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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 photoetching process which has allowed the Company to enter the
lower priced segment of the market through production of ultralight products and
the diamond cut process, a technique which produces a sparkling effect on a
finished piece of gold jewelry.
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 1998, 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.
OPEN ORDERS
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 10, 1998, the aggregate dollar value of
the Company's orders was approximately $9,700,000. The Company expects that
substantially all of the current orders will be shipped in the next 45 days.
Management of the Company does not believe that open orders are indicative of
the Company's future results of operations, as open orders as of any given date
are not necessarily indicative of sales trends.
MARKETING AND SALES
The Company markets and sells its jewelry primarily through its inhouse
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 jewelry chain stores,
discount stores, department stores, television home shopping networks, catalogue
retailers 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. For
certain retail chains, such as Sterling, Inc. (a division of Signet Group PLC
and the owner of Kay Jewelers and J.B. Robinson Jewelers), Wal*Mart, J.C.
Penney, Zales, Service Merchandise and Kmart, the Company prepackages 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
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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 31, 1998, sales to the five
largest of the Company's customers aggregated approximately 51% of total net
sales. The Company's two largest customers were J.C. Penney and Sterling, Inc.,
each accounting for approximately 12.5% of net sales. Except for certain retail
customers, generally 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 12% of gross sales in fiscal 1998, 13% of
gross sales in fiscal 1997 and 14% of gross sales in fiscal 1996. For further
information regarding the reserve for returns, see Note 1 - Notes to
Consolidated Financial Statements.
The reduction, delay or cancellation of orders or the return of a
significant amount of product from one or more of the Company's top customers,
the loss of one or more of the Company's top customers, or any financial
difficulties of any such customers resulting in their inability to pay amounts
owing to the Company, could have a material adverse effect on the Company's
business, operating results and financial condition.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
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
certain of its products. The level of 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."
In addition, the Company seeks to avoid disclosure of its trade
secrets, including requiring those persons with access to the Company's
proprietary information to sign confidentiality agreements with the Company and
restricting access to the Company's systems.
Despite the Company's efforts to protect its trademarks, copyrights and
other proprietary rights, unauthorized parties may attempt to copy aspects of
the Company's products or to obtain and use information that the Company
considers confidential. Policing unauthorized use of the Company's intellectual
property rights is difficult, and while the Company takes appropriate action
whenever it discovers unauthorized use of its trademarks or that of any of its
copywritten designs have been copied, knockoffs and counterfeit product are a
persistent problem in the jewelry industry. In addition, the laws of many
countries do not protect the Company's intellectual property rights to as great
an extent as do the laws of the United States. There can be no assurance that
the Company's means of protecting its intellectual property and other
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar products.
Management does not believe that the Company's products or processes
infringe the proprietary rights of any third parties, but there can be no
assurance that third parties will not claim infringement with respect to
existing or future products or processes. Any such claims, with or without
merit, could be time-consuming, result in costly litigation, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company or at all, which could have a
material adverse effect on the Company's business, operating results and
financial condition.
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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 nontraditional jewelry retailers,
including television shopping networks and discount merchandisers. However, the
recent trend towards consolidation at the retail level in the jewelry industry
and low labor costs outside of the United States may increase the level of
competition facing the Company. There can be no assurance that the Company will
be able to compete successfully against current and future competitors or that
competitive pressures faced by the Company will not have a material adverse
effect on its business, operating results and financial condition.
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 1998, fiscal 1997 and fiscal
1996:
<TABLE>
<CAPTION>
NET % OF
($ IN THOUSANDS) SALES NET SALES
---------------- ----- ---------
<S> <C> <C>
Fiscal 1998 Ended January 31, 1998
First Quarter $27,606 21%
Second Quarter $22,618 17%
Third Quarter $41,753 32%
Fourth Quarter $37,972 30%
Fiscal 1997 Ended February 1, 1997
First Quarter $29,203 19%
Second Quarter $27,706 18%
Third Quarter $48,772 33%
Fourth Quarter $44,948 30%
Fiscal 1996 Ended January 27, 1996
First Quarter $27,260 19%
Second Quarter $24,902 17%
Third Quarter $47,037 32%
Fourth Quarter $46,058 32%
</TABLE>
The Company has experienced a seasonal pattern in its operating results
with the third and fourth quarters typically having the highest sales.
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 as part of the manufacturing process 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)
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consigned gold with an aggregate value equal to $106,695,000. 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 31, 1998, the Company held 108,900 ounces of gold on
consignment with a market value of $33,208,000.
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 31, 1998, the Company was in compliance with the
covenants in its consignment agreements and the Company's owned gold inventory
was valued at approximately $3,996,000. 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."
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 impact the
demand for the Company's products. From July 1, 1995 until January 31, 1998, the
closing price of gold according to the Second London Gold Fix ranged from a low
of $278.70 per ounce to a high of $414.80 per ounce. During fiscal 1998, the
closing price of gold dropped from a high of $362.15 per ounce to a low of
$278.70 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. See ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS AND FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
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 31, 1998, the Company employed 554 persons, 437 of which
were directly engaged in manufacturing and distribution operations, with the
remaining 117 employees who were engaged in administration and sales. None of
the Company's employees are represented
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by a union and the Company has not experienced any labor-related work stoppage.
The Company places a heavy emphasis on employee relations through educational
and training programs and employee teams. The Company considers its relations
with its employees to be good. The Company believes there is an adequate pool of
labor available to satisfy its foreseeable hiring needs for its sales,
manufacturing and distribution operations.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to a wide range of
federal, state and local laws and regulations, including those governing the
use, storage and handling, generation, treatment, emission, release, discharge
and disposal of certain materials and hazardous wastes, the remediation of
contaminated soil and groundwater and the health and safety of employees
(collectively, "Environmental Laws"). Since the Company's manufacturing
operations routinely involve the use of certain regulated materials thereby
exposing the Company to the risk of claims with respect to such matters, there
can be no assurance that material liabilities could not be incurred in
connection with any such claims. The Company has taken steps to reduce the
environmental risks associated with its operations and believes that it is
currently in substantial compliance with all Environmental Laws.
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, semiprecious 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.
During fiscal 1998, the Company was engaged in merger discussions with
one of its major competitors; however, on July 18, 1997, both companies jointly
announced that negotiations were terminated due to an inability to agree on the
composition of the Board of Directors for the combined company. The Company
plans to pursue its long term growth strategy, that may include the acquisition
of 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"),
during fiscal 1998 the Company paid rent of approximately $498,000, for the
adjacent buildings housing its manufacturing facilities located at 50, 60 and 70
South MacQuesten Parkway in Mount Vernon, 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. Subject to the Company's option to acquire the properties
located at 60 and 70 South MacQuesten Parkway, Mt. Vernon, discussed in more
detail below, the Company will pay an average annual rent of approximately
$536,000 over the remaining term of the leases for the buildings at 60 and 70
South MacQuesten Parkway, plus real estate taxes and other occupancy costs.
As part of its long-term strategic plan, on May 16, 1997, the Company
acquired one of the buildings housing its manufacturing facilities (the "50
Building") from MRC for a purchase price of $1,150,000. The 50 Building has
approximately 22,000 square feet.
The Special Real Estate Committee of the Board of Directors, comprised
of the Company's independent, outside directors, obtained an appraisal of the 50
Building, and after reviewing the appraisal and negotiation with MRC as to the
terms of purchase, recommended the acquisition to the Company's Board of
Directors. On April 4, 1997,
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the Board of Directors voted unanimously, with Michael and Anthony Paolercio
abstaining, to authorize the acquisition of the 50 Building, subject to (1)
receipt of an updated, satisfactory appraisal and (2) the Company obtaining an
exclusive, two-year option to acquire from MRC the remaining manufacturing
facilities housed in the buildings located at 60 and 70 South MacQuesten
Parkway, Mt. Vernon at an aggregate purchase price of $2,350,000 and on terms
and conditions substantially the same as those agreed to for the purchase of the
50 Building.
In the event the Company exercises its option to acquire the properties
located at 60 and 70 South MacQuesten, the Company may incur additional
long-term indebtedness in order to finance the purchase.
The Company also owns the building housing its sales and administrative
offices located at 115 South MacQuesten Parkway, in Mount Vernon, New York, and
an adjacent parking area. The headquarters building has approximately 71,000
square feet.
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.
On October 29, 1997, a decision was entered in the case of M.L. Logo v.
Michael Anthony Jewelers, New York State Supreme Court, County of New York,
Index No.: 106327/93 (the "Case"), pursuant to which the Company was ordered to
pay M.L. Logo according to the terms of an agreement entered into on May 16,
1986 (the "Agreement"). On April 20, 1998, the Company settled the Case and any
future payments that would have been due M.L. Logo under the Agreement for a
one-time payment of $600,000.
Other legal proceedings to which the Company is a party are routine
litigation incidental to Michael Anthony's business which is not material to the
Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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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 years 1998
and 1997.
FISCAL YEAR ENDED JANUARY 31, 1998 HIGH LOW
- ---------------------------------- ---- ---
First Quarter 3-3/8 2-3/4
Second Quarter 4-1/4 3-1/16
Third Quarter 3-5/8 2-13/16
Fourth Quarter 2-15/16 2
FISCAL YEAR ENDED FEBRUARY 1, 1997 HIGH LOW
- ---------------------------------- ---- ---
First Quarter 3-7/16 2-3/4
Second Quarter 3-5/8 2-3/4
Third Quarter 3-5/8 2-3/4
Fourth Quarter 3-7/16 2-15/16
As of April 10, 1998, there were 224 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," and Note 6 "Long Term Debt" - Notes to the Consolidated Financial
Statement.
In December 1995, the Company announced a Common Stock Repurchase
Program (the "Stock Repurchase Program") pursuant to which the Company may
repurchase up to 750,000 shares of Common Stock. On April 4, 1997, the Board of
Directors authorized an increase of an additional 500,000 shares of Common Stock
that the Company may repurchase under the Stock Repurchase Plan. As of April 10,
1998, the Company had repurchased a total of 1,058,000 shares of Common Stock
under the Stock Repurchase Program for a total of approximately $2,983,000.
-11-
<PAGE> 12
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.
<TABLE>
<CAPTION>
SEVEN YEAR ENDED
YEAR ENDED MONTHS JUNE 30,
------------------------------------------- ENDED ---------------------------
JAN. 31, FEB. 1, JAN. 27, JAN. 28,
1998 1997 1996 1995 1994 1993
-------- ------- -------- -------- ---- ----
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net Sales $129,949 $150,629 $145,257 $93,321 $142,787 $119,615
Cost of goods sold 107,182 124,041 121,195 76,782 114,151 97,509
-------- -------- -------- ------- -------- --------
Gross profit 22,767 26,588 24,062 16,539 28,636 22,106
Selling, general
and administrative
expenses 25,155 21,372 19,455 12,628 17,887 17,148
-------- -------- -------- ------- -------- --------
Operating (loss)/income (2,388) 5,216 4,607 3,911 10,749 4,958
Other(expense)/income:
Interest expense/
gold consignment fee (2,827) (3,155) (3,835) (2,030) (3,157) (3,066)
Other income/
(expense), net 1,002 507 442 117 564 643
-------- -------- -------- ------- -------- --------
(Loss)/income
before income taxes (4,213) 2,568 1,214 1,998 8,156 2,535
Income tax
(benefit)/provision (1,601) 778 486 774 3,176 964
-------- -------- -------- ------- -------- --------
Net (loss)/income $ (2,612) $ 1,790 $ 728 $ 1,224 $ 4,980 $ 1,571
======== ======== ======= ======= ======== ========
(Loss)/earnings
per share - basic $ (0.34) $ 0.22 $ 0.09 $ 0.14 $ 0.63 $ 0.23
======== ======== ======= ======= ======== ========
(Loss)/earnings
per share - diluted $ (0.34) $ 0.22 $ 0.09 $ 0.14 $ 0.62 $ 0.23
======== ======== ======= ======= ======== ========
Weighted average
number of shares -
basic 7,746 8,241 8,475 8,749 7,945 6,916
======== ======== ======= ======= ======== ========
Weighted average
number of shares -
diluted 7,746 8,263 8,479 8,862 8,083 6,916
======== ======== ======= ======= ======== ========
Balance Sheet Data:
Working capital $ 37,260 $ 42,042 $46,136 $42,778 $ 46,250 $ 31,311
Total assets(1) 65,644 72,749 78,646 72,039 69,962 53,707
Long-term debt and
capital lease
liability 12,736 14,294 19,192 13,282 13,210 15,824
Stockholders' equity 43,389 47,042 46,048 46,445 45,608 28,402
</TABLE>
(1) The year ended January 31, 1998, February 1, 1997, January 27, 1996,
the seven months ended January 28, 1995 and the years ending June 30,
1994 and 1993 do not include consigned inventory, which had approximate
value of $33,208,000, $40,282,000, $60,700,000, $72,936,000,
$70,818,000 and $61,796,000, respectively.
-12-
<PAGE> 13
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. During fiscal 1997, the Company changed its fiscal year end from the
last Saturday in January to the Saturday closest to the end of January,
effective with the fiscal year ended February 1, 1997. Fiscal years ended
January 31, 1998, February 1, 1997 and January 26, 1996 were comprised of 52, 53
and 52 weeks, respectively.
As used below, (a) "fiscal 1998" refers to the fiscal year ended
January 31, 1998, (b) "fiscal 1997" refers to the fiscal year ended February 1,
1997, and (c) "fiscal 1996" refers to the fiscal year ended January 27, 1996.
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.
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------
JANUARY 31, FEBRUARY 1, JANUARY 27,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 82.5 82.3 83.4
Selling, general and
administrative expenses 19.3 14.2 13.4
Interest and gold consignment
fee expense 2.2 2.1 2.6
Other income (.8) (.3) (.2)
Income tax (benefit)/provision (1.2) .5 .3
Net (loss)/income (2.0) 1.2 .5
</TABLE>
FISCAL 1998 VS. FISCAL 1997
Net sales for fiscal 1998 were approximately $129,949,000, a decrease of 14%
from net sales of approximately $150,629,000 for the comparable period in fiscal
1997. The decrease in sales was primarily due to the lower average gold price in
fiscal 1998, $335 an ounce versus last year's average of $391 an ounce. Of the
$20,680,000 decrease in sales, $12,827,000 was due to lower gold prices,
$4,653,000 was due to fewer units sold and $3,200,000 due to one less week
compared to the 53 weeks in fiscal 1997.
Gross profit for fiscal 1998 decreased by approximately $3,821,000 from fiscal
1997. As a percentage of net sales, gross profit remained approximately the same
at 17.5% in fiscal 1998 compared to 17.7% in fiscal 1997. In the fourth quarter
of fiscal 1998, management of the Company reassessed its marketing and
production strategy and determined to implement a significantly different
strategy. This is a direct result of the changing order patterns of some of the
Company's major customers. As such, management made the determination to write
down certain inventory, by approximately $3,309,000, that was related to the
implementation of a SKU reduction program and the markdown of discontinued
styles. If it were not for this unusual charge, the Company's gross profit
margin would have been 20.1% for fiscal 1998, primarily due to the lower average
gold price as well as changes in product mix.
Selling, general and administrative expenses for fiscal 1998 were approximately
$25,155,000, an increase of $3,783,000 or 17.7% from approximately $21,372,000
for the comparable period in fiscal 1997. Included in selling, general and
administrative expenses for fiscal 1998 was a charge of approximately $1,191,000
that was due to a write down of certain company assets and other expenses. As a
percentage of net sales, adjusted
-13-
<PAGE> 14
for the gold price difference of $12,827,000 discussed above and excluding the
$1,191,000 charge, selling, general and administrative expenses increased to
16.8% in fiscal 1998, from 14.2% in fiscal 1997. The increase is primarily
attributable to increases in (i) software implementation costs, (ii) payroll and
payroll related expenses, (iii) advertising expenses, and (iv) legal costs
associated with a litigation settlement. See ITEM 3. "LEGAL PROCEEDINGS."
Other income for fiscal 1998, was approximately $705,000, an increase of
$631,000 from approximately $74,000 for the comparable period in fiscal 1997.
The increase was primarily due a gain of $625,000 from the Company's sale of an
asset.
Interest expense and gold consignment fees for fiscal 1998, were approximately
$2,827,000, a decrease of $328,000 or 10% compared to approximately $3,155,000,
for the comparable period in fiscal 1997. The decrease was primarily due to (i)
the Company's lower average level of consigned inventory, (ii) lower average
gold prices and (iii) lower interest expense due to principal payments in
February and May 1997, and January 1998 on the Company's long term debt.
For the year ended January 31, 1998, an income tax benefit of $1,601,000 was
recorded compared to a provision of $778,000 for the prior year. The effective
tax rates for fiscal 1998 and fiscal 1997 were 38% and 30%, respectively. The
lower effective tax rate in fiscal 1997 was due to a reversal in fiscal 1997 of
prior year accruals for taxes.
As a result of the above factors the Company's net loss for fiscal 1998 was
approximately $(2,612,000) compared to net income of $1,790,000 for the
comparable period in fiscal 1997.
FISCAL 1997 VS. FISCAL 1996
Net sales for fiscal 1997 were approximately $150,629,000, an increase of 4%
from net sales of approximately $145,257,000 for the comparable period in fiscal
1996. The increase in net sales resulted primarily from the 53rd week, which
amounted to approximately $3,200,000 and increased shipments to the retail
segment of the Company's customer base, which increase was offset in part by
decreased shipments to the wholesale segment of the Company's customer base.
Gross profit margin increased to approximately 17.7% of net sales for fiscal
1997 compared to approximately 16.6% for the comparable period in fiscal 1996.
The increase in gross margin was attributable to a change in the Company's
product mix and increased sales of the Company's licensed products, which have
higher gross margins.
Selling, general and administrative expenses for fiscal 1997 were approximately
$21,372,000, compared to $19,455,000 for the comparable period in fiscal 1996.
As a percentage of net sales, these expenses increased to 14.2% in fiscal 1997
from 13.4% in fiscal 1996. The increased percentage is primarily attributed to
(i) increased product and packaging supplies, (ii) increased royalty and
licensing expenses, (iii) increased payroll and payroll related expenses and
(iv) the terminated acquisition negotiations with a company. These increases
were offset in part by a decrease in advertising related expenses.
Other expenses-net for fiscal 1997 were approximately $2,648,000, a decrease of
$745,000 or 22% compared to approximately $3,393,000 for the comparable period
in fiscal 1996. Interest expense (including gold consignment fees) was
approximately $3,155,000 a decrease of $680,000, or 18%, from $3,835,000 for the
comparable period in fiscal 1996. This decrease was primarily due to (i) a lower
average level of consignment inventory, (ii) lower consignment rates and (iii)
lower debt levels.
The effective tax rates for fiscal 1997 and fiscal 1996 were 30% and 40%,
respectively. The decrease in the effective tax rate is due to the reversal of
prior year accruals.
As a result of the above factors, the Company's net income for fiscal 1997 was
approximately $1,790,000 compared to $728,000 for the comparable period in
fiscal 1996.
-14-
<PAGE> 15
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 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)
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 fiscal 1995
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.
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 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 $106,695,000. 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 31, 1998,
the Company held 108,900 ounces of gold on consignment with a market value of
$33,208,000.
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 31, 1998, the Company was in compliance with the covenants in
its consignment agreements and the Company's owned gold inventory was valued at
approximately $3,996,000. Management believes that the supply of gold available
through the Company's gold consignment arrangements, in
-15-
<PAGE> 16
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 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 impact the
demand for the Company's products. From July 1, 1995 until January 31, 1998, the
closing price of gold according to the Second London Gold Fix ranged from a low
of $278.70 per ounce to a high of nearly $414.80 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 1992, the Company issued $10,000,000 principal amount of senior
secured notes with various insurance companies, which accrue interest at 8.61%
per annum. In February 1995, the Company issued an additional $6,000,000
principal amount of senior secured notes with various insurance companies, with
interest as of January 31, 1998 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 31, 1998, $11,555,000 of principal remained
outstanding under the notes issued in 1992 and 1995.
In the fourth quarter of fiscal 1998, management of the Company
reassessed its marketing and production strategy and determined to implement a
significantly different strategy. This was a direct result of the changing order
patterns of some of the Company's major customers. As such, management made the
determination to write down certain inventory, by approximately $3,309,000, that
was related to the implementation of a SKU reduction program and the markdown of
discontinued styles. Included in selling, general and administrative expenses
for the year ended January 31, 1998, was a charge of approximately $1,191,000
that was due to the write down of certain Company assets. Due to these unusual
charges in fiscal 1998 totalling $4,500,000, the Company was in default with a
financial covenant under the note agreements and mortgage payable. The Company
obtained waivers of this covenant noncompliance from both the insurance
companies and mortgage lender. In addition, the insurance companies reset the
financial covenant for fiscal 1999. Management expects the Company will be in
compliance with the amended covenant in fiscal 1999.
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 31, 1998, the Company was in compliance with the covenants after
obtaining a waiver as discussed above. As of January 31, 1998, $2,283,000 of
principal remained outstanding under the mortgage.
-16-
<PAGE> 17
The Company has 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 31, 1998, there was no amount
outstanding under the Line of Credit. The Line of Credit has been renewed and
currently expires on July 31, 1998, 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.
During fiscal 1998, cash provided from operating activities was
$4,863,000. This was primarily attributable to a decrease in inventory of
$5,990,000.
Cash of $3,976,000 was utilized for investing purposes during fiscal
1998, primarily for purchases of land, building and leasehold improvements of
$2,266,000 and machinery and equipment of approximately $1,744,000.
During fiscal 1998, cash utilized in financing activities totaled
$4,570,000. This was primarily attributed to payments of long term debt of
$3,514,000 and the purchase of treasury stock of $1,056,000.
As part of its long-term strategic planning, the Company may expand its
manufacturing and distribution facilities and acquire certain properties it is
currently leasing from MRC (the "Leased Properties"). If the Company acquires
such properties, the Company may incur or assume additional long-term
indebtedness in order to finance their purchase.
For fiscal 1999, the Company projects capital expenditures of
approximately $1,800,000, which includes machinery and equipment expenses and
certain improvements on its leased and owned 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 1999, 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.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
programs that have date sensitive software may recognize a date of 00 as the
year 1900 rather than 2000. This could result in a system failure or
miscalculations causing disruptions of operation, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
The Company has developed a plan to address the Year 2000 issue. The
Company anticipates maintaining its hardware platform but replacing or upgrading
all affected software. Management expects that the Company will be fully Year
2000 compliant on or before June 1, 1999. The cost of the Year 2000 project is
not expected to have a material adverse affect on the Company's results of
operations.
-17-
<PAGE> 18
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. These forward-looking statements include the words "believe," "expect,"
"plans" or similar words and are based in part on the Company's reasonable
expectations and are subject to a number of factors and risks, many of which are
beyond the Company's control. Actual results could differ materially from those
discussed under "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", as a result of any of the
following factors:
(i) general economic conditions and their impact on the retail
sales environment;
(ii) fluctuations in the price of gold and other metals used to
manufacture the Company's jewelry;
(iii) risks related to the concentration of the Company's customers,
particularly the operations of any of its top customers;
(iv) increased competition from outside the United States where
labor costs are substantially lower;
(v) variability of customer requirements and the nature of
customers' commitments on projections and orders; and
(vi) the extent to which the Company is able to retain and attract
key personnel.
In light of these uncertainties and risks, there can be no assurance that the
forward-looking statements in this Annual Report on Form 10-K will occur or
continue in the future. Except for its required, periodic filings under the
Securities Exchange Act of 1934, the Company undertakes no obligations to
release publicly any revisions to these forward looking statements that may
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
NEW ACCOUNTING STANDARDS
During fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share", ("SFAS 128"), which requires
presentation of basic earnings per share which includes no dilution. Earnings
per share for all periods presented were computed on a basic basis using the
weighted average number of common shares outstanding. Options and warrants
outstanding were not materially dilutive.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of
an Enterprise and Related Information, which will be effective for financial
statements beginning after December 15, 1997. SFAS No. 131 redefines how
operating segments are determined and requires expanded quantitative and
qualitative disclosures relating to a company's operating statements. The
Company anticipates that the adoption of SFAS No. 131 will not have a material
impact on current disclosures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 and pages F1 through F25 and S1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-18-
<PAGE> 19
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 1998 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 1998 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 1998 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 1998 Annual Meeting of Stockholders is
incorporated herein by reference. See also ITEM 2. "PROPERTIES".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8K.
(a) The following documents are filed as a part of this Report:
PAGE
----
(1) Financial Statements:
Independent Auditors' Report F1
Consolidated Balance Sheets F2
Consolidated Statements of Operations F3
Consolidated Statements of Changes in Stockholders'
Equity F4
Consolidated Statements of Cash Flows F5
Notes to Consolidated Financial Statements F7
(2) Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts S1
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 1998 Annual Report to Stockholders.
(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
----------- ----------- --------
<S> <C> <C>
3.1 Certificate of Incorporation of Incorporated by reference to
Registrant, as amended Exhibit 3.1 to Amendment No. 2 to
the Company's Registration
Statement on Form S3 (File No.
3371308) (the "1993 Registration
Statement")
</TABLE>
-19-
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C> <C>
3.1.1 Certificate of Merger of Incorporated by reference to
Michael Anthony Jewelers,Inc. Exhibit 3.1.1 of the Company's
(New York) and Michael Anthony Annual Report on Form
Jewelers, Inc.(Delaware) 10K for the fiscal year
ended June 30, 1993
(the "1993 Form 10-K")
3.2 Amended and Restated ByLaws of Incorporated by reference to
Registrant Exhibit 3.2 to the Company's
Quarterly Report on Form 10Q 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 S1
(File No. 338289) (the "1986
Registration Statement")
4.2 Form of Common Stock Purchase Incorporated by reference to
Warrant Certificate Exhibit 3.4 to the 1986
Registration Statement
10.1 Consignment Agreement dated as of Incorporated by reference to
August 20, 1993 between the Exhibit 10.40 of the 1993 Form 10-K
Registrant and Fleet Precious
Metals Inc.
10.2 Security Agreement dated as of Incorporated by reference to
August 20, 1993 among the Exhibit 10.39 of the 1993 Form 10-K
Registrant and Fleet Precious
Metals Inc.
10.3 Amended and Restated Consignment Incorporated by reference to
Agreement dated as of August 20, Exhibit 10.41 of the 1993 Form 10-K
1993 between the Registrant and
Rhode Island Hospital Trust
National Bank
10.4 Amended and Restated Consignment Incorporated by reference to
Agreement dated as of August 20, Exhibit 10.44 to the 1993 Form 10-K
1993 between the Registrant and
ABN AMRO Bank N.V., New York
Branch
10.5 Amended and Restated Security Incorporated by reference to
Agreement dated as of August 20, Exhibit 10.46 to the 1993 Form 10-K
1993 between the Registrant and
Rhode Island Hospital Trust
National Bank ("RIHT")
10.6 Amended and Restated Intercreditor Incorporated by reference to
Agreement dated as of August 20, Exhibit 10.47 to the 1993 Form 10-K
1993, among the Registrant, its
gold lenders, the holders of the
Registrant's Senior Notes due 1998
and the holders of the
Registrant's 2002 Notes
10.7 First Amendment to 1993 Long-term Incorporated by reference to
Incentive Plan of the Registrant Exhibit 10.48 to the 1993 Form 10-K
dated as of September 21, 1993
</TABLE>
-20-
<PAGE> 21
<TABLE>
<CAPTION>
<S> <C> <C>
10.8 Second Amendment to Assignment of Incorporated by reference to
Trademarks and Service Marks as Exhibit 10.49 to the 1993 Form 10-K
Collateral dated as of July
12, 1990 between the Registrant and
RIHT, individually and as agent
10.9 Consignment Agreement dated as of Incorporated by reference to
January 31, 1994 (effective as of Exhibit 10.46 to the Company's
May 16, 1994 between the Annual report on Form 10K for the
Registrant and Credit Suisse, New fiscal year ended June 30, 1994
York Branch (the "1994 Form 10-K")
10.10 First Amendment to Amended and Incorporated by reference to
Restated Security Agreement dated Exhibit 10.47 to the 1994 Form 10-K
as of May 16, 1994 among the
Registrant, RIHT, individually and
as agent
10.11 Second Amendment to Amended and Incorporated by reference to
Restated Intercreditor Agreement Exhibit 10.48 to the 1994 Form 10-K
dated as of May 16, 1994 among the
Registrant, its gold lenders, the
holders of the Registrant's Senior
Notes due 1998 and the holders of
the Registrant's 2002 Notes
10.12 Third Amendment to Assignment of Incorporated by reference to
Trademarks and Service Marks as Exhibit 10.49 to the 1994 Form 10-K
Collateral dated as of May 16,
1994 between the Registrant and
RIHT individually and as agent
10.13 Second Amendment to Amended and Incorporated by reference to
Restated Security Agreement dated Exhibit 10.53 to the 1994 Form 10-K
as of September 1, 1994 among the
Registrant, RIHT, individually and
as agent
10.14 Third Amendment to Amended and Incorporated by reference to
Restated Intercreditor Agreement Exhibit 10.54 to the 1994 Form 10-K
dated as of September 1, 1994
among the Registrant, its gold
lenders, the holders of the
Registrant's Senior Notes due
1998, the holders of the
Registrant's 2002 Notes and
Chemical Bank
10.15 Fourth Amendment to Assignment of Incorporated by reference to
Trademarks and Service Marks as Exhibit 10.55 to the 1994 Form 10-K
collateral dated as of September
1, 1994 between the Registrant and
RIHT, individually and as agent
10.16 Third Amendment to Amended and Incorporated by reference to
Restated Consignment Agreement Exhibit 10.56 to the 1994 Form 10-K
dated as of September 1, 1994
between the Registrant and RIHT
</TABLE>
-21-
<PAGE> 22
<TABLE>
<CAPTION>
<S> <C> <C>
10.17 Fourth Amendment to Amended and Incorporated by reference to
Restated Consignment Agreement Exhibit 10.51 to the Company's
dated as of November 22, 1994 Transition Report on Form 10-K for
between the Registrant and RIHT the transition period ended
January 28, 1995 (the "1995 Form
10-K")
10.18 Contract of Sale dated as of Incorporated by reference to
November 28, 1994 between Michael Exhibit 10.52 to the 1995 Form 10-K
Anthony Company and the Registrant
10.19 Note Purchase Agreement dated as Incorporated by reference to
of February 15, 1995, among the Exhibit 10.53 to the 1995 Form 10-K
Registrant and the holders of the
Registrant's Senior Notes due 2004
(the "2004 Notes")
10.20 Security Agreement, dated as of Incorporated by reference to
February 15, 1995, among the Exhibit 10.54 to the 1995 Form 10-K
Registrant and the holders of the
2004 Notes
10.21 $5,000,000 Senior Note due 2004 of Incorporated by reference to
the Registrant in favor of Exhibit 10.55 to the 1995 Form 10-K
Northern Life Insurance Company
10.22 $1,000,000 Senior Note due 2004 of Incorporated by reference to
the Registrant in favor of Exhibit 10.56 to the 1995 Form 10-K
Northwestern National Life
Insurance Company
10.23 Third Amendment to Amended and Incorporated by reference to
Restated Security Agreement dated Exhibit 10.57 to the 1995 Form 10-K
as of February 15, 1995 among the
Registrant and its gold lenders
10.24 Fourth Amendment to Amended and Incorporated by reference to
Restated Intercreditor Agreement Exhibit 10.58 to the 1995 Form 10-K
dated as of February 15, 1995
among the Registrant, its gold
lenders, 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
10.25 Fifth Amendment to Amended and Incorporated by reference to
Restated Consignment Agreement Exhibit 10.59 to the 1995 Form 10-K
dated as of February 15, 1995
between the Registrant and RIHT
10.26 Amended Security Agreement dated Incorporated by reference to
as of March 29, 1995 between the Exhibit 10.61 to the 1995 Form 10-K
Registrant and Chemical Bank
10.27 Loan Agreement dated October 6, Incorporated by reference to
1995 between First Fidelity Bank, Exhibit 10.1 to the Company's
National Association ("First Quarterly Report on Form 10Q for
Fidelity") and Registrant the quarter ended October 28, 1995
(the "October 1995 Form 10-Q")
</TABLE>
-22-
<PAGE> 23
<TABLE>
<CAPTION>
<S> <C> <C>
10.28 Mortgage Note in principal amount Incorporated by reference to
of $2,500,000 dated October 6, Exhibit 10.2 to the October 1995
1995 issued by Registrant in favor Form 10-Q
of First Fidelity
10.29 Mortgage and Security Agreement Incorporated by reference to
dated October 6, 1995 by Registrant Exhibit 10.3 to the October 1995
for the benefit of First Fidelity Form 10-Q
10.30 Fourth Amendment to Amended and Incorporated by reference to
Restated Security Agreement dated Exhibit 10.5 to the October 1995
October 20, 1995 among Registrant Form 10-Q
and Registrant's gold lenders.
10.31 Fifth Amendment to Amended and Incorporated by reference to
Restated Security Agreement dated Exhibit 10.6 to the October 1995
October 20, 1995 among Registrant Form 10-Q
and Registrant's gold lenders.
10.32 Fifth Amendment to Assignment of Incorporated by reference to
Trademarks and Service Marks dated Exhibit 10.7 to the October 1995
October 20, 1995 among Registrant Form 10-Q
and Registrant's gold lenders
10.33 Seventh Amendment to Amended and Incorporated by reference to
Restated Consignment Agreement Exhibit 10.8 to the October 1995
dated October 20, 1995 between Form 10-Q
Registrant and Rhode Island
Hospital Trust National Bank
10.34 Assignment of Trademarks and Incorporated by reference to
Service Marks as Collateral, dated Exhibit 10.56 to the Company's
July 12, 1990, between Registrant Annual Report on Form 10-K for the
and Rhode Island Hospital Trust fiscal year ended January 27, 1996
National Bank, individually and as (the "1996 Form 10-K")
agent
10.35 First Amendment to Assignment of Incorporated by reference to
Trademarks and Service Marks as Exhibit 10.57 to the 1996 Form 10-K
Collateral dated as of June
5, 1992, between Registrant and
Rhode Island Hospital Trust
National Bank, individually and as
agent
10.36 Deferred Compensation Plan dated Incorporated by reference to
as of March 4, 1996 Exhibit 10.59 to the 1996 Form 10-K
10.37 Letter Agreement dated July 23, Incorporated by reference to
1996 among the Company and certain Exhibit 10.3 to the Company's
of the Senior Note Holders Quarterly Report on Form 10-Q for
the quarter ended July 27, 1996
(the "July 1996 Form 10-Q")
10.38 Letter Agreement dated July 23, Incorporated by reference to
1996 among the Company and certain Exhibit 10.4 to the July 1996 Form
of the Senior Note Holders 10-Q
</TABLE>
-23-
<PAGE> 24
<TABLE>
<CAPTION>
<S> <C> <C>
10.39 Amendment to the 1993 Long Term Incorporated by reference to
Incentive Plan Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q
for the quarter ended October
26, 1996 (the "October 1996
Form 10-Q")
10.40 Amendment to the NonEmployees Incorporated by reference to
Directors' Plan Exhibit 10.2 to the Company's
October 1996 Form 10-Q
10.41 Lease dated as of May 1, 1991 Incorporated by reference to
between Michael Anthony Company Exhibit 10.60 to the Company's
d/b/a MacQuesten Realty Company Annual Report on Form 10-K for the
and Registrant year ended February 1, 1997 (the
"1997 Form 10-K")
10.42 Lease dated as of May 1, 1991 Incorporated by reference to
between Michael Anthony Company Exhibit 10.61 to the 1997 Form-10-K
d/b/a MacQuesten Realty Company
and Registrant
10.43 Contract of Sale dated May 16, Incorporated by reference to
1997 between Registrant and Exhibit 10 to the Company's
MacQuesten Realty Company Quarterly Report on Form 10-Q for
the quarter ended May 3, 1997
10.44 Promissory Note dated August 22, Incorporated by reference to
1997 issued by Registrant to the Exhibit 10 to the Company's
Chase Manhattan Bank Quarterly Report on Form 10-Q for
the quarter ended August 2, 1997
10.45 Severance and Termination Incorporated by reference to
Agreement dated October 22, 1997 Exhibit 10 to the Company's
between Registrant and Mark Hanna Quarterly Report on Form 10-Q for
the quarter ended November 1, 1997
10.46 Note Purchase Agreement, dated as Filed as an Exhibit to this Form
of May 1, 1992, among the 10-K on page 54
Registrant and the holders of the
Registrant's Senior Notes due 2002
(the "2002 Notes")
10.47 Security Agreement, dated as of Filed as an Exhibit to this Form
June 5, 1992, among the Registrant 10-K on page 78
and the holders of the 2002 Notes
10.48 $3,500,000 Senior Note due 2002 of Filed as an Exhibit to this Form
the Registrant in favor of 10-K on page 88
Northern Life Insurance Company
10.49 $3,000,000 Senior Note due 2002 of Filed as an Exhibit to this Form
the Registrant in favor of Royal 10-K on page 90
Maccabees Life Insurance Company
</TABLE>
-24-
<PAGE> 25
<TABLE>
<CAPTION>
<S> <C> <C>
10.50 $1,000,000 Senior Note due 2002 of Filed as an Exhibit to this Form
the Registrant in favor of The 10-K on page 92
North Atlantic Life Insurance
Company of America
10.51 $1,000,000 Senior Note due 2002 of Filed as an Exhibit to this Form
the Registrant in favor of Farm 10-K on page 94
Bureau Life Insurance Company of
Michigan
10.52 $1,000,000 Senior Note due 2002 of Filed as an Exhibit to this Form
the Registrant in favor of FB 10-K on page 96
Annuity Company
10.53 $500,000 Senior Note due 2002 of Filed as an Exhibit to this Form
the Registrant in favor of Farm 10-K on page 98
Bureau Mutual Insurance Company of
Michigan
10.54 1993 Long-term Incentive Plan of Filed as an Exhibit to this Form
the Registrant 10-K on page 100
10.55 1993 NonEmployee Directors' Stock Filed as an Exhibit to this Form
Option Plan of the Registrant 10-K on page 129
10.56 Letter agreement, dated April 14, Filed as an Exhibit to this Form
1998, among the Registrant and 10-K on page 145
holders of the 2002 Notes
10.57 Letter agreement, dated April 14, Filed as an Exhibit to this Form
1998, among the Registrant and 10-K on page 147
holders of the 2004 Notes
21 Subsidiaries of the Registrant Filed as an Exhibit to this Form
10-K on page 149
27 Financial Data Schedule Filed as an Exhibit to this Form
10-K on page 150
</TABLE>
REPORT ON FORM 8K
(b) Not applicable
-25-
<PAGE> 26
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 31, 1998 and February 1, 1997 and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended January
31, 1998. 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 31, 1998 and February 1, 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 1998, 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.
/s/DELOITTE & TOUCHE LLP
April 20, 1998
Parsippany, New Jersey
F-1
<PAGE> 27
MICHAEL ANTHONY JEWELERS, INC
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
January 31, February 1,
ASSETS 1998 1997
- ------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $6,747 $10,430
Accounts receivable:
Trade (less allowances of $1,196 and $1,404, respectively) 22,234 21,500
Other 40 91
Inventories 12,913 18,903
Income tax refundable 1,667 -
Prepaid expenses and other current assets 1,640 885
Deferred taxes 720 578
------- -------
Total current assets 45,961 52,387
PROPERTY, PLANT AND EQUIPMENT - net 18,045 18,621
INTANGIBLES - net 584 916
OTHER ASSETS 1,054 825
------- -------
$65,644 $72,749
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable - trade $ 2,870 $ 3,141
Current portion of long-term debt
and lease liability 1,446 3,402
Accrued expenses 4,385 3,802
------- -------
Total current liabilities 8,701 10,345
------- -------
LONG-TERM DEBT 12,617 13,946
------- -------
CAPITAL LEASE LIABILITY 119 348
------- -------
DEFERRED TAXES 818 1,068
------- -------
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; 8,282,000 and
8,279,000 shares issued and outstanding as of
January 31, 1998, and February 1, 1997, respectively 8 8
Additional paid-in capital 31,747 31,732
Retained earnings 13,484 16,096
Treasury stock, 578,000 and 250,000 shares as of
January 31, 1998 and February 1, 1997,
respectively (1,850) (794)
------- -------
Total stockholders' equity 43,389 47,042
------- -------
$65,644 $72,749
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 28
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------
January 31, February 1, January 27,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $129,949 $150,629 $145,257
COST OF GOODS SOLD 107,182 124,041 121,195
-------- -------- --------
GROSS PROFIT ON SALES 22,767 26,588 24,062
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 25,155 21,372 19,455
-------- -------- --------
OPERATING (LOSS)/INCOME (2,388) 5,216 4,607
-------- -------- --------
OTHER INCOME (EXPENSES):
Gold consignment fee (1,305) (1,457) (2,006)
Interest expense (1,522) (1,698) (1,829)
Interest income 297 433 359
Other income 705 74 83
-------- -------- --------
Total other income (expenses) (1,825) (2,648) (3,393)
-------- -------- --------
(LOSS)/INCOME BEFORE INCOME TAXES (4,213) 2,568 1,214
INCOME TAX (BENEFIT)/PROVISION (1,601) 778 486
-------- -------- --------
NET (LOSS)/INCOME $ (2,612) $ 1,790 $ 728
========= ======== ========
(LOSS)/EARNINGS PER SHARE - BASIC
AND DILUTED $ (.34) $ .22 $ .09
========= ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES 7,746 8,241 8,475
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 29
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
-------------------- Paid-In Retained ------------------
Shares Dollars Capital Earnings Shares Dollars Total
------ ------- ------- -------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 28, 1995 9,239 $ 9 $35,170 $13,578 (578) $(2,312) $46,455
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
Purchase of treasury stock - - - - (250) (811) (811)
Retirement of treasury stock (965) (1) (3,453) - 965 3,454 -
Issuance of stock 5 - 15 - - - 15
Net income - - - 1,790 - - 1,790
----- ------- ------- ------- ---- ------- -------
Balance - February 1, 1997 8,279 $ 8 $31,732 $16,096 (250) $ (794) $47,042
Purchase of treasury stock - - - - (328) (1,056) (1,056)
Issuance of stock 3 - 15 - - - 15
Net loss - - - (2,612) - - (2,612)
----- ------- ------- ------- ---- ------- -------
Balance - January 31, 1998 8,282 $ 8 $31,747 $13,484 (578) $(1,850) $43,389
===== ======= ======= ======= ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 30
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
January 31, February 1, January 27,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income $(2,612) $1,790 $ 728
Adjustments to reconcile net (loss)/income to net cash
provided by operating activities:
Depreciation and amortization 4,761 3,749 4,009
Provision for accounts receivable 284 170 247
Provision for sales returns - 261 200
Deferred tax (benefit)/provision (392) 307 (160)
(Gain)/loss on disposal of property, plant
and equipment (2) 19 48
Provision for stock compensation 15 15 -
(Increase)/decrease in operating assets:
Accounts receivable (761) 8,087 (3,735)
Inventories 5,990 795 452
Prepaid expenses and other current assets (2,422) 284 (593)
Other assets (310) (164) (833)
Increase/(decrease) in operating liabilities:
Accounts payable (271) (1,434) (414)
Accrued expenses 583 (719) 872
------ ------ -----
Net cash provided by operating activities 4,863 13,160 821
------ ------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (4,010) (3,816) (4,616)
Proceeds from sale of equipment 34 - -
------ ------ -----
Net cash used in investing activities (3,976) (3,816) (4,616)
------ ------ -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt
and capital lease liabilities (3,514) (4,776) (2,722)
Proceeds from line of credit 15,700 6,600 9,400
Payments to line of credit (15,700) (6,600) (9,400)
Purchase of treasury stock (1,056) (811) (1,125)
Proceeds from mortgage - - 2,500
Borrowings of long-term debt - - 6,000
------ ------ -----
Net cash (used in)/provided by financing activities (4,570) (5,587) 4,653
------ ------ -----
NET (DECREASE)/INCREASE IN CASH (3,683) 3,757 858
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 10,430 6,673 5,815
------ ------ -----
CASH AND EQUIVALENTS AT END OF PERIOD $6,747 $10,430 $6,673
====== ======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 31
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
January 31, February 1, January 27,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES:
Liability incurred for acquisition of
equipment $ - $ - $ 200
Capital lease obligations $ - $ 8 $ 524
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest and gold consignment fees $2,858 $3,451 $3,701
Income taxes $ 95 $ 425 $ 475
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 32
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Michael Anthony Jewelers, Inc. ("the Company"), is a leading designer,
marketer and manufacturer of affordable fine jewelry whose customers
include jewelry chain stores, discount stores, department stores,
television home shopping networks, catalogue retailers, and wholesalers.
Basis of Consolidation and Presentation
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.
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.
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 buildings. Leasehold improvements are amortized over
the lesser of the estimated life of the asset or the lease.
F-7
<PAGE> 33
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Intangibles
Intangible assets (net of accumulated amortization of $1,416,000 and
$1,209,000 as of January 31, 1998 and February 1, 1997, 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 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. Costs capitalized are amortized over the
units of catalogs shipped, up to a maximum of two years. At January 31,
1998, February 1, 1997 and January 27, 1996, in connection with three
significant catalog revisions, approximately $210,000, $124,000 and
$250,000 respectively, had been capitalized. Included in the statement
of operations for the years ended January 31, 1998, February 1, 1997 and
January 27, 1996, is amortization expense of $229,000, $230,000 and
$82,000, respectively.
F-8
<PAGE> 34
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Cash Equivalents
Highly liquid investments with maturities of three months or less at the
date of acquisition are classified as cash equivalents.
Financial Instruments
The Company utilizes 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. The Company hedges its future
contracts for gold against anticipated sales commitments with its
customers. Gains or losses on the future contracts are deferred until
settlement of the related anticipated sales to a customer. At January
31, 1998, there were forward contracts outstanding for the delivery of
an aggregate of 5,000 ounces of gold at an average price of $302 or
approximately $1.5 million. 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 considered to be
significant.
Earnings Per Share
During fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share", ("SFAS 128"), which
requires presentation of basic and diluted earnings per share ("EPS") on
the face of the consolidated statements of operations and requires a
reconciliation of the numerators and denominators of the basic and
diluted EPS calculations. Basic EPS is computed by dividing net income
by the weighted average shares outstanding for the period. Earnings per
share for all periods presented were computed on a basic basis using the
weighted average number of common shares outstanding. Diluted EPS
reflects the potential dilution that could occur if options to issue
common stock were exercised and converted to common stock. Options and
warrants outstanding were not materially dilutive. Earnings per share
for prior periods have been computed in accordance with SFAS 128.
F-9
<PAGE> 35
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
New Accounting Standard
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, which will be
effective for fiscal years beginning after December 15, 1997. SFAS No.
131 redefines how operating segments are determined and requires
expanded quantitative and qualitative disclosures relating to a
company's operating segments. The Company anticipates that the adoption
of SFAS No. 131 will not have a material impact on current disclosures.
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.
Fiscal Year End
The Company's fiscal year end is the Saturday closest to the end of
January, effective with the fiscal year ended February 1, 1997. The
financial statements for the fiscal years ended January 31, 1998,
February 1, 1997 and January 27, 1996 were comprised of 52, 53 and 52
weeks, respectively.
Reclassifications
Certain reclassifications were made to the prior year's financial
statements to confirm to the current presentation.
F-10
<PAGE> 36
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
------------------------------------------------------------------------------
2. INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of: January 31, February 1,
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Finished goods $27,691 $37,020
Work in process 13,335 14,597
Raw materials 5,095 7,568
------- -------
46,121 59,185
Less:
Consigned gold 33,208 40,282
------- -------
$12,913 $18,903
======= =======
</TABLE>
At January 31, 1998 and February 1, 1997, inventories excluded
approximately 108,900 and 116,950 ounces of gold on consignment,
respectively.
In the fourth quarter of fiscal 1998, management of the Company
reassessed its marketing and production strategy and determined to
implement a significantly different strategy. This was a direct result
of the changing order patterns of some of the Company's major customers.
As such, management made the determination to write down certain
inventory, by approximately $3,309,000, as part of the implementation of
a SKU reduction program and the markdown of discontinued styles.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Machinery and equipment $32,437 $30,257
Leasehold improvements 2,492 2,318
Building and building improvements 6,331 5,156
Land 1,508 1,070
------- -------
42,768 38,801
Less: Accumulated depreciation
and amortization 24,723 20,180
------- -------
$18,045 $18,621
======= =======
</TABLE>
Included in selling, general and administrative expenses for the year
ended January 31, 1998, was a charge of approximately $441,000 that was
due to the write down of certain long-lived assets.
F-11
<PAGE> 37
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
------------------------------------------------------------------------------
4. GOLD CONSIGNMENT AGREEMENTS
The Company has gold consignment agreements with 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 $106,695,000. 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 31, 1998, the
Company was in compliance with these covenants and the Company's owned
gold inventory was valued at approximately $3,996,000.
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Accrued advertising $1,177 $1,493
Accrued legal expense 600 -
Accrued payroll expenses 497 515
Accrued interest 317 347
Customer deposits payable 154 130
Other accrued expenses 1,640 1,317
------ ------
$4,385 $3,802
====== ======
</TABLE>
F-12
<PAGE> 38
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Notes payable - insurance companies, interest at 8.61% payable
semi-annually, principal payable in annual installments of $1,111,000
through May 15, 2002. $5,555 $6,667
Notes payable - insurance companies, interest at 1.5% above the London
Interbank Offered Rate (LIBOR), adjusted and payable quarterly (7.38%
as of January 31, 1998), principal payable in annual installments of
$1,000,000 commencing May 1999 through May 15, 2004, interest increases
to 2.5% above LIBOR effective May 15, 1998. 6,000 6,000
Mortgage payable - interest at 8%, interest and principal of $24,000
payable monthly over a ten-year term through October 2005. 2,283 2,384
Notes payable - insurance companies, interest at 10.5%, paid in full
at January 31, 1998. - 1,750
Other - 100
------- -------
13,838 16,901
Less: current portion 1,221 2,955
------- -------
$12,617 $13,946
======= =======
</TABLE>
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
$4,778,000 at January 31, 1998, and certain equipment therein.
The note purchase agreements contain restrictive financial covenants and
limit the payment of dividends. Although the Company does not expect to
pay dividends in the near future, approximately $1,914,000 would have
been available for payment at January 31, 1998. Additionally, the
mortgage agreement contains certain restrictive financial covenants.
F-13
<PAGE> 39
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
6. LONG-TERM DEBT (Continued)
Due to the unusual charges (see Notes 2 and 3) in fiscal 1998 of
approximately $3,750,000 and asset write-offs and other accruals of
approximately $750,000, the Company was in default with a financial
covenant under the note agreements and mortgage payable. The Company
obtained waivers of this covenant noncompliance from both the insurance
companies and mortgage lender. In addition, the insurance companies
reset the financial covenant for fiscal 1999. Management expects the
Company will be in compliance with the amended covenant in fiscal 1999.
Maturities of long-term debt as of January 31, 1998 are as follows (in
thousands):
Year Ending January
-------------------
1999 $1,221
2000 2,230
2001 2,240
2002 2,251
2003 2,262
Thereafter 3,634
-------
$13,838
=======
7. LINE OF CREDIT
At January 31, 1998, 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 Company's
option of the bank's prime rate, the fixed rate loan (as defined in the
agreement) or the adjusted Eurodollar rate plus 2.5%. The line of credit
expires on July 31, 1998 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.
F-14
<PAGE> 40
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial
instruments are as follow:
<TABLE>
<CAPTION>
January 31, 1998 February 1, 1997
---------------------- -------------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C>
Notes with insurance companies:
10.5% notes payable $ - $ - $1,750 $1,760
8.61% notes payable $5,556 $5,725 $6,667 $6,814
1995 notes payable $6,000 $6,000 $6,000 $6,000
Mortgage payable $2,283 $2,283 $2,384 $2,384
Promissory notes $ - $ - $ 100 $ 100
</TABLE>
The fair values of the 10.5% and 8.61% notes payable and the mortgage
payable were based on current rates available to the Company for debt
with similar remaining maturities. The fair value of the 1995 notes
payable was assumed to reasonably approximate its carrying amount since
it contains a variable interest rate.
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 gold inventory approximates
fair value.
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carry amounts of assets and liabilities for
financial purposes and for income tax purposes.
As of January 31 1998, the balance sheet includes refundable income
taxes of $1,667,000 which management anticipates receiving. The Company
plans, for federal tax purposes, to carry back the net operating loss
generated during the year ended January 31, 1998.
F-15
<PAGE> 41
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
9. INCOME TAXES (Continued)
Income tax (benefit)/provision consists of the following:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
January 31, February 1, January 27,
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $(1,080) $398 $565
State and local (129) 73 81
------- ---- ----
(1,209) 471 646
Deferred income tax (392) 307 (160)
------- ---- ----
Total $(1,601) $778 $486
======= ==== ====
</TABLE>
The following is a reconciliation of the federal statutory rate to the
effective tax rate:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
January 31, February 1, January 27,
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Statutory tax rate 34.0% 34.0% 34.0%
State and local taxes/(benefit),
net of federal benefit 4.0 3.0 5.0
Reversal of prior year accruals - (7.3) -
Other - .6 1.0
---- ---- ---
Statutory tax/(benefit) rate 38.0% 30.3% 40.0%
==== ==== ====
</TABLE>
F-16
<PAGE> 42
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
9. INCOME TAXES (Continued)
The tax effects of significant items comprising the Company's deferred
tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
----------- -----------
<S> <C> <C>
Non-current deferred tax liabilities:
Difference between book and tax
depreciation methods $818 $1,068
---- ------
Current deferred tax assets:
Reserves for sales returns and
doubtful accounts 454 520
Inventory reserve 150 50
Other 116 8
---- ------
720 578
---- ------
Net deferred tax liabilities $ 98 $ 490
==== ======
</TABLE>
10. OTHER INCOME
Other income for the year ended January 31, 1998, includes a gain of
approximately $625,000 on the sale of an asset.
11. 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 distribution facilities from MRC
for a period of ten years, at an average annual rental of $536,000, plus
real estate taxes and other occupancy costs.
The Company had another lease agreement with MRC to rent a manufacturing
facility from MRC. On May 16, 1997, the Company acquired the facility
for a purchase price of $1,150,000. As part of the transaction, the
Company obtained an exclusive, two-year option to acquire from MRC the
two remaining manufacturing and distribution facilities that are
currently being leased from MRC (the "Leased Properties").
F-17
<PAGE> 43
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
12. LEASES AND COMMITMENTS
(a) Leases
The Company conducts certain operations from leased manufacturing and
distribution facilities. In addition to rent, the Company pays property
taxes, insurance and certain 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 31, 1998:
Year Ending Capital Operating
January Leases Leases
------- ------ ------
(in thousands)
1999 $241 $504
2000 111 531
2001 8 540
2002 - 135
---- ----
Minimum lease payments: 360 $1,710
======
Less: Interest 19
----
Present value of net
minimum lease payments 341
Less: current portion 222
----
$119
====
The majority of the payments set forth above for operating leases are to
MacQuesten Realty Company.
F-18
<PAGE> 44
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
12. LEASES AND COMMITMENTS (Continued)
The interest rates applicable to the capital leases range from 4.84% -
8.18%. Included in property plant and equipment as of January 31, 1998,
are capitalized assets with a carrying value of $696,000. Total
capitalized lease amortization expense was $242,000, $353,000 and
$256,000 for the years ended January 31, 1998, February 1, 1997 and
January 27, 1996.
Rent expense related to the MRC leases, for the years ended January 31,
1998, February 1, 1997 and January 27, 1996, amounted to $498,000,
$624,000 and $563,000, respectively, principally for manufacturing and
distribution facilities.
(b) 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.
As of January 31, 1998, the future guaranteed royalty commitments are as
follows:
Guaranteed
Year Ending Royalty
January Commitments
------- -----------
(in thousands)
1999 $239
2000 45
----
$284
13. STOCK PLANS
The Company has elected to continue to account for employees stock-based
transactions under Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees". Since the exercise price of all stock
options granted under the stock plans were equal to the price of the
stock at the date of grant, no compensation has been recognized by the
Company.
F-19
<PAGE> 45
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
13. STOCK PLANS (Continued)
Under the Company's stock option agreements, had the compensation
expense been determined based upon the fair value at the grant date
consistent with the methodology prescribed under SFAS No. 123,
"Accounting for Stock Based Compensation," the Company's pro forma, net
(loss)/income and (loss)/earnings per share would have been net
(loss)/income of $(2,691,000), $1,712,000 and $692,000, and $(.35), $.21
and $.08, (loss)/earnings per share for the years ended January 31,
1998, February 1, 1997 and January 27, 1996, respectively. The weighted
average per share fair value of the option granted during the year ended
January 31, 1998 was estimated at $.74 on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
January 31,
1998
-----------
Expected life (years) 2
Risk-free interest rates 5.6%
Expected volatility 36.9%
Expected dividend yield -
The pro forma effect on net loss and loss per share for the year ended
January 31, 1998 may not be representative of the pro forma effect in
future years because it includes compensation cost on a straight line
basis over the vesting periods of the grants and does not take into
consideration the pro forma compensation costs for grants made prior to
1996.
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 31, 1998, all shares reserved under the plan had been
granted.
F-20
<PAGE> 46
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
- --------------------------------------------------------------------------------
13. STOCK PLANS (Continued)
The changes in the number of shares under option, the weighted average
option price per share and the exercisable price per share are as
follows:
1986 Incentive Stock Option Plan
<TABLE>
<CAPTION>
Weighted
Average Exercise
Shares Option Price Price
------ ------------ -----
<S> <C> <C> <C>
Outstanding and exercisable, January 28, 1995 91,500 $3.74 $3.50 - $4.00
Lapsed (37,000) $3.91 $3.50 - $4.00
-------
Outstanding and exercisable, January 27, 1996 54,500 $3.63 $3.63
Lapsed (1,000) $3.63 $3.63
-------
Outstanding and exercisable, February 1, 1997 53,500 $3.63 $3.63
Lapsed (53,500) $3.63 $3.63
-------
Outstanding and exercisable, January 31, 1998 - $ - $ -
=======
</TABLE>
(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 2,000,000 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
<TABLE>
<CAPTION>
Weighted
Average Exercise
Shares Option Price Price
------ ------------ -----
<S> <C> <C> <C>
Outstanding at January 28, 1995 320,500 $5.12 $4.13 - $7.75
Lapsed (27,000) $5.52 $4.13 - $7.75
Granted 371,400 $3.00 $2.63 - $3.23
-------
Outstanding at January 27, 1996 664,900 $3.92 $2.63 - $7.75
Lapsed (11,400) $3.88 $2.94 - $4.13
Granted 15,000 $3.31 $3.31
</TABLE>
F-21
<PAGE> 47
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
13. STOCK PLANS (Continued)
Long-term Incentive Plan (Continued)
<TABLE>
<CAPTION>
Weighted
Average Exercise
Shares Option Price Price
------ ------------ -----
<S> <C> <C> <C>
Outstanding at February 1, 1997 668,500 $3.91 $2.63 - $7.75
Lapsed (114,000) $2.63 - $6.13 $2.63 - $6.13
Granted 134,000 $3.00 $2.13 - $3.00
--------
Outstanding at January 31, 1998 688,500 $3.60 $2.13 - $7.75
=======
</TABLE>
Options exercisable at January 31, 1998 were for 454,933 shares of
common stock at a price between $2.63 - $7.75 a share. At January 31,
1998, shares for future option grants totaling 1,296,500 were available
under the plan.
Non-Employee Directors' Stock Option Plan
<TABLE>
<CAPTION>
Weighted
Average Exercise
Shares Option Price Price
------ ------------ -----
<S> <C> <C> <C>
Outstanding at January 28, 1995 40,000 $5.85 $4.19 - $8.00
Lapsed (10,000) $7.31 $6.63 - $8.00
Granted 15,000 $3.02 $2.63 - $3.50
-------
Outstanding at January 27, 1996 45,000 $4.58 $2.63 - $8.00
Lapsed (10,000) $7.31 $6.63 - $8.00
Granted 10,000 $3.03 $3.00 - $3.06
-------
Outstanding at February 1, 1997 45,000 $3.63 $2.63 - $5.00
Lapsed (5,000) $4.18 $4.18
Granted 15,000 $3.00 $2.69 - $3.00
-------
Outstanding at January 31, 1998 55,000 $2.69 $2.63 - $5.00
=======
</TABLE>
Options exercisable at January 31, 1998 were for 25,065 shares of common
stock at a price between $2.63 - $5.00 a share. At January 31, 1998,
shares for future option grants totaling 195,000 were available under
this plan.
F-22
<PAGE> 48
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
13. STOCK PLANS (Continued)
WARRANTS AND NON-QUALIFIED OPTIONS
The Company has granted common stock purchase warrants and non-qualified
options.
The changes in the number of shares under the stock purchase warrants
and non-qualified options and the weighted average option price per
share are as follows:
<TABLE>
<CAPTION>
Weighted
Average Exercise
Shares Option Price Price
------ ------------ -----
<S> <C> <C> <C>
Outstanding at January 28, 1995 122,500 $4.75 $3.25 - $7.50
Lapsed (52,500) $4.21 $4.00 - $4.50
--------
Outstanding at January 27, 1996 70,000 $5.15 $3.25 - $7.50
Lapsed (45,000) $4.75 $4.00 - $6.25
--------
Outstanding at February 1, 1997 25,000 $5.82 $3.25 - $7.50
Granted 96,000 $3.00 $3.00
--------
Outstanding and exercisable at
January 31, 1998 121,000 $3.58 $3.00 - $7.50
========
</TABLE>
14. RETIREMENT PLAN
The Company established a 401(k) Retirement Plan and Trust for all
eligible employees. Under the terms of the plan the employee may
contribute 1% to 20% of compensation. There is a partial employer
matching contribution. Included in the statement of operations for the
years ended January 31, 1998 and February 1, 1997 is $96,000 and $34,000
of expense for the employer portion of the contribution. There were no
employer contributions for the year ended January 27, 1996.
F-23
<PAGE> 49
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1998
-----------------------------------------------------------------------------
15. SIGNIFICANT CUSTOMERS
Sales to the Company's two largest customers aggregated approximately
25%, 25% and 29%, respectively, of net sales for the years ended January
31, 1998, February 1, 1997 and January 27, 1996.
16. 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 share of Common Stock. On April 4,
1997, the Board of Directors authorized an increase of an additional
500,000 shares of common stock that the Company may repurchase under the
stock repurchase plan. During the years ended January 31, 1998, February
1, 1997, and January 27, 1996, the Company repurchased a total of
328,000, 250,000 and 60,000 shares, respectively, on the open market
under the 1995 Stock Repurchase Program for an aggregate price of
approximately $1,056,000, $811,000 and $159,000, respectively. Effective
May 24, 1996, the Board of Directors authorized the Company to retire
965,200 shares of common stock, previously held as treasury stock. As of
April 10, 1998, the Company had purchased an additional 420,000 shares
on the open market for an aggregate of approximately $957,000.
During the year ended January 27, 1996, the Company had repurchased
327,500 shares on the open market under their 1994 stock repurchase
program for $966,000. The Company will not re-issue these shares to the
public. In November 1995, the Company discontinued this program.
17. LEGAL PROCEEDINGS
In October 1997, a decision was entered in a case whereby the Company
was ordered to pay the plaintiff according to the terms of an agreement
entered into on May 16, 1986. On April 20, 1998, the Company settled the
case and any future payments that would have been payable under the
agreement for a one-time payment of $600,000. The settlement expense is
included in selling, general and administrative expenses for the year
ended January 31, 1998.
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-24
<PAGE> 50
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Summary of Quarterly Results (Unaudited) in thousands
<TABLE>
<CAPTION>
Year Ended January 31, 1998 Year Ended February 1, 1997
------------------------------------------- -------------------------------------------
Quarter Ended Quarter Ended
------------------------------------------- -------------------------------------------
May 3, Aug. 2, Nov. 1, Jan. 31, Apr. 27, Jul. 27, Oct. 26, Feb. 1,
1997 1997 1997 1998 1996 1996 1996 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales (A) $27,606 $22,618 $41,753 $37,972 $29,203 $27,706 $48,772 $44,948
Cost of goods sold 22,544 18,967 33,193 32,478 24,250 23,641 39,800 36,350
------- ------- ------- ------- ------- ------- ------- -------
Gross profit 5,062 3,651 8,560 5,494 4,953 4,065 8,972 8,598
Selling, general
& administrative
expenses 5,252 5,845 6,233 7,825 4,335 4,482 6,019 6,536
------- ------- ------- ------- ------- ------- ------- -------
Operating (loss)/income (190) (2,194) 2,327 (2,331) 618 (417) 2,953 2,062
Other income (expense):
Gold consignment fees (260) (347) (378) (320) (351) (312) (349) (445)
Interest expense (381) (304) (363) (474) (429) (410) (426) (433)
Interest income 125 113 31 28 160 125 94 54
Other - net 24 643 19 19 14 6 34 20
------- ------- ------- ------- ------- ------- ------- -------
Total other income (492) 105 (691) (747) (606) (591) (647) (804)
(expense)
(Loss)/Income from
operations before
income taxes (682) (2,089) 1,636 (3,078) 12 (1,008) 2,306 1,258
Income (benefit)/provision (259) (822) 650 (1,170) 4 (383) 878 279
------- ------- ------- ------- ------- ------- ------- -------
Net (loss)/income $ (423) $(1,267) $ 986 $(1,908) $ 8 $ (625) $ 1,428 $ 979
======= ======= ======= ======= ======= ======= ======= =======
(Loss)/earnings per
share(B) $ (0.05) $ (0.15) $ 0.13 $ (0.25) $ 0.00 $ (0.08) $ 0.17 $ 0.12
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(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 to the annual per share amount because
the figures are required to be independently calculated.
F-25
<PAGE> 51
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF ADDITIONS CHARGED TO OTHER END OF
DESCRIPTION PERIOD COSTS AND EXPENSES ACCOUNTS DEDUCTIONS(A) PERIOD
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for
doubtful accounts:
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1998 $656 $284 $ - $(224) $716
Year ended February 1, 1997 901 170 - (415) 656
Year ended January 27, 1996 646 247 - 8 901
Allowance for sales
returns:
Year ended January 31, 1998 $748 $ - $ - $(268) $480
Year ended February 1, 1997 674 261 - (187) 748
Year ended January 27, 1996 754 200 - (280) 674
</TABLE>
(A) Allowances, returns and uncollectible accounts charged against the
reserve, (net of collections on previously written-off accounts).
S-1
<PAGE> 52
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 30, 1998
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL PAOLERCIO Co-Chairman of the Board April 30, 1998
- --------------------------- and Chief Executive Officer
(Michael W. Paolercio) (Principal Executive Officer)
/s/ ANTHONY PAOLERCIO Co-Chairman of the Board April 30, 1998
- --------------------------- and President
(Anthony Paolercio, Jr.)
/s/ ALLAN CORN Chief Financial Officer, April 30, 1998
- --------------------------- Senior Vice President
(Allan Corn) and Director (Principal
Accounting Officer)
/s/ MICHAEL A. PAOLERCIO Senior Vice President, April 30, 1998
- --------------------------- Treasurer and Director
(Michael Anthony Paolercio)
/s/ MICHAEL WAGER Director April 30, 1998
- ---------------------------
(Michael Wager)
/s/ DAVID HARRIS Director April 30, 1998
- ---------------------------
(David Harris)
/s/ DONALD MILLER Director April 30, 1998
- ---------------------------
(Donald Miller)
</TABLE>
<PAGE> 53
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.46 Note Purchase Agreement, dated as
of June 5, 1992, among the
Registrant and the holders of the
Registrant's Senior Notes due 2002
(the "2002 Notes")
10.47 Security Agreement, dated as of
June 5, 1992, among the Registrant
and the holders of the 2002 Notes
10.48 $3,500,000 Senior Note due 2002 of
the Registrant in favor of Northern
Life Insurance Company
10.49 $3,000,000 Senior Note due 2002 of
the Registrant in favor of Royal
Maccabees Life Insurance Company
10.50 $1,000,000 Senior Note due 2002 of
the Registrant in favor of The
North Atlantic Life Insurance
Company of America
10.51 $1,000,000 Senior Note due 2002 of
the Registrant in favor of Farm
Bureau Life Insurance Company of
Michigan
10.52 $1,000,000 Senior Note due 2002 of
the Registrant in favor of FB
Annuity Company
10.53 $500,000 Senior Note due 2002 of
the Registrant in favor of Farm
Bureau Mutual Insurance Company of
Michigan
10.54 1993 Long-term Incentive Plan of
the Registrant
10.55 1993 NonEmployee Directors' Stock
Option Plan of the Registrant
10.56 Letter agreement, dated April 14,
1998, among the Registrant and
holders of the 2002 Notes
10.57 Letter agreement, dated April 14,
1998, among the Registrant and
holders of the 2004 Notes
21 Subsidiaries of Registrant
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10.46
MICHAEL ANTHONY JEWELERS, INC.
NOTE PURCHASE AGREEMENT
Dated as of May 1, 1992
TO THE PURCHASERS NAMED IN APPENDIX I HERETO:
The undersigned, Michael Anthony Jewelers, Inc., a Delaware corporation
(the "Company"), hereby confirms its agreements with the parties listed in
Appendix I hereto (the "Purchasers") as follows:
1. Purchase and Sale of Notes.
(a) The Notes. Subject to the terms and conditions herein, the
Company will sell to each of the Purchasers on such date on or prior to June 10,
1992 as may be mutually agreed upon with the Purchasers (the date of sale being
herein called the "Closing Date"), and each of the Purchasers will purchase from
the Company on the Closing Date, at 100% of the principal amount thereof, a
promissory note of the Company (which, together with any note or notes issued in
substitution therefor, are herein collectively called the "Notes" and
individually a "Note"), dated the Closing Date, in the principal amount
specified in Appendix II hereto and having terms as described herein. The Notes
shall be subject to prepayment as provided in paragraph 2 hereof, shall in all
respects be subject to the terms of this Agreement and shall be substantially in
the form of Exhibit A hereto.
(b) Interest Rate. The Notes shall bear interest at the rate
of 8.61% per annum (provided that solely for the purpose of determining the
portion of annual interest allocable to any interest payment period, it shall be
assumed that a year is comprised of 360 days and 12 30-day months) from the date
of the Notes.
(c) Payment Terms. Interest on the Notes shall be payable
quarterly on February 15, May 15, August 15 and November 15 in each year
commencing August 15, 1992 and continuing until payment in full of the Notes.
Principal shall be payable in eight consecutive annual installments in the
aggregate amount of $1,111,111.11 commencing May 15, 1994 with a final
installment in the aggregate amount of $1,111,111.12
(d) Security. The Notes shall be secured by a security
interest, subject to no prior security interests except as permitted by
paragraph 5(i) hereof, in all inventory of the Company, all of the accounts
receivable and other rights to payment and all machinery and equipment of the
Company, whether now owned or hereafter acquired, pursuant to a security
agreement (herein called the "Security Agreement") in form and substance
mutually satisfactory to the Company and the Purchasers.
- 1 -
<PAGE> 2
(e) Manner of Payment. The Purchasers will pay the purchase
price of the notes by wire transfer of immediately available Federal funds to
such account as shall be specified by the Company, against delivery to the
Purchasers of the Notes.
(f) Default Rate. If all or any portion of the principal
amount of or interest on any Note shall not be paid on or before the fifteenth
day after the date on which such payment was due, such principal (and, if so
permitted by law, such interest) shall bear interest at a rate equal to the
lower of 10.61% per annum (computed on the basis of a 360-day year comprised of
twelve 30-day months) or the highest rate permitted by law from the date of
non-payment until paid in full.
(g) Purchases to be Several. The obligations of the Purchasers
to purchase the Notes shall be separate and several, but the purchase of each
Note by the respective Purchaser shall be a condition concurrent to the
obligations of the Purchasers to purchase, and the obligations of the Company to
sell, each other Note.
(h) Payment on Non-Business Days. Whenever any payment to be
made hereunder or under the Notes shall be stated to be due on a Saturday,
Sunday or holiday for banks under the laws of the State of Minnesota, such
payment may be made on the next succeeding business day, and such extension of
time in such case shall be included in the computation of the payment of
interest on the Notes.
2. Voluntary PrePayments of the Notes.
(a) Optional Prepayment. Subject to the conditions set forth
in this paragraph, the Company may, at its option, on any interest payment date,
prepay the Notes in whole or in part (but if in part only in the amount of
$100,000 or integral multiples thereof), upon 30 days' prior written notice to
the holders of the Notes, at a premium equal to the excess of (i) the then
present value, discounted at the Formula Yield Percentage (as defined in
paragraph 12 hereof), of all installments of principal and interest which are
avoided by the prepayment, over (ii) the principal amount then being prepaid. In
no event shall the premium be less than zero.
(b) Restrictions on Partial Payments. No partial prepayment
shall be made pursuant to paragraph 2(a) unless immediately prior to the time of
such partial prepayment the Company and its Subsidiaries, as hereinafter
defined, on a consolidated basis shall (i) have on hand to make the partial
prepayment excess or surplus funds not required in the conduct of their business
in an amount at least equal to the amount of the partial prepayment, (ii) giving
effect to such partial prepayment, have outstanding no indebtedness other than
indebtedness permitted by this Agreement, and (iii) have delivered to the
holders of the Notes a certificate signed by the president or chief financial
officer of the Company to both such effects and to the effect that the partial
prepayment will not reduce the working capital of the Company and its
Subsidiaries, on a consolidated basis, below an amount which is considered
adequate by the officers of the Company for the safe conduct of the business of
the Company and its Subsidiaries.
- 2 -
<PAGE> 3
(c) Manner of Effecting Payment. In the event the Company
shall give notice of any prepayment in accordance with Paragraph 2(a) above,
such notice shall specify the principal amount of the Notes to be prepaid and
the date of the proposed prepayment, and shall include a calculation of the
premium, if any, payable in connection with such prepayment, and thereupon such
principal amount, together with accrued and unpaid interest thereon to the
prepayment date and together with the applicable premium, if any, shall become
due and payable on the prepayment date. In the event any prepayment shall be
less than the entire unpaid principal amount of the Notes, the amount of such
prepayment shall be applied pro rata on all Notes on the last maturing required
installment or installments of principal in inverse order of their maturity.
3. Representations and Warranties. Reference is made to paragraph 12
hereof for definitions of certain capitalized terms used in this paragraph 3.
The Company represents and warrants to the Purchasers as follows:
(a) Corporate Organization. The Company and its Subsidiaries
are corporations organized and existing and in good standing under the laws of
the respective states of their incorporation, and are duly qualified to do
business and are in good standing under the laws of each jurisdiction where the
nature of the business done or property owned require such qualification except
where failure to so qualify would not, individually or in the aggregate, have a
material adverse effect upon the Company or any of its Subsidiaries. The Company
is organized under the laws of the State of Delaware.
Except as set forth on Exhibit B hereto, the Company does not own, directly or
indirectly, more than 1% of the total outstanding capital stock of any class of
any other corporation.
(b) No Prohibition. There is no provision in the Certificate
of Incorporation of the Company or its Subsidiaries, or in their Bylaws or,
except for provisions compliance with which shall have been waived or consented
to on or prior to the Closing Date, in any indenture, contract or agreement to
which the Company or any Subsidiary is a party or by which any of them is bound,
which prohibits the execution and delivery by the Company of this Agreement, the
Security Agreement or the Notes or the performance or observance by the Company
of any of the terms or conditions of this Agreement, the Security Agreement or
the Notes.
(c) Due Authorization. The execution and delivery of this
Agreement, the Security Agreement and the Notes have been duly authorized by all
necessary corporate action of the Company.
(d) Legal Proceedings. Except as provided on Exhibit C hereto,
there are no actions, suits or proceedings pending or, to the knowledge of the
Company, threatened against the Company or any subsidiary or any property of the
Company or any Subsidiary in any court or before any federal, state, municipal
or other governmental agency which, if decided adversely to the Company or any
Subsidiary, would have a materially adverse effect upon the Company or any
Subsidiary or upon the business or properties of the Company or any Subsidiary;
and neither the Company nor any Subsidiary is in default with respect to any
order of any court or governmental agency.
- 3 -
<PAGE> 4
(e) Financial Statements. The Company has furnished to the
Purchasers a consolidated balance sheet, statement of income and retained
earnings and statement of changes in financial position of the Company and its
Subsidiaries for the fiscal year ended on June 30 in each of the years 1987
through 1991, inclusive, certified by KPMG Peat Marwick or its predecessors (for
fiscal years 1987 and 1988) or Deloitte & Touche (for fiscal years 1989, 1990
and 1991), independent certified public accountants, and a consolidated
unaudited balance sheet and statement of income and retained earnings of the
Company and its Subsidiaries for the nine months ended March 31, 1992. Said
financial statements fairly present the financial condition of the Company and
its Subsidiaries at the dates thereof and the results of operations of the
Company and its Subsidiaries for the periods indicated, all in conformity with
generally accepted accounting principles consistently followed through the
periods involved. There have been no material adverse changes in the condition,
financial or otherwise, of the Company or its Subsidiaries since the latest
balance sheet referred to.
(f) Title to Assets. The Company and its Subsidiaries have good
and marketable title to, or in the case of leased property, a valid, binding and
enforceable leasehold interest in, all real estate, personal property,
equipment, processes, patents, copyrights, trademarks, franchises, licenses and
other property and assets necessary or useful to, or used in connection with,
their trades or businesses, including (excepting as they have been affected by
transactions in the ordinary course of business) the properties and assets
reflected in the most recent balance sheet referred to in subparagraph (e)
above. All of the assets of the Company and its Subsidiaries are free and clear
of all mortgages, liens, pledges, charges and encumbrances (other than liens
permitted by paragraph 5(i) hereof).
(g) Securities Matters. Neither the Company nor any Subsidiary
nor any agent acting on the behalf of the Company or any Subsidiary has offered
the Notes, or any part thereof, or any similar obligation for sale to, or
solicited any offers to buy the Notes, or any part thereof, or any similar
obligation from, any person or persons so as to bring the issue or sale of the
Notes within the provisions of Section 5 of the Securities Act of 1933, as
amended, and neither the Company nor any Subsidiary will sell or offer for sale
any note or any similar obligation of the Company to, or solicit any offer to
buy any similar obligation of the Company from, any person or persons so as to
bring the issue or sale of the Notes within the provisions of Section 5 of the
Securities Act of 1933, as amended.
(h) Licenses and Permits. The Company and each Subsidiary have
procured and are now in possession of all licenses and permits required by
federal, state or local laws for the operation of the business of the Company
and its Subsidiaries in each jurisdiction wherein the Company or any Subsidiary
is now conducting business, except in such cases, if any, where the failure to
obtain such licenses and permits would not have material adverse effect on the
Company or any Subsidiary.
(i) No Defaults in Indebtedness. Neither the Company nor any
Subsidiary is in default in the payment of the principal of or interest on any
indebtedness for borrowed money and is not in default under any instrument or
agreement under and subject to which any indebtedness
- 4 -
<PAGE> 5
for borrowed money has been issued, and no event has occurred under the
provisions of any such instrument or agreement which with or without the lapse
of time or the giving of notice, or both, constitutes or would constitute an
event of default thereunder.
(j) Tax Returns. The Company and each Subsidiary have filed all
federal and state income tax returns which, to the knowledge of the officers of
the Company, are required to be filed, and have paid all taxes shown on said
returns and all assessments received by them to the extent that they have become
due. The federal income tax returns of the Company have been finally determined
by the Internal Revenue Service to be satisfactory or have been closed by the
applicable statute of limitations for all years prior to and including the
fiscal year ended June 30, 1988. No claims have been asserted against the
Company or any Subsidiary in respect of federal income tax returns for any
subsequent year.
(k) No Margin Stock. Neither the Company nor any Subsidiary
owns any Margin Stock and none of the proceeds received by the Company from the
sale of the Notes will be used for the purpose of purchasing or carrying Margin
Stock or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase Margin Stock or for any other purpose not
permitted by Regulation G (12 CFR Part 207) of the Board of Governors of the
Federal Reserve System, as amended from time to time.
(l) ERISA Matters. Each qualified retirement plan of the
Company and its Subsidiaries in which any employees of the Company or its
Subsidiaries participate that is subject to any provisions of ERISA is being
administered in accordance with the documents and instruments governing such
plans, and such documents and instruments are consistent with those provisions
of ERISA which have become effective and operative with respect to such plans as
of the date of this Agreement. No such plan has incurred any material
accumulated funding deficiency within the meaning of ERISA and neither the
Company nor any of its Subsidiaries has incurred any material liability to the
Pension Benefit Guaranty Corporation in connection with any such plan.
(m) Brokers and Finders. The Company has not engaged any broker
or finder in connection with the transaction contemplated by this Agreement
other than Washington Square Capital Markets, Inc.
4. Affirmative Covenants. Reference is made to paragraph 12 hereof for
definitions of certain capitalized terms used in this paragraph 4. The Company
covenants and agrees that, so long as any amount shall remain unpaid on the
Notes, it will:
(a) Payment. Duly and punctually pay or cause to be paid the
principal of and interest on the Notes and will duly and punctually perform or
cause to be performed all things on its part or on the part of any Subsidiary to
be done or performed under this Agreement or the Security Agreement.
(b) Maintenance of Books and Records. At all times keep and
cause each Subsidiary to keep proper books of record and account in which full,
true and correct entries will
- 5 -
<PAGE> 6
be made of its transactions in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved.
(c) Inspection of Books and Records. At all reasonable times
during normal business hours upon reasonable notice, permit and cause each
Subsidiary to permit the holders of the Notes and their representatives to
inspect its books and records and to make extracts therefrom and to inspect its
properties and operations; it being understood that until the occurrence of an
Event of Default hereunder or an event which with the passage of time or giving
of notice, or both, would constitute such an Event of Default, the holders of
the Notes shall make any such inspection at their own expense.
(d) Financial Information. From time to time furnish and cause
each Subsidiary to furnish the holders of the Notes with such information and
statements as the holders of the Notes may reasonably request concerning
performance by it of the covenants and agreements contained in this Agreement or
the Security Agreement, and with copies of all financial statements and reports
that it shall send or make available to its stockholders or to other creditors,
and with copies of all operating budgets which may be prepared with respect to
the Company or any of its Subsidiaries. In the event that written notice of the
occurrence of an Event of Default shall have been given to the Company, and the
Company shall have notified the holders of the Notes that such Event of Default
has been corrected, the Company shall, upon request of the holders of the Notes,
which request may be made upon any reasonable basis, for the purpose of showing
that such Event of Default has been corrected, furnish to the holders of the
Notes a signed copy of an audit report (or, if such matter can be covered in a
special audit report, a special audit report) prepared and certified by an
independent certified public accountant selected by the Company and satisfactory
to the holders of the Notes, which report shall confirm that such Event of
Default has been corrected and shall include such other matters as the holders
of the Notes may reasonably request. All expenses incurred in connection with
such report shall be borne by the Company. Nothing in this paragraph 4(d),
however, shall diminish, defer, postpone or otherwise limit the right of the
holders of the Notes to take any action permitted by paragraph 7 hereof.
(e) Quarterly Financial Statements. Furnish to the holders of
the Notes, within 45 days after the close of each of the first three quarterly
accounting periods in each fiscal year of the Company, and within 90 days after
the close of the fourth quarterly accounting period in each fiscal year of the
Company, balance sheets, statements of income and stockholders' equity and
statements of cash flow reflecting the consolidated and consolidating financial
condition of the Company and its Subsidiaries at the end of each such quarterly
period and the consolidated and consolidating results of operations during such
period, all in reasonable detail, and setting forth comparable figures for the
same accounting period in the preceding fiscal year.
(f) Annual Financial Statements. Furnish to the holders of the
Notes, as soon as available, but in any event within 90 days after the close of
each fiscal year of the Company, duplicate signed copies of an audit report
prepared and certified (without qualification as to the scope of the audit) by
Deloitte & Touche or another firm of independent certified public accountants
selected by the Company and reasonably satisfactory to the holders of the Notes,
which report shall include a consolidated balance sheet of the Company and its
Subsidiaries as at
- 6 -
<PAGE> 7
the end of such year and consolidated statements of income, stockholders' equity
and cash flow of the Company and its Subsidiaries reflecting the operations
during said year, all in reasonable detail and setting forth comparable figures
for the preceding fiscal year, which report shall be accompanied by a statement
by such accounting firm certifying that in making the examination upon which
such report was based, no information came to its attention which to its
knowledge constituted a default under this Agreement or specifying any such
default.
(g) Financial Certification. At the time of the delivery to the
holders of the Notes of the reports referred to in paragraphs 4(e) and 4(f)
hereof, deliver to the holders of the Notes a certificate signed by its chief
financial officer, certifying that such officer has reviewed the provisions of
this Agreement and stating, in such officer's opinion, if such be the fact, that
the Company and its Subsidiaries have not been and are not in default as to any
of the provisions contained in this Agreement, or, in the event the Company or
any Subsidiary is or was in default, setting forth the details of such default.
Such certificate shall set forth the computations upon which such officer based
the conclusion that the Company and its Subsidiaries are and have been in
compliance with paragraphs 4(0), (p) and (q) and 5(a), (b), (c), (e), (i) and
(j) hereof, to the extent computations are necessary to establish compliance
with such paragraphs.
(h) Copies of Reports. Furnish to the holders of the Notes,
promptly after the receipt thereof by the Company, copies of all management
letters or similar documents submitted to the Company by independent certified
public accountants in connection with each annual and any interim audit of the
accounts of the Company or of the Company and any of its Subsidiaries.
(i) Copies of Regulatory Reports. Furnish the holders of the
Notes copies of any and all reports filed by the Company with the Securities and
Exchange Commission or any other regulatory agency, other than routine reports
filed with respect to employee benefit Plans (except those annual reports with
respect to each such plan requested by the holders of the Notes in writing as
permitted by paragraph 4(v) hereof).
(j) Corporate Existence. Maintain and cause each Subsidiary to
maintain its corporate existence in good standing (except that the corporate
existence of any Subsidiary may be terminated pursuant to a merger or
consolidation permitted under paragraph 5(f) of this Agreement) and comply with
all applicable laws and regulations of the United States and of each state
thereof and of each political subdivision thereof and of any and all other
governmental authorities; Provided that (i) the Company shall, on or before 120
days from the date hereof, dissolve ENCAR Tool & Die Co., Inc. and Allcraft Tool
& Supply Co. Inc., (ii) the Company shall, on or before June 30, 1992 from the
date hereof, merge Jardinay Manufacturing Company with and into the Company, and
(iii) the Company shall, on or before September 1, 1992, either (A) withdraw
from the State of California or (B) re-establish its good standing in such
state.
(k) Payment of Taxes. Pay and cause each Subsidiary to pay all
real and personal property taxes, assessments and charges and all franchise,
income, unemployment, old age benefit, withholding, sales and other taxes
assessed against it, or payable by it, at such times and in such manner as to
prevent any penalty from accruing or any lien or charge from attaching to its
property, provided that it shall have the right to contest in good faith, by
appropriate
- 7 -
<PAGE> 8
proceedings promptly initiated and diligently conducted, the validity, amount or
imposition of any such tax and upon such good faith contest to delay or refuse
payment thereof, if such reserve or other appropriate provision, if any, as
shall be required by generally accepted accounting principles shall have been
made therefor.
(1) Maintenance of Properties. Maintain and cause each
Subsidiary to maintain and keep its properties in good repair, working order and
condition, and from time to time make all needful and proper repairs, renewals
and replacements so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
(m) Insurance. In addition to the insurance required to be
maintained under paragraph 4(w) hereof, maintain and cause each Subsidiary to
maintain, in insurance companies of recognized standing, insurance of types and
in amounts usually maintained by similar companies in similar businesses.
(n) Remuneration. Pay and cause each Subsidiary to pay
compensation, whether by way of salaries, bonuses, participations in pension or
profit sharing plans, fees under management contracts or for professional
services, to any of its officers, directors, employees or stockholders only in
amounts which are not in excess of the greater of (i) existing employee
compensation levels or (ii) reasonable compensation paid for similar services by
similar businesses; it being understood, however, that nothing herein shall be
deemed to imply that the Purchasers have determined that existing compensation
levels are reasonable.
(o) Net Worth. At all times maintain Consolidated Tangible Net
Worth in an amount at least equal to $22,000,000.
(p) New Working Capital. At all times maintain an excess of
Consolidated Current Assets over Consolidated Current Liabilities at least equal
to $18,000,000.
(q) Current Ratio. At all times maintain Consolidated Current
Assets at an amount at least equal to 175% of Consolidated Current Liabilities.
(r) Notice of Default. Give the holders of the Notes prompt
notice in writing of any condition or event which constitutes a default under
paragraph 7 hereof, or which, after notice or lapse of time, or both, would
constitute such a default.
(s) Exchange of Notes. At any time, at its expense, at your
written request and upon surrender of a Note for such purpose, issue a new Note
or Notes in exchange therefor in such denominations of at least $100,000 as
shall be specified by the holder of the Note surrendered, in an aggregate
principal amount equal to the then unpaid principal amount of the Note
surrendered and substantially in the form of Exhibit A with appropriate
insertions and variations, and bearing interest from the date to which interest
has been paid on the Note surrendered.
- 8 -
<PAGE> 9
(t) Reference in Financials. Include, or cause to be included,
a reference to the Notes, this Agreement and the Security Agreement in all
annual audited financial statements of the company and any of its Subsidiaries
for periods ending after the Closing Date which are furnished to stockholders,
financial reporting services, creditors and prospective creditors.
(u) Board of Directors Meetings. If and so long as an Event of
Default has occurred and is continuing, notify the holders of the Notes of all
regular or special meetings of the Board of Directors of the Company and afford
the holders of the Notes the right and opportunity to appoint up to a total of
two representatives to attend any such meeting.
(v) Qualified Retirement Plans. Cause each qualified
retirement plan of the Company or any of its Subsidiaries in which any employees
of the Company or of any of its Subsidiaries participate that is subject to the
provisions of ERISA and the documents and instruments governing each such plan
to be conformed to when necessary and to be administered in a manner consistent
with those provisions of ERISA which may, from time to time, become effective
and operative with respect to such plan; and, if requested by the holders of the
Notes in writing from time to time, furnish to the holders of the Notes a copy
of any annual report with respect to each such plan that the Company files with
the Internal Revenue Service pursuant to ERISA.
(w) Maintenance of Key-Man Insurance. Maintain existing
"key-man" insurance (or obtain and maintain substitute "key-man" insurance) on
the lives of Michael Paolercio and Anthony Paolercio, Jr. in an amount no less
than $5,000,000 for each such person (provided that the amount of such insurance
may be no less than $2,590,000 until August 1, 1992), all of the proceeds of
which shall be payable to the Company.
(x) Maintenance of Security Agreement. Take all action
necessary in order to perfect and to protect and maintain, the lien of the
Security Agreement.
(y) Change of Control. Give the holders of the Notes notice
within 30 days after there shall occur a Change of Control and, upon request of
the holders of the Notes in writing given to the Company within 30 days after
such notice, specifying a desire to have the Notes prepaid in full, prepay the
Notes in full on or before 30 days after the giving of such notice, together
with interest accrued and unpaid thereon.
5. Negative Covenants. Reference is made to paragraph 12 hereof for
definitions of certain capitalized terms used in this paragraph 5. The Company
covenants and agrees that, so long as any amount shall remain unpaid on the
Notes, it will not and will not permit any Subsidiary to:
(a) Permitted Indebtedness. Borrow money, issue evidences of
indebtedness or create, assume, guarantee or become contingently liable for or
suffer to exist any indebtedness (including, without limitation, Capitalized
Lease Obligations) in addition to the Notes, except:
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<PAGE> 10
(i) Current Debt of the Company to banks or other similar
financial institutions, which indebtedness is unsecured except as
permitted by paragraph 5(i)(v) hereof;
(ii) the following types of Funded Debt:
(A) Capitalized Lease Obligations and Purchase
Money Obligations of the Company incurred after the Closing
Date; and
(B) other Funded Debt of the Company incurred
after the Closing Date, which indebtedness shall be
unsecured;
(iii) existing indebtedness and guaranties of the Company
and its Subsidiaries set forth on Exhibit D hereto, provided that such
indebtedness shall be repaid in accordance with its terms and with the
schedule set forth in Exhibit D with no extension, renewal or other
modification, provided, however, that indebtedness marked with an
asterisk on Exhibit D shall be paid in full on or prior to the Closing
Date from the proceeds of the sale of the Notes or from other capital
resources of the Company;
(iv) indebtedness of Subsidiaries to the Company
constituting general obligations of such Subsidiaries, incurred in
connection with (A) gold consignment transactions or (B) financing of
any accounts receivable of such Subsidiaries, in each case, so long as
such indebtedness is not subordinated to any other indebtedness of such
Subsidiaries;
(v) indebtedness of a Subsidiary acquired by the Company
after the date hereof existing at the time of such acquisition;
(vi) amounts due by the Company to any consignor of fine
gold in respect of the gold consigned by it to the Company; and
(vii) indebtedness or liabilities, other than for money
borrowed, incurred or arising in the ordinary course of business;
provided that immediately after giving effect to the incurrence of any
Funded Debt described in clause (ii) above and to any concurrent
transactions, Total Funded Debt (excluding current maturities) does not
exceed 50% of Total Capitalization.
(b) Fixed Charge Coverage. If the ratio of Total Pretax
Income Available for Fixed Charges to Total Fixed Charges for any fiscal year of
the Company commencing with the fiscal year ending June 30, 1993 is less than
175%, Permit such ratio to be less than 175% for the following fiscal year;
provided that in no event may the ratio of Total Pretax Income Available for
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<PAGE> 11
Fixed Charges to Total Fixed Charges be less than 150% for the fiscal year of
the Company ending June 30, 1993.
(c) Permitted Investments. Purchase, or permit to exist
investments in stock or securities of, or make or permit to exist loans or
advances to, or other investments in, any person, firm or corporation (including
investments in or loans or advances to any corporation proposed to be acquired
or created as a Subsidiary), except:
(i) investments in direct obligations of the United States
government maturing within one year of the date of acquisition;
(ii) certificates of deposit issued by banks incorporated in
the United States having capital stock and surplus aggregating not less
than $100,000,000 maturing within 365 days of the date of acquisition;
(iii) commercial paper rated A-1 or P-1 by recognized rating
services maturing within 270 days of the date of acquisition;
(iv) Preferred stock rated aa or aaa by Moody's Investors
Service, Inc. or given a comparable rating by Standard & Poor's,
provided that any such investment can be liquidated without penalty on
one day's notice;
(v) corporate, municipal, treasury or government agency bond
funds rated Aaa or Aa by Moody's Investors Service or given a comparable
rating by Standard & Poor's, provided that any such investment can be
liquidated without penalty on one day's notice;
(vi) investments in companies which, upon the making of such
investment will constitute Subsidiaries, provided that the aggregate
amount of all such investments, valued at cost, together with the
aggregate amount of all investments in Subsidiaries since December 15,
1987, does not exceed the sum of $6,000,000 plus 60% of the
Unconsolidated Net Income of the Company accrued during the period from
October 1, 1987 through the end of the most recently completed fiscal
quarter preceding the date of calculation;
(vii) existing investments not otherwise permitted by this
paragraph 5(c) and set forth in Exhibit E hereto, so long as such
investment is not in default based on the terms in effect on the date
hereof;
(viii) travel and expense advances of the Company and its
Subsidiaries to their respective officers and employees in the ordinary
course of business;
(ix) loans to Subsidiaries permitted by paragraph 5(a)(iv)
hereof; and
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<PAGE> 12
(x) notes receivable of customers arising from transactions in
the ordinary course of business.
(d) Subordination of Claims. Subordinate or permit to be
subordinated any claim against, or obligation of another person, firm or
corporation held or owned by it to any other claim against, or obligation of,
such other person, firm or corporation.
(e) Sale of Assets. Sell, lease or otherwise dispose of all or
any substantial part of its assets, provided that (i) any Subsidiary may sell,
lease or otherwise dispose of all or a substantial part of its assets to the
Company or another Subsidiary which is wholly-owned by the Company, (ii) the
Company and its Subsidiaries may sell inventory in the ordinary course of
business, and (iii) the Company may dispose of obsolete tangible personal
property provided that the proceeds from the sale of such tangible personal
property are reinvested in the Company. For purposes of this paragraph, the
disposition in any twelve-month period of assets (excluding dispositions of
inventory in the ordinary course of business) with a value of more than 10% of
the consolidated assets of the Company and its Subsidiaries shall be deemed to
be substantial.
(f) Merger and Consolidation. Merge or consolidate with or into
any corporation provided that (i) any Subsidiary may be merged or consolidated
with or into the Company (if the Company is the surviving corporation) or with
or into another Subsidiary which is wholly-owned by the Company, and (ii) the
Company may be merged with any corporation if (A) the Company is the surviving
corporation, and (B) immediately following the merger and after giving effect
thereto there shall exist no Event of Default or event which with the passage of
time or the giving of notice, or both, would constitute an Event of Default and
the Company would be able to incur at least $1 of additional Funded Debt
pursuant to paragraph 5(a).
(g) Maintenance of Present Businesses. Substantially alter the
nature of the business in which it is presently engaged, nor purchase or invest,
directly or indirectly, in any substantial amount of assets or property other
than assets or property useful and to be used in its business as presently
conducted.
(h) Transactions with Affiliates. Except on terms no less
favorable to the Company than would be obtainable if no such relationship
existed, purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or otherwise deal with any Affiliate; provided, however,
that nothing herein shall prohibit the Company from consigning gold to its
Subsidiaries without charging any fees or interest therefor.
(i) Permitted Liens. Create, assume or suffer to exist any
mortgage, pledge, encumbrance, lien, security interest or charge of any kind,
whether presently effective, springing, conditional or contingent (including any
charge upon property purchased under conditional sales contracts, title
retention agreements or other purchase money security interests or under leases
constituting Capitalized Lease Obligations) upon any of its property or assets,
whether now owned or hereafter acquired, except the Security Agreement and:
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<PAGE> 13
(i) liens securing Purchase Money Obligations or
Capitalized Lease Obligations permitted by paragraph 5(a)(ii)(A)
hereof, provided that (A) the indebtedness secured by any such lien
does not exceed 100% of the lesser of (x) the cost of the assets
acquired subject thereto or improved thereby, or (y) the fair market
value of such assets or improvement at the time of incurrence, (B) such
lien does not encumber any property of the Company or any Subsidiary
other than the assets acquired subject thereto, and (C) the aggregate
principal amount of the indebtedness secured by such liens does not
exceed 15% of Consolidated Tangible Net Worth;
(ii) presently existing liens described in Exhibit D
hereto securing indebtedness permitted by paragraph 5(a)(iii) hereof,
provided, however, that (A) the liens on page 1 of Exhibit D to the
State of New York Department of Taxation shall be removed on or before
September 1, 1992 and (B) the liens securing indebtedness marked with a
double asterisk (**) on Exhibit D shall be released on the Closing
Date;
(iii) liens on assets of the Subsidiaries securing
indebtedness to the Company permitted by paragraph 5(a)(iv) hereof;
(iv) liens on consigned gold, inventory and cash proceeds
(but not other proceeds) thereof of the Company securing indebtedness
permitted by paragraph 5(a)(vi) hereof; and, so long as the Security
Agreement is in effect and provided the consignor has entered into an
intercreditor agreement in form and substance satisfactory to the
holders of the Notes, liens on other assets of the Company securing
indebtedness permitted by paragraph 5(a)(vi); provided, however, that
in no event may any lien extend to assets of the Company which are not
subject to the lien of the Security Agreement; Provided further,
however, that pending consummation of the merger of Jardinay
Manufacturing Corporation into the Company (which, Pursuant to
paragraph 4(j) hereof, must be effected by June 30, 1992), the existing
liens on Jardinay Manufacturing Company assets held by gold consignors
may remain until June 30, 1992.
(v) so long as the Security Agreement is in effect and
provided the lender has entered into an intercreditor agreement in form
and substance satisfactory to the holders of the Notes, liens on
accounts receivable and other assets of the Company securing Current
Debt of the Company permitted by paragraph 5(a)(i) hereof; provided,
however, that (A) no such lien shall extend to assets of the Company
which are not subject to the lien of the Security Agreement; and (B)
the aggregate amount of all such Current Debt (excluding the current
portion of Funded Debt) so secured shall at no time exceed $5,000,000;
(vi) liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings promptly initiated
and diligently conducted, if
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<PAGE> 14
such reserve or other appropriate provision, if any, as shall be
required by generally accepted accounting principles shall have been
made therefor; and
(vii) other liens, charges or encumbrances incidental to
the conduct of its business or the ownership of its property which were
not incurred in connection with the borrowing of money or the obtaining
of advances or credit and which do not in the aggregate materially
detract from the value of its property or materially impair the use
thereof in the operation of its business.
(j) Dividends. Pay any Dividends, except that:
(i) any Subsidiary may pay Dividends to the Company or
another Subsidiary which is wholly owned by the Company; and
(ii) the Company may make pay Dividends, provided that (A)
there shall exist at the time of such payment no Event of Default
hereunder and no event which with the passage of time or the giving of
notice or both, would constitute such an Event of Default, and (B) the
aggregate amount of all such Dividends by the Company from and after
the date hereof shall not exceed an amount calculated by either (1) (if
the Cumulative Consolidated Net Income (Loss) of the Company on the
date of such payment is an income amount) adding an amount equal to 50%
of such Cumulative Consolidated Net Income to the Base Amount or (2)
(if the Cumulative Consolidated Net Income (Loss) on the date of
payment is a loss amount) substracting 100% of such Cumulative
Consolidated Net Loss from the Base Amount.
6. Conditions Precedent. The obligation of the Purchasers to purchase
the Notes, as provided in paragraph 1 hereof, shall be subject to the accuracy
of all of the representations herein contained and to the satisfaction, on or
before the Closing Date, of the following conditions:
(a) The Purchasers shall have received from Benesch,
Friedlander, Coplan & Aronoff, counsel for the Company, a favorable opinion in
form and substance satisfactory to the Purchaser as to all matters set forth in
Exhibit F hereto, and as to all such other matters incident to the transaction
herein as the Purchasers may reasonably request.
(b) The Purchasers shall have received from their special
counsel, Faegre & Benson, a favorable opinion in form and substance satisfactory
to the Purchasers, as to such matters incident to the transaction herein
contemplated as the Purchasers may reasonably request.
(c) The representations and warranties contained in paragraph
3 hereof shall be true and correct as of the Closing Date; the Company shall not
be in default with respect to any of the provisions hereof; there shall exist no
event which, with the passage of time or the giving of notice, or both, would
constitute such a default; the Company shall not have suffered a substantial
adverse change in financial condition; and there shall exist no material action,
suit or proceeding pending, or to the knowledge of the Company, threatened,
against the Company; and
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<PAGE> 15
the Company shall have delivered to the Purchasers a certificate signed by a
responsible officer of the Company to such effects.
(d) The Purchasers shall have received a Uniform Commercial
Code search against the Company from New York and every other state in which
assets of the Company or any of its Subsidiaries are located, as of a date no
more than thirty days prior to the Closing Date, certified by a reporting
service satisfactory to the Purchasers, and disclosing no security interests
against such property other than the security interests permitted under
paragraph 5(i) hereof.
(e) The Purchasers shall have received executed releases
releasing all security interests not permitted hereby.
(f) The Purchasers shall have received an executed
intercreditor agreement from the Company's existing term loan lenders and gold
consignors.
(g) All proceedings to be taken in connection with the
transaction contemplated by this Agreement and all documents incident thereto
shall be satisfactory in form and substance to the Purchasers and their counsel
and the Purchasers shall have received copies of all documents which they may
reasonably request.
7. Defaults. If one or more Events of Default shall occur, that is to
say, if
(a) default shall be made in the punctual payment of the
principal of any of the Notes or any installment thereof and such default shall
have continued for a period of two days; or
(b) default shall be made in the punctual payment of any
interest on any of the Notes and such default shall have continued for a period
of seven days; or
(c) the Company or any Subsidiary defaults in any payment of
principal of or interest on any other obligation or obligations for borrowed
money having an aggregate original principal amount in excess of $100,000 beyond
any period of grace provided with respect thereto or in the performance of any
other agreement, term or condition contained in any agreement under which any
such obligations are created, or if any other default shall occur under any such
agreement, if the effect of such default is to cause, or permit the holder or
holders of such obligation (or a trustee on behalf of such holder or holders) to
cause, such obligation to become due prior to its stated maturity; or
(d) an order for relief shall be entered in any federal
bankruptcy proceeding in which the Company or any Subsidiary is the debtor; or
bankruptcy, receivership, insolvency, reorganization, relief, dissolution,
liquidation or other similar proceedings shall be instituted by or against the
Company or any Subsidiary or all or any part of the property of the Company or
any Subsidiary under the Federal Bankruptcy Code or any other law of the United
States or any bankruptcy or insolvency law of any state of competent
jurisdiction unless, if such proceedings are instituted against the Company or
any Subsidiary, such proceedings are dismissed and discharged within sixty (60)
days after they are instituted; or
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<PAGE> 16
(e) the Company or any Subsidiary shall have become insolvent
or unable to pay its debts as they mature, cease doing business as a going
concern (except that any Subsidiary may cease doing business as a going concern
pursuant to a transaction permitted under paragraph 5(f) hereof), make an
assignment for the benefit of creditors, admit in writing its inability to pay
its debts as they become due, or if a trustee, receiver or liquidator shall be
appointed for the Company or any Subsidiary, or for any substantial portion of
the assets of the Company or any Subsidiary, and such appointment shall not be
vacated within sixty (60) days; or
(f) default shall be made in the performance or observance of
any covenant contained in paragraph 5 of this Agreement; or
(g) default shall be made in the performance or observance of
any other of the terms, covenants or conditions of this Agreement and such
default shall continue for a period of thirty days after written notice thereof
shall have been given by the holders of the Notes to the Company; or
(h) there shall occur an Event of Default under the Security
Agreement; or
(i) if any representation or warranty contained in this
Agreement or in any other document supplied to the holders of the Notes by the
Company in connection with this transaction proves to be false as of the time
made, then the holders of at least two-thirds of the principal amount of the
Notes may at their option, by notice in writing to the Company, declare the Note
to be forthwith due and payable and thereupon the Notes shall be and become due
and payable, together with interest accrued thereon (provided that if an Event
of Default results from the filing of a voluntary petition in any bankruptcy
proceeding or the filing of an involuntary petition in any bankruptcy proceeding
which is not dismissed and discharged within 60 days, the Notes thereupon shall
immediately become due and payable, with interest accrued thereon, without any
notice from the holders of the Notes or otherwise), and the holders of the Notes
may take any action or proceeding at law or in equity which they deem advisable
for the protection of their interests to collect and enforce payment, and the
Company shall pay all expenses, court costs and reasonable attorneys' fees
incurred in connection with or arising out of any default hereunder.
8. Payments on and Registration and Transfer of Notes. The Company
agrees that it will make payment of the principal and the interest on the Notes
by wire transfer of immediately available federal funds to each of the
Purchasers at its payment address listed on Appendix I hereto, with sufficient
information to identify the source and application of funds, or to such other
account or in such other manner as the holder of a Note may from time to time
specify by notice in writing to the Company, without presentment of the Notes
and without the rendering of any bills therefor. The Company shall keep at its
principal office a register in which the Company shall provide for the
registration of the Notes and of transfers of the Notes (the "Note Register").
Upon surrender of any Note for transfer at the office of the Company, the
Company shall execute and deliver in the name of the designated transferee a new
Note in a principal amount equal to the unpaid principal amount of, and dated
the date to which interest has been paid on, the Note so surrendered. When a
Note shall be presented or surrendered for transfer it shall be duly endorsed,
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<PAGE> 17
or be accompanied by a written instrument of transfer duly executed, by the
holder thereof or its attorney duly authorized in writing. The Company may treat
the person in whose name a Note is registered on the Note Register as the owner
of the Note for the purpose of receiving payment of principal of, and interest
on, the Note and for all other purposes and the Company shall not be affected by
notice to the contrary.
9. Expenses. The Company agrees, whether or not the purchase of the
Notes herein contemplated shall be completed, to pay and save the Purchasers
harmless against liability for the payment of all out-of-pocket expenses arising
in connection with this transaction, including any documentary stamp taxes (and
including interest and penalties, if any), which may be determined to be due and
payable with respect to the execution and delivery of the Notes, and the
reasonable fees and expenses of counsel to the Purchasers and any travel
expenses incurred by the Purchasers' counsel. The Company also agrees to pay,
and to save the holders of the Notes harmless against liability for the payment
of, the reasonable fees and expenses of counsel to the holders of the Notes in
connection with any documentation and related services arising after the Closing
Date in connection with the preparation of waivers or amendments of any
provisions of this Agreement, the Security Agreement or the Notes. In addition,
the Company agrees to pay, and to save the holders of the Notes harmless
against, any loss, claim or damage (including all costs, expenses and reasonable
attorneys' fees) arising from any claim of any person claiming by, under or
through the Company for brokerage or finders fees in connection with the
transaction contemplated by this Agreement.
10. Notices; Pro Rata Payments; Amendments and Consents.
(a) Notices. All notices, certificates, requests, statements
and other documents required or permitted to be delivered to the Purchasers or
the holders of the Notes by any provision hereof shall be delivered to each
registered holder of any Notes, except that financial statements and other
documents provided for in paragraphs 4(e) and 4(f) hereof need not be delivered
to any holder holding less than $500,000 of the principal amount of the Notes
(other than the Purchasers).
(b) Pro Rata Payments. All interest Payments and payments or
prepayments of principal shall be made and applied pro rata on all Notes
outstanding in accordance with the respective unpaid principal amounts thereof.
(c) Amendments and Consents. The registered holder or holders
of at least two-thirds of the unpaid principal amount of the Notes at the time
outstanding may by agreement with the Company amend this Agreement, and any
consent, notice, demand or request required or permitted to be given by the
Purchasers or the holders of the Notes by any provision hereof shall be
sufficient if given by the holder or holders of at least two-thirds of the
unpaid principal amount of Notes at the time outstanding, except that, without
the written consent of the holder or holders of all Notes at the time
outstanding, no amendment to this Agreement shall extend the maturity of any
Note, or reduce the rate of interest or any premium payable with respect to any
Note, or affect the amount of any required pre-payments, or reduce the
proportion of the principal amount of the Notes required with respect to any
consent.
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<PAGE> 18
11. Investment Purpose; Confidentiality.
(a) Each of the Purchasers represents and warrants to the
Company that:
(i) It is acquiring the Note to be purchased by it
for its own account for investment and not with the view to resale in
connection with any distribution thereof, nor with any present
intention of resale in connection with any distribution thereof, it
being understood, however, that the disposition of the property of the
Purchasers shall at all times be within their control.
(ii) It understands that the Notes have not been, and
will not be, registered under the Securities Act of 1933, as amended
(the "Act"), by reason of their issuance by the Company in a
transaction exempt from the registration requirements of the Act; and
that the Note held by it will not be sold, offered for sale,
transferred, pledged or hypothecated by the Purchaser, unless such
sale, offer of sale, transfer, pledge or hypothecation is pursuant to
an effective registration statement covering such Note and filed in
accordance with the Act or is exempt from such registration.
(iii) It has had access to all material information
requested by it or its counsel from the Company concerning the business
and financial condition of the Company; and it has had the opportunity
to ask questions of officers of the Company.
(b) Each of the Purchasers hereby agrees that it will not
disclose the information contained in any financial statements or reports
received by it pursuant to this Agreement to any person other than other
Purchasers, persons who the Purchasers believe in good faith to be interested in
purchasing a portion of the Notes, and persons at Washington Square Capital,
Inc., except to the extent that such information can be shown to be previously
known to the Purchasers, in the public domain or later acquired by a Purchaser
from other legitimate sources and except to the extent required by law or
regulatory authority.
12. Definitions. For purposes of this Agreement the following terms
shall have the following meanings:
"Affiliate" shall mean (i) any director, officer or employee
of the Company or any Subsidiary, or (ii) any person who, directly or
indirectly, either individually or together with his spouse, lineal descendants
and ascendants and brothers and sisters by blood or adoption or spouses of such
descendants, ascendants, brothers and sisters, beneficially owns 5% or more of
the voting stock of the Company, or (iii) any company in which any person
described in (i) or (ii) above owns a 5% or greater equity interest.
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<PAGE> 19
"Base Amount" shall mean $1,000,000.
"Capitalized Lease Obligations" shall mean obligations under
leases that are required to be capitalized under generally accepted accounting
principles.
"Change of Control" shall mean any of the following
occurrences: (i) the stockholders of the Company shall approve a merger,
consolidation, statutory share exchange, reorganization or similar transaction
whereby the Company would become a subsidiary of, or would be merged or
consolidated with or into, another entity; or the stockholders of the Company
approve the sale or transfer of all or substantially all of the assets of the
Company to any person or entity; in each case unless all or substantially all of
the individuals and entities who were the beneficial owners of the voting shares
of the Company immediately prior to such transaction beneficially own, directly
or indirectly, shares or other indicia of ownership constituting 50% or more of
the voting power of such other person or entity; or (ii) any "person" (as such
term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934),
or persons acting together or in concert (other than Michael Paolercio, Anthony
Paolercio, Jr., George Weisz or Isaac Nussen), is or becomes, the "beneficial
owner" (as defined in Rule 13(d) of the Securities Exchange Act of 1934) of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities, other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or
(iii) individuals who, as of May 15, 1992, constitute the Board of Directors of
the Company (the "Incumbent Board") cease for any reason to constitute at least
a majority of the Board of Directors of the Company, provided, however, that any
individual becoming a director subsequent to May 15, 1990 whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were, and shall continue to be, a member
of the Incumbent Board for purposes of this definition (but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest or other actual or
threatened solicitation of proxies or consents).
"Closing Date" shall have the meaning set forth in paragraph
l(a) hereof.
"Company" shall have the meaning set forth in the preamble to
this Agreement.
"Consolidated Current Assets" shall mean, as of any date, the
consolidated current assets of the Company and its Subsidiaries determined in
accordance with generally accepted accounting principles consistent with those
followed in preparation of the financial statements referred to in paragraph
3(e).
"Consolidated Current Liabilities" shall mean, as of any date,
consolidated current liabilities of the Company and its Subsidiaries (including
the current portion of Funded Debt) determined in accordance with generally
accepted accounting principles consistent with those followed in preparation of
the financial statements referred to in paragraph 3(e).
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<PAGE> 20
"Consolidated Net Income (Loss)" for any period shall mean the
net after-tax income (or net loss) of the Company and its Subsidiaries
determined in accordance with generally accepted accounting principles
consistent with those followed in preparation of the financial statements
referred to in paragraph 3(e).
"Consolidated Tangible Net Worth" shall mean stockholders'
equity of the Company and its Subsidiaries on a consolidated basis, less the
value of Intangible Assets acquired after March 31, 1992.
"Cumulative Consolidated Net Income (Loss)" as of any date
shall mean the Consolidated Net Income (Loss) of the Company accrued during the
period from July 1, 1992 through the end of the most recently completed fiscal
quarter preceding the date of calculation.
"Current Debt" shall mean any obligation for borrowed money or
for the acquisition of property or assets payable one year or less from the date
of its creation and not renewable or extendible without the consent of the
lender; provided that indebtedness for borrowed money outstanding under a
revolving credit or similar agreement which allows the borrower to borrow sums
and repay all or a portion of such borrowings from time to time shall constitute
Current Debt even though such agreement obligates the lender or lenders to
extend credit over a period of more than one year.
"Dividends" shall mean any distribution on account of any
class of capital stock of the Company or any Subsidiary (except dividends
payable in the stock of the corporation making the distribution), or the
redemption, purchase or other acquisition, directly or indirectly, by any such
corporation of any of its stock or any warrant or option to purchase such stock.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974 and the regulations adopted pursuant thereto.
"Event of Default" shall have the meaning set forth in
paragraph 7 hereof.
"Formula Yield Percentage" shall mean, in connection with any
voluntary prepayment of the Notes, the Treasury Yield Percentage plus .50%.
"Funded Debt" shall mean any obligation for borrowed money or
for the acquisition of property or assets payable more than one year from the
date of its creation or which may be renewed at the option of the obligor for a
period or periods aggregating more than one year from the date of its creation.
"Intangible Assets" shall mean the excess of the purchase
price of acquired businesses over the fair market value of the tangible net
assets constituting a part of such acquired businesses, other items of goodwill
and all other items properly classified as intangible, all as determined in
accordance with generally accepted accounting principles consistent with those
followed in preparation of the financial statements referred to in paragraph
3(e).
- 20 -
<PAGE> 21
"Margin Stock" shall have the meaning ascribed to that term in
Section 207.2(i) of Regulation G (12 CFR Part 207) of the Board of Governors of
the Federal Reserve Board.
"Note Register" shall have the meaning set forth in Paragraph
8 hereof.
"Note or Notes" shall have the meaning set forth in paragraph
l(a) hereof.
"Purchase Money Obligations" shall mean indebtedness incurred
in connection with the acquisition or improvement of property, plant and
equipment, which indebtedness is secured by purchase money security interests or
purchase money mortgages upon the property so acquired or improved. Indebtedness
shall be deemed to be incurred "in connection with" the acquisition or
improvement of property, plant or equipment if it is created within twelve
months of the acquisition or improvement of such property, plant or equipment.
"Purchaser" shall have the meaning set forth in the preamble
to this Agreement.
"Statistical Release" shall mean, as of any date, (i) the
Federal Reserve Statistical Release (Form H.15(519) -- Selected Interest Rates),
or (ii) if such release is not then published, any Federal Reserve Board release
comparable thereto, or (iii) if a Federal Reserve Board release comparable
thereto is not then published, any official publication or release of any other
United States Government department or agency comparable thereto.
"Subsidiary" or "Subsidiaries" shall mean the corporation(s)
noted on Exhibit B hereto and any corporation 80% of the outstanding capital
stock of every class of which is hereafter directly or indirectly owned by the
Company.
"Total Capitalization" shall mean the sum of (i) Consolidated
Tangible Net Worth and (ii) Total Funded Debt.
"Total Fixed Charges" for any fiscal year shall mean all
interest and rental deducted in computing consolidated net income of the Company
and its Subsidiaries for such fiscal year, determined in accordance with
generally accepted accounting principles consistent with those followed in
preparation of the financial statements referred to in paragraph 3(e).
"Total Funded Debt" shall mean Funded Debt of the Company and
its Subsidiaries, determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Total Pretax Income Available for Fixed Charges" for any
fiscal year shall mean consolidated net income of the Company and its
Subsidiaries, before income taxes, for such period, determined in accordance
with generally accepted accounting principles consistent with those followed in
preparation of the financial statements referred to in Paragraph 3(e), plus
Total Fixed Charges for said fiscal year plus compensation expenses. For
purposes of this definition, the term "compensation expenses" shall mean (i) all
compensation expenses attributable to compensation paid in kind by the issuance
of the Company's Common Stock, including without
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<PAGE> 22
limitation Common Stock issued pursuant to letter agreements between the Company
and each of George Weisz and Isaac Nussen dated June 28, 1990 (the "Letter
Agreements") and (ii) the amortization of a $2,100,000 cash payment made to
George Weisz and Isaac Nussen pursuant to the Letter Agreements.
"Treasury Yield Percentage" shall mean, as of any date, (i)
the most recent weekly average yield on actively traded U.S. Treasury
obligations having a constant maturity equal to the weighted average life of the
principal and interest on the Notes being prepaid as determined by reference to
the week-ending figures published in the most recent Statistical Release which
shall have become available at least two business days prior to the date fixed
for prepayment, or (ii) if a Statistical Release is not then published, the
arithmetic average (rounded to the nearest .01%) of the per annum yields to
maturity for each business day during the week ending at least two business days
prior to the date as of which such determination is made, of all the issues of
actively traded marketable United States Treasury fixed interest rate securities
with a constant maturity equal to, or not more than 30 days longer or 30 days
shorter than the weighted average life of the principal and interest of the
Notes being prepaid (excluding all such securities which can be surrendered at
the option of the holder at face value in payment of any Federal estate tax,
which provide for tax benefits to the holder or which were issued at substantial
discount), as published in The Wall Street Journal or, if The Wall Street
Journal shall cease such publication, based on average asked prices (or yields)
as quoted by each of three United States government securities dealers of
recognized national standing selected by the holders of the Notes. If the
weighted average life of the principal and interest of the Notes being prepaid
is not equal to the constant maturity of a U.S. Treasury obligation for which a
weekly average yield is published or quoted, the Treasury Yield Percentage shall
be calculated by linear interpolation (to the nearest one-twelfth of a year)
from the most recent weekly average yields of actively traded U.S. Treasury
obligations for which such yields are published or quoted; provided, however,
that if the weighted average life of the principal and interest on the Notes
being prepaid is less than one year, the Treasury Yield Percentage shall equal
the most recent weekly average yield Published or quoted on actively traded U.S.
Treasury obligations with a constant maturity of one year.
"Unconsolidated Net Income" as to any person for any period
shall mean the net after-tax income of such person on an unconsolidated basis
determined in accordance with generally accepted accounting principles
consistent with those followed in the preparation of the financial statements
referred to in paragraph 3(e).
13. Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by the Company in connection
herewith shall survive the execution and delivery of this Agreement and the
Notes.
14. Successors and Assigns. All covenants and agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not.
15. Notices. All communications provided for hereunder shall be sent by
first class mail, personal delivery or overnight courier service and, if to the
Purchasers, addressed
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<PAGE> 23
to the Purchasers at their respective notice address listed on Appendix I
hereto, and, if to the Company, addressed to Michael Anthony Jewelers, Inc., 115
South MacQuesten Parkway, Mount Vernon, New York 10550, Attention: Allan Corn or
to such other address with respect to any of the parties as such party shall
notify the others in writing. The Purchasers shall endeavor to send a copy of
any notice sent to the Company to Michael K. L. Wager, Benesch, Friedlander,
Coplan & Aronoff, 88 East Broad Street, Suite 900, Columbus, Ohio 43215, but
failure to send such copy shall not invalidate the notice sent to the Company.
16. Governing Law. This Agreement is being delivered and is intended to
be performed in the State of Minnesota and shall be construed and enforced in
accordance with the laws of such State.
17. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding agreement between the
Purchasers and the undersigned.
Very truly yours,
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ ALLAN CORN
-------------------------------
Its: Chief Financial Officer
And /s/ MICHAEL WAGER
-------------------------------
Its: Secretary
The foregoing Agreement is accepted as of the date first above written.
NORTHERN LIFE INSURANCE COMPANY $3,500,000 8.61% Senior Note of
Michael Anthony Jewelers, Inc.
By: /s/ GARY L. JACOBSON
------------------------------
Its: Assistant Treasurer
ROYAL MACCABEES LIFE INSURANCE $3,000,000 8.61% Senior
COMPANY Note of Michael Anthony
Jewelers, Inc.
By: /s/ JOHN F. MCCORMICK
------------------------------
Its: Vice President
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<PAGE> 24
THE NORTH ATLANTIC LIFE INSURANCE $1,000,000 8.61% Senior
COMPANY OF AMERICA Note of Michael Anthony
Jewelers, Inc.
By: /s/ GARY L. JACOBSON
------------------------------
Its: Assistant Treasurer
FARM BUREAU LIFE INSURANCE COMPANY $1,000,000 8.61% Senior
OF MICHIGAN Note of Michael Anthony
Jewelers, Inc.
By: /s/ STEVEN R. HARKNESS
------------------------------
Its: Portfolio Manager
FB ANNUITY COMPANY $1,000,000 8.61% Senior Note of
Michael Anthony Jewelers, Inc.
By: /s/ STEVEN R. HARKNESS
------------------------------
Its: Portfolio Manager
FARM BUREAU MUTUAL INSURANCE $500,000 8.61% Senior
COMPANY OF MICHIGAN Note of Michael Anthony
Jewelers, Inc.
By: /s/ STEVEN R. HARKNESS
------------------------------
Its: Portfolio Manager
- 24 -
<PAGE> 1
Exhibit 10.47
SECURITY AGREEMENT
AGREEMENT made this 5th day of June, 1992, by and among MICHAEL
ANTHONY JEWELERS, INC., a Delaware corporation (hereinafter called "Debtor"),
NORTHERN LIFE INSURANCE COMPANY (hereinafter called "Northern"), ROYAL MACCABEES
LIFE INSURANCE COMPANY (hereinafter called "Royal Maccabees"), THE NORTH
ATLANTIC LIFE INSURANCE COMPANY OF AMERICA (hereinafter called "North
Atlantic"), FARM BUREAU LIFE INSURANCE COMPANY OF MICHIGAN (hereinafter called
"Farm Bureau"), FB ANNUITY COMPANY (hereinafter called "FB Annuity") and FARM
BUREAU MUTUAL INSURANCE COMPANY OF MICHIGAN (hereinafter called "Farm Bureau
Mutual" and, together with Northern, Royal Maccabees, North Atlantic, Farm
Bureau and FB Annuity, sometimes collectively called the "Secured Parties" and
individually called a "Secured Party").
In order to secure the payment of (i) an 8.61% Senior Note of
Debtor dated the date hereof payable to Northern or registered assigns in the
principal amount of $3,500,000 with interest thereon, (ii) an 8.61% Senior Note
of Debtor dated the date hereof payable to Royal Maccabees or registered assigns
in the principal amount of $3,000,000 with interest thereon, (iii) an 8.61%
Senior Note of Debtor dated the date hereof payable to North Atlantic or
registered assigns in the principal amount of $1,000,000 with interest thereon,
(iv) an 8.61% Senior Note of Debtor dated the date hereof payable to Farm Bureau
or registered assigns in the principal amount of $1,000,000 with interest
thereon, (v) an 8.61% Senior Note of Debtor dated the date hereof payable to FB
Annuity or registered assigns in the principal amount of $1,000,000 with
interest thereon, and (vi) an 8.61% Senior Note of Debtor dated the date hereof
payable to Farm Bureau Mutual or registered assigns in the principal amount of
$500,000 with interest thereon (all such promissory notes, together with all
promissory notes issued in substitution therefor or replacement thereof, being
herein collectively called the "Notes" and individually called a "Note"), issued
pursuant to the terms of that certain Note Purchase Agreement dated as of May 1,
1992 among Debtor and Secured Parties (the "Note Purchase Agreement"); and in
addition to secure all Notes issued in substitution for or replacement of the
Notes, and the payment and performance of each and every other debt, liability
and obligation of every type and description which Debtor may now or at any time
hereafter owe to Secured Parties, or any of them, under this Agreement or the
Note Purchase Agreement, whether such debt, liability or obligation now exists
or is hereafter created or incurred, whether it is or may be direct or indirect,
due or to become due, absolute or contingent, primary or secondary, liquidated
or unliquidated, or sole, joint, several or joint and several (the Notes and all
such other debts, liabilities and obligations being herein collectively referred
to as the "Obligations"), the parties hereto hereby agree as follows:
1. Security Interest and Collateral. In order to secure the
payment and performance of the Obligations, Debtor hereby grants Secured
Parties, and each of them, a Security Interest (herein called the "Security
Interest") in the following property (herein called the "Collateral"):
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<PAGE> 2
(a) ACCOUNTS, CONTRACT RIGHTS AND OTHER RIGHTS TO PAYMENT:
Any and all accounts, contract rights and other rights to the
payment of money or other forms of consideration of any kind at any time
owing or to be owing to the Debtor (whether classified under the Uniform
Commercial Code as accounts, contract rights, chattel paper, general
intangibles, or otherwise) including, but not limited to accounts
receivable, notes, drafts, acceptances, rights arising out of
overpayments of taxes and all other debts, obligations and liabilities in
whatever form owing to the Debtor from any person, firm, governmental
authority, corporation or any other legal entity, all guarantees,
security interests, liens and other security for payment thereof, and all
of the Debtor's rights to goods sold (delivered, undelivered, in transit
or returned) which may be represented thereby;
(b) INVENTORY:
All gold bullion, gold granule and other gold or precious metals in
whatever form including all substitutions, replacements and products in
which any such gold or precious metals are incorporated or into which
such gold or precious metals are processed or converted, whether now
owned or hereafter acquired by the Debtor or in which the Debtor now or
hereafter acquires an interest; all diamonds and all precious and
semi-precious stones including all substitutions, replacements and
products in which such diamonds or stones are incorporated, whether now
owned or hereafter acquired by Debtor or in which Debtor now or hereafter
acquires an interest; and all inventory now or hereafter owned by the
Debtor or in which the Debtor now or hereafter acquires an interest,
including all merchandise, raw materials, goods in process, and finished
goods; and
(c) OTHER PERSONAL PROPERTY:
All tangible and intangible personal property now or hereafter
owned by the Debtor or in which the Debtor now or hereafter acquires an
interest, including, without limitation, all machinery, equipment, motor
vehicles, furniture, furnishings, office supplies, general intangibles,
patents, trademarks, tradenames, instruments, documents of title,
policies and certificates of insurance (other than those for life
insurance policies), securities, bank deposits, checking accounts and
cash, now owned by the Debtor or which may be acquired by the Debtor
hereafter, wherever situated;
together with all substitutions and replacements for any of the foregoing
property and all products and proceeds of any and all of the foregoing property
and, in the case of all tangible Collateral, together with (i) all accessories,
attachments, parts (including spare parts), accessions and repairs now or
hereafter attached or affixed to or used in connection with any such goods, and
(ii) all documents of title, policies and certificates of insurance (other than
life insurance policies and certificates), securities, chattel paper, or other
documents or instruments evidencing or pertaining thereto; and all files,
correspondence, computer programs, tapes, discs and related data processing
software owned by the Debtor or in which the Debtor has an interest which
contain information identifying or pertaining to any of the Collateral, or any
account debtor, or showing the amounts
- 2 -
<PAGE> 3
thereof or payments thereon, or otherwise necessary or helpful in the
realization thereon or the collection thereof, both now owned or existing or
hereafter acquired, created or arising (including, without limitation, any
claims to any items referred to above, and the proceeds of any insurance with
respect thereto and any claims of the Debtor against third parties for loss of,
damage to, or destruction of, any or all of the Collateral).
2. Representations, Warranties and Agreements. Debtor represents,
warrants and agrees that:
(a) Debtor is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation. This
Agreement has been duly and validly authorized by all necessary corporate
action.
(b) The Collateral will be used primarily for business
purposes.
(c) If any part or all of the tangible Collateral will become
so related to particular real estate as to become a fixture, the real estate
concerned is described in Appendix A attached hereto and the name of the record
owner is shown on such Appendix A.
(d) Debtor's chief place of business is and will continue to
be located at the address shown on Appendix A Debtor's records concerning its
accounts and contract rights are kept at such address.
3. Additional Representations, Warranties and Agreements. Debtor
represents, warrants and agrees that:
(a) Except as otherwise provided in the Note Purchase
Agreement, Debtor has (or will have at the time Debtor acquires rights in
Collateral hereafter arising) and will maintain absolute title to each item of
Collateral free and clear of all security interests, liens and encumbrances,
except the Security Interest, and will defend the Collateral against all claims
or demands of all persons other than Secured Parties. Except as otherwise
provided in the Note Purchase Agreement, Debtor will not sell or otherwise
dispose of the Collateral or any interest therein; provided, however, that,
until the occurrence of an Event of Default under Section 6 and the revocation
by any Secured Party of Debtor's right to do so, Debtor may sell any inventory
constituting Collateral to buyers in the ordinary course of business.
(b) Debtor will not permit any tangible Collateral to be
located in any state (and, if county filing is required, in any county) in which
a financing statement covering such Collateral is required to be, but has not in
fact been, filed.
(c) All rights to payment and all instruments, documents,
chattel papers and other agreements constituting or evidencing collateral are
(or will be when arising or issued) the valid, genuine and legally enforceable
obligations, subject to no defense, set-off or counterclaim (other than those
arising in the ordinary course of business), of each account debtor or other
obligor named therein or in Debtor's records pertaining thereto as being
obligated to pay such obligation.
- 3 -
<PAGE> 4
Debtor will not agree to any modification, amendment or cancellation of any such
obligation, other than reasonable compromises made in the ordinary course of
business, without Secured Parties' prior written consent, and will not
subordinate any such right to payment to claims of other creditors of such
account debtor or other obligor.
(d) Debtor will (i) keep all tangible Collateral in good
repair, working order and condition, normal depreciation excepted, and will,
from time to time, replace any worn, broken or defective parts thereof; (ii)
promptly pay all taxes and other governmental charges levied or assessed upon or
against any collateral or upon or against the creation, perfection or
continuance of the Security Interest; (iii) except as otherwise provided in the
Note Purchase Agreement, keep all Collateral free and clear of all security
interests, liens and encumbrances except the Security Interest; (iv) at all
reasonable times, during normal business hours upon reasonable notice permit
Secured Parties or their representatives to examine or inspect any collateral,
wherever located, and to examine, inspect and copy Debtor's books and records
pertaining to the Collateral and its business and financial condition (it being
understood that until the occurrence of an Event of Default hereunder or event
which with the passage of time or the giving of notice, or both, would
constitute such an Event of Default, Secured Parties shall make any such
inspection at their own expense); (v) keep accurate and complete records
pertaining to the Collateral and pertaining to Debtor's business and financial
condition and will submit to Secured Parties such periodic reports concerning
the Collateral and Debtor's business and financial condition as any Secured
Party may from time to time reasonably request; (vi) promptly notify Secured
Parties of any loss of or material damage to any Collateral or of any material
adverse change, known to Debtor, in the prospect of payment of any sums due on
or under any instrument, chattel paper, account or contract right constituting
Collateral; (vii) at all times keep all tangible Collateral insured against
risks of fire (including so-called extended coverage), theft, collision (in case
of collateral consisting of motor vehicles) and such other risks and in such
amounts as Secured Parties may reasonably request, with any loss payable to
Secured Parties to the extent of their respective interests; (viii) from time to
time execute such financing statements as Secured Parties may reasonably deem
required to be filed in order to perfect the Security Interest; (ix) pay when
due or reimburse Secured Parties on demand for all costs of collection of any of
the Obligations and all other out-of-pocket expenses (including in each case all
reasonable attorneys' fees) incurred by Secured Parties, or any of them, in
connection with the creation, perfection, satisfaction or enforcement of the
Security Interest or the execution or creation, continuance or enforcement of
this Agreement or any or all of the Obligations; (x) execute, deliver or endorse
any and all instruments, documents, assignments, security agreements and other
agreements and writings which Secured Parties, or any of them, may at any time
reasonably request in order to secure, protect, perfect or enforce the Security
Interest and Secured Parties' rights under this Agreement; (xi) not use or keep
any Collateral, or permit it to be used or kept, for any unlawful purpose; and
not use the Collateral or permit it to be used in violation of any federal,
state or local law, statute or ordinance (provided it shall not be deemed a
default hereunder if any such violation does not have a material adverse effect
on the Debtor or the Security Interest); and (xii) except as to fixtures located
at the premises described on Appendix A hereto, not permit any tangible
Collateral to become part of or to be affixed to any real property, without
first assuring to the reasonable satisfaction of Secured Parties that the
Security Interest will be prior and senior to any interest or lien then held or
thereafter acquired by any mortgagee of such real property or the
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<PAGE> 5
owner or Purchaser of any interest therein. If Debtor at any time fails to
perform or observe any agreement contained in this Section 3(d), and if such
failure shall continue for a period of twenty calendar days after Secured
Parties, or any of them, give Debtor written notice thereof (or, in the case of
the agreements contained in clauses (vii) and (viii) of this Section 3(d),
immediately upon the occurrence of such failure, without notice or lapse of
time), each Secured Party may (but need not) perform or observe such agreement
on behalf and in the name, place and stead of Debtor (or, at the option of the
Secured Parties, or any of them, in the name of the Secured party taking the
action) and may (but need not) take any and all other actions which Secured
Parties, or any of them, may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens, or encumbrances, the performance of obligations
under contracts or agreements with account debtors or other obligors, the
procurement and maintenance of insurance, the execution of financing statements,
the endorsement of instruments, and the procurement of repairs, transportation
or insurance); and, except to the extent that the effect of such payment would
be to render any loan or forebearance of money usurious or otherwise illegal
under any applicable law, Debtor shall thereupon pay to each Secured Party on
demand the amount of all moneys expended and all costs and expenses (including
reasonable attorney's fees) incurred by such Secured Party in connection with or
as a result of its performing or observing such agreements or taking such
actions, together with interest thereon from the date expended or incurred by
such Secured Party at the highest rate then applicable to any of the
Obligations. To facilitate the performance or observance by Secured Parties of
such agreements of Debtor, Debtor hereby irrevocably appoints (which appointment
is coupled with an interest) each Secured Party, or its delegate, as the
attorney-in-fact of Debtor with the right (but not the duty) from time to time
after the occurrence of an Event of Default hereunder or event which with the
giving of notice or the passage of time, or both, would constitute such an Event
of Default, to create, prepare, complete, execute, deliver, endorse or file, in
the name and on behalf of Debtor, any and all instruments, documents, financing
statements, applications for insurance and other agreements and writings
required to be obtained, executed, delivered or endorsed by Debtor under this
Section 3.
4. Collection Rights of Secured Parties. A Secured Party may,
at any time after the occurrence of an Event of Default under Section 6 or an
event which, with the passage of time or the giving of notice, or both,
constitute such an Event of Default, notify any account debtor, or any other
person obligated to pay any amount due, that such right to payment has been
assigned or transferred to Secured Parties for security and shall be paid
directly to Secured Parties. If a Secured Party so requests at any time after
the occurrence of an Event of Default, Debtor will so notify such account
debtors and other obligors in writing and will indicate on all invoices to such
account debtors or other obligors that the amount due is payable directly to
Secured Parties. At any time after any Secured Party or Debtor gives such notice
to an account debtor or other obligor, Secured Parties may (but need not), in
their own name or in Debtor's name, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such right to payment, or grant any extension to, make any compromise or
settlement with or otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such account debtor or
other obligor.
- 5 -
<PAGE> 6
5. Funds Received by Debtor. If Secured Parties exercise their
right to notify account debtors as provided in Section 4, and if notwithstanding
the giving of such notice the account debtors make payment to the Debtor, Debtor
agrees that it will promptly deliver to Secured Parties all payments on accounts
and chattel paper received by it. All such payments shall be delivered to
Secured Parties in the form received (except for Debtor's endorsement where
necessary). Until so deposited, all payments on accounts and chattel paper
received by Debtor shall be held in trust by Debtor for and as the property of
Secured Parties and shall not be commingled with any funds or property of
Debtor.
6. Events of Default. Each of the following occurrences shall
constitute an Event of Default: (a) default shall be made in the punctual
payment of the principal of any Obligation or any installment thereof and such
default shall have continued for a period of two days; or (b) default shall be
made in the punctual payment of any interest on any Obligation, and such default
shall have continued for a period of seven days; or (c) default shall be made in
the performance or observance of any other of the terms, covenants or conditions
of this Agreement and such default shall continue for a period of thirty days
after written notice thereof shall have been given by any Secured Party to
Debtor; or (d) there shall occur any other Event of Default under the Note
Purchase Agreement.
7. Remedies After Default or Event of Default.
(a) If an event has occurred or failed to occur, the occurrence
or non-occurrence of which constitutes an Event of Default under Section 6,
Secured Parties, and each of them, shall have the right and each Secured Party
is hereby irrevocably authorized, without giving notice, except as hereinafter
provided, to realize upon the Collateral, and Secured Parties, and each of them,
in so doing, may at any time and from time to time, with or without judicial
process (without a prior hearing or notice thereof, which Debtor expressly
waives) or the aid or assistance of others, enter upon any premises on which any
of the Collateral may be located and without resistance or interference by the
Debtor take possession of the Collateral and/or require the Debtor to assemble
and to make available to Secured Parties at the expense of the Debtor any part
or all of the Collateral at any place or time designated by Secured Parties, or
any of them, which is reasonably convenient to Secured Parties and the Debtor
and/or remove any part or all of the Collateral from any premises on which it
may be located for the purpose of effecting any sale or other disposition
thereof, and/or sell, resell, lease, assign, deliver or otherwise dispose of any
or all of the Collateral in its then condition or following any commercially
reasonable preparation or processing at public or private sale by one or more
contracts in one or more parcels at the same or different times with or without
having the Collateral at the place of sale or other disposition for cash, on
credit or for future delivery and upon any terms, at such place or places and
time or times and to such persons, firms or corporations as Secured Parties, or
any of them, shall deem best, except that Secured Parties shall not be required
to marshal the Collateral or to resort to the Collateral at any particular time
or in any particular order.
Secured Parties shall give or cause to be given to the Debtor at least ten
calendar days' notice of the time and place of any public or private sale or
other disposition of the Collateral, unless the Collateral so to be sold or
disposed of is perishable, threatens to decline speedily in value or is of
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<PAGE> 7
a type customarily sold in a recognized market, in which case no such notice of
sale or other disposition shall be required. The Debtor agrees that such
provisions for notification constitute "reasonable notification" within the
meaning of the Uniform Commercial Code.
(b) In addition to the remedies provided in the foregoing
subsection (a) and in Section 4 hereof, upon the occurrence of an Event of
Default under Section 6 and at any time thereafter, Secured Parties, and each of
them, may exercise any one or more of the following rights or remedies: (i) at
the option of the Secured Party or Secured Parties holding at least two-thirds
of the unpaid principal amount of the Notes then outstanding, by notice in
writing to Debtor, declare all unmatured Obligations to be forthwith due and
payable and thereupon all Obligations shall be and become due and payable; (ii)
exercise and enforce any or all rights and remedies available after default to a
secured party under the Uniform Commercial Code; and (iii) exercise or enforce
any or all other rights or remedies available to Secured Parties, or any of
them, by law or agreement against the Collateral, against Debtor or against any
other person or property.
(c) In furtherance of the rights granted hereunder, the Debtor
hereby appoints each Secured Party as its irrevocable attorney-in-fact with
power, upon the occurrence of an Event of Default hereunder or event which with
the giving of notice or the passage of time, or both, would constitute such an
Event of Default, to receive, open and dispose of all mail addressed to the
Debtor relating to the Collateral, to endorse the name of the Debtor on any
checks or other evidences of payment that may come into the possession of any
Secured Party, on the Collateral and on any invoice, freight or express bill,
bill of lading or other document pertaining to the Collateral in its name or
otherwise, to demand, sue for, collect and give acquittances for any and all
monies due or to become due on the Collateral, to notify the post office
authorities to change the address for delivery of the Debtor's mail to an
address designated by Secured Parties, or any of them, to receive, open and
dispose of all mail addressed to the Debtor, to send requests for verification
of accounts receivable to customers or account debtors, to compromise, execute
or demand any action, claim or proceeding concerning the Collateral and to do
any and all things necessary or desirable to carry out the purposes contemplated
by this Agreement.
8. Miscellaneous. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, Debtor is
entitled to any surplus and shall remain liable for any deficiency. This
Agreement can be waived, modified, amended, terminated or discharged, and the
Security Interest can be released, only explicitly in a writing signed by all
parties hereto. A waiver signed by Secured Parties shall be effective only in
the specific instance and for the specific purpose given. Mere delay or failure
to act shall not preclude the exercise or enforcement of any of the rights or
remedies of the Secured Parties. All rights and remedies of Secured Parties
shall be cumulative and may be exercised singularly or concurrently, by the
Secured Parties, or any of them, at the option of Secured Parties or Secured
Party, and the exercise or enforcement of any one such right or remedy shall
neither be a condition to nor bar the exercise or enforcement of any other. All
notices to be given to Debtor shall be deemed sufficiently given if mailed by
registered or certified mail, postage prepaid, or delivered to Debtor at its
address shown on Appendix A hereto or at the most recent address shown on a
Secured Party's records. A Secured Party's duty of care with respect to
Collateral in its possession (as,
- 7 -
<PAGE> 8
imposed by law) shall be deemed fulfilled if such Secured Party exercises
reasonable care in physically safekeeping such Collateral or, in the case of
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third Person,
and such Secured Party need not otherwise preserve, protect, insure or care for
any Collateral. Secured Parties shall not be obligated to preserve any rights
Debtor may have against prior parties, to realize on the Collateral at all or in
any particular manner or order, or to apply any cash proceeds or Collateral in
any particular order of application. This Agreement shall be binding upon and
inure to the benefit of Debtor and Secured Parties and their respective
representatives, successors and assigns and shall take effect when signed by
Debtor and delivered to Secured Parties, and Debtor waives notice of Secured
Parties' acceptance hereof. Except to the extent otherwise required by law, this
Agreement shall be governed by the internal laws of the State of Minnesota and,
unless the context otherwise requires, all terms used herein which are defined
in Articles 1 and 9 of the Uniform Commercial Code, as in effect in said state
(including but not limited to the terms "inventory", "instrument", "document",
"chattel paper", "account", "contract right", and "account debtor"), shall have
the meanings therein stated. If any provision or application of this Agreement
is held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or applications which can be
given effect, and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
9. Priority of Secured Parties; Ability to Act. By accepting
this Agreement, Secured Parties, and each of them, agree that they shall rank
pari passu with respect to the Security Interest. Notwithstanding anything
herein to the contrary, a Secured Party may not exercise any rights or remedies
hereunder without the consent of Secured Parties who (together with the Secured
Party seeking to take such action) hold at least 60% of the then outstanding
aggregate principal amount of the Notes.
10. InterCreditor Agreement. It is hereby acknowledged that the
Collateral is subject to the security interest of (i) Rhode Island Hospital
Trust National Bank, as agent ("RIHT"), under a Security Agreement dated as of
May 23, 1990, as amended, and (ii) the security interest of Northwestern
National Life Insurance Company, Northern Life Insurance Company and The North
Atlantic Life Insurance Company of America (the "1987 Lenders"), under a
Security Agreement dated December 30, 1987 among the Debtor and the 1987 Lenders
as well as to the Security Interest, as permitted under the Note Purchase
Agreement. Reference is made to the Amended and Restated InterCreditor Agreement
dated this date among Secured Parties, RIHT and the 1987 Lenders, as from time
to time supplemented or amended, which governs the manner and extent of sharing
in the income and proceeds of Collateral and certain other intercreditor
matters. Secured Parties hereby acknowledge that portions of the RIHT security
interest are prior to the Security Interest, as provided in the InterCreditor
Agreement, and, therefore, that some of the rights hereunder may be subject to
prior rights of RIHT.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
$3,500,000 8.61% Senior NORTHERN LIFE INSURANCE COMPANY
Note of Michael Anthony
Jewelers, Inc.
By /s/ GARY L. JACOBSON
----------------------------
Its: Assistant Treasurer
(Secured Party)
$3,000,000 8.61% Senior ROYAL MACCABEES LIFE INSURANCE
Note of Michael Anthony COMPANY
Jewelers, Inc.
By /s/ JOHN F. MCCORMICK
-----------------------------
Its: Vice President
(Secured Party)
$1,000,000 8.61% Senior THE NORTH ATLANTIC LIFE INSURANCE
Note of Michael Anthony COMPANY OF AMERICA
Jewelers, Inc.
By /s/ GARY L. JACOBSON
-----------------------------
Its: Assistant Treasurer
(Secured Party)
$1,000,000 8.61% Senior FARM BUREAU LIFE INSURANCE
Note of Michael Anthony COMPANY OF MICHIGAN
Jewelers, Inc.
By /s/ STEVEN R. HARKNESS
-----------------------------
Its: Portfolio Manager
(Secured Party)
$1,000,000 8.61% Senior FB ANNUITY COMPANY
Note of Michael Anthony
Jewelers, Inc.
By /s/ STEVEN R. HARKNESS
-----------------------------
Its: Portfolio Manager
(Secured Party)
- 9 -
<PAGE> 10
$500,000 8.61% Senior FARM BUREAU MUTUAL INSURANCE
Note of Michael Anthony COMPANY OF MICHIGAN
Jewelers, Inc.
By /s/ STEVEN R. HARKNESS
------------------------------
Its: Portfolio Manager
(Secured Party)
MICHAEL ANTHONY JEWELERS, INC.
By /s/ ALLAN CORN
-------------------------------
Its: Chief Financial Officer
Attest: /s/ MICHAEL WAGER
-------------------------
Its: Secretary
(Debtor)
- 10 -
<PAGE> 1
Exhibit 10.48
MICHAEL ANTHONY JEWELERS, INC.
8.61% SENIOR NOTE DUE 2002
$3,500,000 June 5, 1992
FOR VALUE RECEIVED, the undersigned, MICHAEL ANTHONY JEWELERS, INC., a
Delaware corporation (the "Company"), hereby promises to pay to Northern Life
Insurance Company or registered assigns, by wire transfer of federal or other
immediately available funds to First National Bank of Minneapolis, 120 South
Sixth Street, Account No. 602-3237-610, with sufficient information to identify
the source and application of funds, in lawful money of the United States, the
principal sum of THREE MILLION FIVE HUNDRED THOUSAND DOLLARS ($3,500,000) in
eight consecutive annual installments of $388,888.89 each on May 15 of each year
commencing May 15, 1994, with a final installment of $388,888.88 payable on May
15, 2002, and to pay interest in like money on the unpaid balance hereof at the
rate of 8.61% per annum (provided that solely for the purpose of determining the
portion of annual interest allocable to any interest payment, it shall be
assumed that a year is comprised of 360 days and twelve 30-day months) from the
date hereof, payable quarterly, on February 15, May 15, August 15 and November
15 in each year commencing August 15, 1992, until payment in full of the
principal hereof.
If all or any portion of the principal amount of or interest on this
Note shall not be paid on or before the fifteenth day after the date on which
such payment was due, such principal (and, if so permitted by law, such
interest) shall bear interest at a rate equal to the lower of 10.61% per annum
(computed on the basis of a 360-day year comprised of twelve 30-day months) or
the highest rate permitted by law from the date of non-payment until paid in
full.
This Note is given pursuant to a Note Purchase Agreement the
("Agreement") entered into among the Company and Northern Life Insurance
Company, Royal Maccabees Life Insurance Company, The North Atlantic Life
Insurance Company of America, Farm Bureau Life Insurance Company of Michigan, FB
Annuity Company and Farm Bureau Mutual Insurance Company of Michigan dated as of
May 1, 1992. As provided in the Agreement, this Note is subject to voluntary
prepayment, subject to the conditions specified in the Agreement.
As provided in the Agreement, this Note is secured by the Security
Agreement referred to therein.
As provided in the Agreement, this Note is transferable only on the
Note Register of the Company, upon surrender of this Note for transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed by
the registered holder hereof or its attorney duly authorized in writing. The
undersigned may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the undersigned shall not be affected by the notice to the contrary.
<PAGE> 2
In case an Event of Default, as defined in the Agreement, shall occur,
the principal of this Note may be declared due and payable in the manner and
with the effect provided in the Agreement.
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ ALLAN CORN
------------------------------
Its: Chief Financial Officer
And /s/ MICHAEL WAGER
------------------------------
Its: Secretary
<PAGE> 1
Exhibit 10.49
MICHAEL ANTHONY JEWELERS, INC.
8.61% SENIOR NOTE DUE 2002
$3,000,000 June 5, 1992
FOR VALUE RECEIVED, the undersigned, MICHAEL ANTHONY JEWELERS, INC., a
Delaware corporation (the "Company"), hereby promises to INCE & Co. or
registered assigns, by wire transfer of federal or other immediately available
funds to Morgan Guaranty Trust Company, ABA #0210-0023-8, Morgan NYC/CUST/Royal
Maccabees Life Insurance Co., DDA Acct. #001-16-175, with sufficient information
to identify the source and application of funds, in lawful money of the United
States, the principal sum of THREE MILLION DOLLARS ($3,000,000) in eight
consecutive annual installments of $333,333.33 each on May 15 of each year
commencing May 15, 1994, with a final installment of $333,333.36 payable on May
15, 2002, and to pay interest in like money on the unpaid balance hereof at the
rate of 8.61% per annum (provided that solely for the purpose of determining the
portion of annual interest allocable to any interest payment, it shall be
assumed that a year is comprised of 360 days and twelve 30-day months) from the
date hereof, payable quarterly on February 15, May 15, August 15 and November 15
in each year commencing August 15, 1992, until payment in full of the principal
hereof.
If all or any portion of the principal amount of or interest on this
Note shall not be paid on or before the fifteenth day after the date on which
such payment was due, such principal (and, if so permitted by law, such
interest) shall bear interest at a rate equal to the lower of 10.61% per annum
(computed on the basis of a 360-day year comprised of twelve 30-day months) or
the highest rate permitted by law from the date of non-payment until paid in
full.
This Note is given pursuant to a Note Purchase Agreement the
("Agreement") entered into among the Company and Northern Life Insurance
Company, Royal Maccabees Life Insurance Company, The North Atlantic Life
Insurance Company of America, Farm Bureau Life Insurance Company of Michigan, FB
Annuity Company and Farm Bureau Mutual Insurance Company of Michigan dated as of
May 1, 1992. As provided in the Agreement, this Note is subject to voluntary
prepayment, subject to the conditions specified in the Agreement.
As provided in the Agreement, this Note is secured by the Security
Agreement referred to therein.
As provided in the Agreement, this Note is transferable only on the
Note Register of the Company, upon surrender of this Note for transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed by
the registered holder hereof or its attorney duly authorized in writing. The
undersigned may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the undersigned shall not be affected by the notice to the contrary.
<PAGE> 2
In case an Event of Default, as defined in the Agreement, shall occur,
the principal of this Note may be declared due and payable in the manner and
with the effect provided in the Agreement.
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ ALLAN CORN
----------------------------
Its: Chief Financial Officer
And /s/ MICHAEL WAGER
----------------------------
Its: Secretary
<PAGE> 1
Exhibit 10.50
MICHAEL ANTHONY JEWELERS, INC.
8.61% SENIOR NOTE DUE 2002
$1,000,000 June 5, 1992
FOR VALUE RECEIVED, the undersigned, MICHAEL ANTHONY JEWELERS, INC., a
Delaware corporation (the "Company"), hereby promises to pay to The North
Atlantic Life Insurance Company of America or registered assigns, by wire
transfer of federal or other immediately available funds to c/o The Bank of New
York, ABA# 021000018, ACC# IDC111566 Security Income Collection, Attention:
P & I Department, with sufficient information to identify the source and
application of funds, in lawful money of the United States, the principal sum of
ONE MILLION DOLLARS ($1,000,000) in eight consecutive annual installments of
$111,111.11 each on May 15 of each year commencing May 15, 1994, with a final
installment of $111,111.12 payable on May 15, 2002, and to pay interest in like
money on the unpaid balance hereof at the rate of 8.61% per annum (provided that
solely for the purpose of determining the portion of annual interest allocable
to any interest payment, it shall be assumed that a year is comprised of
360 days and twelve 30-day months) from the date hereof, payable quarterly, on
February 15, May 15, August 15 and November 15 in each year commencing
August 15, 1992, until payment in full of the principal hereof.
If all or any portion of the principal amount of or interest on this
Note shall not be paid on or before the fifteenth day after the date on which
such payment was due, such principal (and, if so permitted by law, such
interest) shall bear interest at a rate equal to the lower of 10.61% per annum
(computed on the basis of a 360-day year comprised of twelve 30-day months) or
the highest rate permitted by law from the date of non-payment until paid in
full.
This Note is given pursuant to a Note Purchase Agreement the
("Agreement") entered into among the Company and Northern Life Insurance
Company, Royal Maccabees Life Insurance Company, The North Atlantic Life
Insurance Company of America, Farm Bureau Life Insurance Company of Michigan, FB
Annuity Company and Farm Bureau Mutual Insurance Company of Michigan dated as of
May 1, 1992. As provided in the Agreement, this Note is subject to voluntary
prepayment, subject to the conditions specified in the Agreement.
As provided in the Agreement, this Note is secured by the Security
Agreement referred to therein.
As provided in the Agreement, this Note is transferable only on the
Note Register of the Company, upon surrender of this Note for transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed by
the registered holder hereof or its attorney duly authorized in writing. The
undersigned may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the undersigned shall not be affected by the notice to the contrary.
<PAGE> 2
In case an Event of Default, as defined in the Agreement, shall occur,
the principal of this Note may be declared due and payable in the manner and
with the effect provided in the Agreement.
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ ALLAN CORN
----------------------------
Its: Chief Financial Officer
And /s/ MICHAEL WAGER
----------------------------
Its: Secretary
<PAGE> 1
Exhibit 10.51
MICHAEL ANTHONY JEWELERS, INC.
8.61% SENIOR NOTE DUE 2002
$1,000,000 June 5, 1992
FOR VALUE RECEIVED, the undersigned, MICHAEL ANTHONY JEWELERS, INC., a
Delaware corporation (the "Company"), hereby promises to pay to Farm Bureau Life
Insurance Company of Michigan or registered assigns, by wire transfer of federal
or other immediately available funds to MFRS/Detroit #072000339, F/A/O: Farm
Bureau Life Acct. #84550, Attn: Sue Blanchette, Department 530, Trust Acct.
Income Unit, with sufficient information to identify the source and application
of funds, in lawful money of the United States, the principal sum of ONE MILLION
DOLLARS ($1,000,000) in eight consecutive annual installments of $111,111.11
each on May 15 of each year commencing May 15, 1994, with a final installment of
$111,111.12 payable on May 15, 2002, and to pay interest in like money on the
unpaid balance hereof at the rate of 8.61% per annum (provided that solely for
the purpose of determining the portion of annual interest allocable to any
interest payment, it shall be assumed that a year is comprised of 360 days and
twelve 30-day months) from the date hereof, payable quarterly, on February 15,
May 15, August 15 and November 15 in each year commencing August 15, 1992, until
payment in full of the principal hereof.
If all or any portion of the principal amount of or interest on this
Note shall not be paid on or before the fifteenth day after the date on which
such payment was due, such principal (and, if so permitted by law, such
interest) shall bear interest at a rate equal to the lower of 10.61% per annum
(computed on the basis of a 360-day year comprised of twelve 30-day months) or
the highest rate permitted by law from the date of non-payment until paid in
full.
This Note is given pursuant to a Note Purchase Agreement the
("Agreement") entered into among the Company and Northern Life Insurance
Company, Royal Maccabees Life Insurance Company, The North Atlantic Life
Insurance Company of America, Farm Bureau Life Insurance Company of Michigan, FB
Annuity Company and Farm Bureau Mutual Insurance Company of Michigan dated as of
May 1, 1992. As provided in the Agreement, this Note is subject to voluntary
prepayment, subject to the conditions specified in the Agreement.
As provided in the Agreement, this Note is secured by the Security
Agreement referred to therein.
As provided in the Agreement, this Note is transferable only on the
Note Register of the Company, upon surrender of this Note for transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed by
the registered holder hereof or its attorney duly authorized in writing. The
undersigned may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the undersigned shall not be affected by the notice to the contrary.
<PAGE> 2
In case an Event of Default, as defined in the Agreement, shall occur,
the principal of this Note may be declared due and payable in the manner and
with the effect provided in the Agreement.
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ ALLAN CORN
--------------------------------
Its: Chief Financial Officer
And /s/ MICHAEL WAGER
--------------------------------
Its: Secretary
<PAGE> 1
Exhibit 10.52
MICHAEL ANTHONY JEWELERS, INC.
8.61% SENIOR NOTE DUE 2002
$1,000,000 June 5, 1992
FOR VALUE RECEIVED, the undersigned, MICHAEL ANTHONY JEWELERS, INC., a
Delaware corporation (the "Company"), hereby promises to pay to FB Annuity
Company or registered assigns, by wire transfer of federal or other immediately
available funds to MFRS/Detroit #072000339, F/A/O: FB Annuity Acct. #84553,
Attn: Sue Blanchette, Department 530, Trust Acct. Income Unit, with sufficient
information to identify the source and application of funds, in lawful money of
the United States, the principal sum of ONE MILLION DOLLARS ($1,000,000) in
eight consecutive annual installments of $111,111.11 each on May 15 of each year
commencing May 15, 1994, with a final installment of $111,111.12 payable on May
15, 2002, and to pay interest in like money on the unpaid balance hereof at the
rate of 8.61% per annum (provided that solely for the purpose of determining the
portion of annual interest allocable to any interest payment, it shall be
assumed that a year is comprised of 360 days and twelve 30-day months) from the
date hereof, payable quarterly, on February 15, May 15, August 15 and November
15 in each year commencing August 15, 1992, until payment in full of the
principal hereof.
If all or any portion of the principal amount of or interest on this
Note shall not be paid on or before the fifteenth day after the date on which
such payment was due, such principal (and, if so permitted by law, such
interest) shall bear interest at a rate equal to the lower of 10.61% per annum
(computed on the basis of a 360-day year comprised of twelve 30-day months) or
the highest rate permitted by law from the date of non-payment until paid in
full.
This Note is given pursuant to a Note Purchase Agreement the
("Agreement") entered into among the Company and Northern Life Insurance
Company, Royal Maccabees Life Insurance Company, The North Atlantic Life
Insurance Company of America, Farm Bureau Life Insurance Company of Michigan, FB
Annuity Company and Farm Bureau Mutual Insurance Company of Michigan dated as of
May 1, 1992. As provided in the Agreement, this Note is subject to voluntary
prepayment, subject to the conditions specified in the Agreement.
As provided in the Agreement, this Note is secured by the Security
Agreement referred to therein.
As provided in the Agreement, this Note is transferable only on the
Note Register of the Company, upon surrender of this Note for transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed by
the registered holder hereof or its attorney duly authorized in writing. The
undersigned may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the undersigned shall not be affected by the notice to the contrary.
<PAGE> 2
In case an Event of Default, as defined in the Agreement, shall occur,
the principal of this Note may be declared due and payable in the manner and
with the effect provided in the Agreement.
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ ALLAN CORN
---------------------------------
Its: Chief Financial Officer
And /s/ MICHAEL WAGER
---------------------------------
Its: Secretary
<PAGE> 1
Exhibit 10.53
MICHAEL ANTHONY JEWELERS, INC.
8.61% SENIOR NOTE DUE 2002
$500,000 June 5, 1992
FOR VALUE RECEIVED, the undersigned, MICHAEL ANTHONY JEWELERS, INC., a
Delaware corporation (the "Company"), hereby promises to pay to Farm Bureau
Mutual Insurance Company of Michigan or registered assigns, by wire transfer of
federal or other immediately available funds to MFRS/Detroit #072000339, F/A/O:
Farm Bureau Mutual Acct. #84551, Attn: Sue Blanchette, Department 530, Trust
Acct. Income Unit, with sufficient information to identify the source and
application of funds, in lawful money of the United States, the principal sum of
FIVE HUNDRED THOUSAND DOLLARS ($500,000) in eight consecutive annual
installments of $55,555.56 each on May 15 of each year commencing May 15, 1994,
with a final installment of $55,555.52 payable on May 15, 2002, and to pay
interest in like money on the unpaid balance hereof at the rate of 8.61% per
annum (provided that solely for the purpose of determining the portion of annual
interest allocable to any interest payment, it shall be assumed that a year is
comprised of 360 days and twelve 30-day months) from the date hereof, payable
quarterly, on February 15, May 15, August 15 and November 15 in each year
commencing August 15, 1992, until payment in full of the principal hereof.
If all or any portion of the principal amount of or interest on this
Note shall not be paid on or before the fifteenth day after the date on which
such payment was due, such principal (and, if so permitted by law, such
interest) shall bear interest at a rate equal to the lower of 10.61% per annum
(computed on the basis of a 360-day year comprised of twelve 30-day months) or
the highest rate permitted by law from the date of non-payment until paid in
full.
This Note is given pursuant to a Note Purchase Agreement the
("Agreement") entered into among the Company and Northern Life Insurance
Company, Royal Maccabees Life Insurance Company, The North Atlantic Life
Insurance Company of America, Farm Bureau Life Insurance Company of Michigan, FB
Annuity Company and Farm Bureau Mutual Insurance Company of Michigan dated as of
May 1, 1992. As provided in the Agreement, this Note is subject to voluntary
prepayment, subject to the conditions specified in the Agreement.
As provided in the Agreement, this Note is secured by the Security
Agreement referred to therein.
As provided in the Agreement, this Note is transferable only on the
Note Register of the Company, upon surrender of this Note for transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed by
the registered holder hereof or its attorney duly authorized in writing. The
undersigned may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the undersigned shall not be affected by the notice to the contrary.
<PAGE> 2
In case an Event of Default, as defined in the Agreement, shall occur,
the principal of this Note may be declared due and payable in the manner and
with the effect provided in the Agreement.
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ Allan Corn
--------------------------
Its: Chief Financial Officer
And /s/ Michael Wager
--------------------------
Its: Secretary
<PAGE> 1
1993 LONG-TERM INCENTIVE PLAN
OF
MICHAEL ANTHONY JEWELERS, INC.
1. PURPOSE OF THE PLAN. This 1993 Long-Term Incentive Plan of Michael
Anthony Jewelers, Inc. adopted on this 22nd day of April, 1993, is intended to
enable officers and key employees of the Company and its Subsidiaries to acquire
or increase their ownership of common stock of the Company on reasonable term.
The opportunity so provided is intended to foster in participants an incentive
to put forth maximum effort for the continued success and growth of the Company
and its Subsidiaries, to aid in retaining individuals who put forth such
efforts, and to assist in attracting the best available individuals to the
Company and its Subsidiaries in the future.
2. DEFINITIONS. When used herein, the following terms shall have the
meaning set forth below:
2.1 "AWARD" means an Option, an Option granted in tandem with
an SAR, a Performance Plan Award, a Reload Option, a Restricted Stock
Award, a Restricted Stock Award granted in tandem with an Option, an
SAR or a Stock Bonus Award.
2.2 "AWARD AGREEMENT" means a written agreement in such form
as may be from time to time, hereafter approved by the Committee, which
shall be duly executed by the Company and the Employee and which shall
set forth the terms and conditions of an Award under the Plan.
2.3 "BOARD" means the Board of Directors of Michael Anthony
Jewelers, Inc.
2.4 "CHANGE IN CONTROL" means a change in control of the
Company of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act (as in effect on the date the Plan
-1-
<PAGE> 2
is adopted by the Board), whether or not the Company is then subject to
such reporting requirement; provided, that, without limitation, a
Change in Control shall be deemed to have occurred if:
(a) any "person" (as defined in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing forty
percent (40%) or more of the combined voting power of the
Company's then outstanding securities; provided, however, that
a Change in Control shall not be deemed to occur under this
clause (a) by reason of the acquisition of securities by the
Company or an employee benefit plan (or any trust funding such
a plan) maintained by the Company, or by reason of the new
issuance of securities directly by the Company;
(b) during any period of two (2) consecutive years (not
including any period prior to the adoption of this Plan) there
shall cease to be a majority of the Board comprised of
Continuing Directors; or
(c) (i) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than fifty-one percent (51%) of the
combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such
merger or consolidation, or (ii) the stockholders of the
Company approve a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets.
-2-
<PAGE> 3
2.5 "CODE" means the Internal Revenue Code of 1986, as in
effect at the time of reference, or any successor revenue code which
may hereafter be adopted in lieu thereof, and reference to any specific
provisions of the Code shall refer to the corresponding provisions of
the Code as it may hereafter be amended or replaced.
2.6 "COMMITTEE" means the Stock Option Committee of the Board
or any other committee appointed by the Board which is invested by the
Board with responsibility for the administration of the Plan and whose
members meet the requirements for eligibility to serve as set forth in
Rule 16b-3 and in the Plan.
2.7 "COMPANY" means Michael Anthony Jewelers, Inc.
2.8 "CONTINUING DIRECTORS" means individuals who at the
beginning of any period of two (2) consecutive years (not including any
period prior to the adoption of this Plan) and any new director(s)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved.
2.9 "EMPLOYEE STOCKHOLDER" means an Employee who, at the time
an Incentive Stock Option is granted owns, as defined in Section 424 of
the Code, stock possessions more than ten percent (10%) of the total
combined voting power of all classes of stock of: (a) the Company; or
(b) if applicable, a Subsidiary or a Parent.
2.10 "EMPLOYEES" means officers (including officers who are
members of the Board) and other key employees of the Company or any of
its Subsidiaries.
2.11 "ERISA" means the Employee Retirement Income Security Act
of 1974, as in effect at the time of reference, or any successor law
which may hereafter be
-3-
<PAGE> 4
adopted in lieu thereof, and any reference to any specific provisions
of ERISA shall refer to the corresponding provisions of ERISA as it may
hereafter be amended or replaced.
2.12 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as in effect at the time of reference, or any successor law which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of the Exchange Act shall refer to the corresponding
provisions of the Exchange Act as it may hereafter be amended or
replaced.
2.13. "EXERCISED OPTION" has the meaning ascribed to it in
Section 2.24 hereof.
2.14 "FAIR MARKET VALUE" means, with respect to the Shares,
the closing price of the Shares on the American Stock Exchange or other
national securities exchange, on the last business day prior to the
date on which the value is to be determined, as reported in the Wall
Street Journal or such other source of quotations for, or report of
trading of, the Shares as the Committee may reasonably select from time
to time; provided, however, if the Shares are not then traded on such
an exchange, but are then traded on the over-the-counter market, Fair
Market Value means the mean between the high and low bid and asked
prices for the Shares on the over-the-counter market on the last
business day prior to the date on which the value is to be determined
(or the next preceding day on which sales occurred if there were no
sales on such date); provided further, however, if no sales have
occurred in the over-the-counter market during the three week period
preceding the date on which the value is to be determined, Fair Market
Value means the average
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of the mean between the high and low bid and asked prices for the
Shares on the over-the-counter market for the three (3) month period
ending on the last business day prior to the date on which the value is
to be determined; provided, further, however, if the Shares are
reported in the National Market List of the National Association of
Securities Dealers, Inc. Automated Quotation System, the closing price
shall be substituted above for the mean of the high and the low bid and
asked prices.
2.15 "INCENTIVE STOCK OPTION" means an Option meeting the
requirements and containing the limitations and restrictions set forth
in Section 422 of the Code.
2.16 "NON-QUALIFIED STOCK OPTION" means an Option other than
an Incentive Stock Option.
2.17 "OPTION" means the right to purchase the number of Shares
specified by the Committee, at a price and for a term fixed by the
Committee, in accordance with the Plan, and subject to such other
limitations and restrictions as the Plan and the Committee may impose.
2.18 "PARENT" means any corporation, other than the employer
corporation, is an unbroken chain of corporations ending with the
employer corporation if, at the time of the granting of the Option,
each of the corporations other than the employer corporation owns stock
possession fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
2.19 "PERFORMANCE GOALS" has the meaning ascribed to it in
Section 11 of the Plan.
2.20 "PERFORMANCE PERIOD" has the meaning ascribed to it in
Section 11 of the Plan.
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2.21 "PERFORMANCE PLAN AWARD" means the right to receive
Options, Reload Options, Restricted Stock Awards, SARs, Shares, Stock
Bonus Awards or units (representing such monetary amount as designated
by the Committee and payable in cash or in Shares) pursuant to Section
11 of the Plan, which right is based on, or subject to, in whole or in
part, the achievement of certain performance criteria specified by the
Committee.
2.22 "PLAN" means the 1993 Long-Term Incentive Plan of Michael
Anthony Jewelers, Inc.
2.23 "REGULATION T" means Part 220, chapter II, title 12 of
the Code of Federal Regulations, issued by the Board of Governors of
the Federal Reserve System pursuant to the Exchange Act, as amended
from time to time, or any successor regulation which may hereafter be
adopted in lieu thereof.
2.24 "RELOAD OPTION" means, with respect to an Employee who
exercises an Option or Reload Option (the "Exercised Option") with
Shares, an Incentive Stock Option or Non-Qualified Stock Option to
purchase a number of Shares equal to the number of Shares transferred
to the Company upon exercise of the Exercised Option, on terms similar
to those set forth in the Award Agreement evidencing such Exercised
Option, except that the option price per Share shall equal the Fair
Market Value of the Shares subject to the Reload Option on the date the
Reload Option is granted, and subject to such other terms, limitations
and restrictions as the Plan and the Committee may impose. All
provisions in the Plan applicable to Options shall also apply to Reload
Options.
2.25 "RESTRICTED STOCK AWARD AGREEMENT" means an Award
Agreement executed in connection with a Restricted Stock Award.
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2.26 "RESTRICTED STOCK AWARD" means the right to receive
Shares, but subject to forfeiture and/or other restrictions set forth
in the related Restricted Stock Award Agreement and the Plan.
2.27 "RULE 16B-3" means Rule 16b-3 of the General Rules and
Regulations of the Securities and Exchange Commission as in effect at
the time of reference, or any successor rules or regulations which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of Rule 16b-3 shall refer to the corresponding provisions of
Rule 16b-3 as it may hereafter be amended or replaced.
2.28 "SAR" means a stock appreciation right, which is a right
to receive an amount in cash, or Shares, or a combination of cash and
Shares, as determined or approved by the Committee, no greater than the
excess, if any, of (i) the Fair Market Value of a Share on the date the
SAR is exercised, over (ii) the SAR Base Price.
2.29 "SAR BASE PRICE" means the Fair Market Value of a Share
on the date an SAR was granted, or if the SAR was granted in tandem
with an Option (whether or not the Option was granted on a different
date than the SAR), in the Committee's discretion, the option price of
a Share subject to the Option.
2.30 "SHARES" means shares of the Company's $.001 par value
common stock or, if by reason of the adjustment provisions contained
herein, any rights under an Award under the Plan pertain to any other
security, such other security.
2.31 "STOCK BONUS AWARD" means the right to receive Shares as
provided in Section 10 of the Plan.
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2.32 "SUBSIDIARY" OR "SUBSIDIARIES" means any corporation or
corporations other than the employer corporation in an unbroken chain
of corporations beginning with the employer corporation if each of the
corporations other than the last corporation in the unbroken chain owns
stock possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations
in such chain.
2.33 "SUCCESSOR" means the legal representative of the estate
of a deceased Employee or the person or persons who shall acquire the
right to exercise or receive an Award by bequest or inheritance or by
reason of the death of the Employee.
2.34 "TERM" means the period during which a particular Award
may be exercised.
2.35 "WINDOW PERIOD" means the period beginning on the third
business day following the date of release of the financial data
specified in paragraph (e)(1)(ii) of Rule 16b-3 and ending on the
twelfth business day following such date.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for use, upon the
issuance, vesting or exercise of Awards to be granted from time to time under
the Plan, an aggregate of Seven Hundred Fifty Thousand (750,000) Shares, which
Shares may be, in whole or in part, as the Board shall from time to time
determine, authorized but unissued Shares, or issued Shares which shall have
been reacquired by the Company. Any Shares subject to issuance upon exercise of
Options or SARs, or vesting of Performance Plan Awards, but which are not issued
because of a surrender, lapse, expiration, forfeiture or termination of any such
Option, SAR or Performance Plan Award prior to issuance of the Shares shall once
again be available for issuance in satisfaction of Awards. Similarly, any Shares
issued pursuant to a Restricted Stock Award which are subsequently forfeited
pursuant to the terms
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of the related Restricted Stock Award Agreement shall once again be available
for issuance in satisfaction of Awards.
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee,
which shall consist of not less than two (2) disinterested directors as defined
in Rule 16b-3. Subject to the provisions of the Plan, the Committee shall have
full authority, in its discretion, to determine the Employees to whom Awards
shall be granted, the number of Shares to be covered by each of the Awards, and
the terms of any such Award; to amend or cancel Awards (subject to Section 23 of
the Plan), to accelerate the vesting of Awards; to require the cancellation or
surrender of any previously granted awards under this Plan or any other plans of
the Company as a condition to the granting of an Award, to interpret the Plan;
and to prescribe, amend, and, rescind rules and regulations relating to the
Plan, and generally to interpret and determine any and all matters whatsoever
relating to the administration of the Plan and the granting of Awards hereunder.
The Board may from time to time appoint members to the Committee in substitution
for or in addition to members previously appointed and may fill vacancies,
however caused, in the Committee. The Committee shall select one of its members
as its chairman and shall hold its meetings at such times and places as it shall
deem advisable. A majority of its members shall constitute a quorum. Any action
of the Committee may be taken by a written instrument signed by all of the
members, and any action so taken shall be fully as effective as if it had been
taken by a vote of a majority of the members at a meeting duly called and held.
The Committee shall make such rules and regulations for the conduct of its
business as it shall deem advisable and shall appoint a Secretary who shall keep
minutes of its meetings and records of all action taken in writing without a
meeting. No member of the Committee shall be
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liable, in the absence of bad faith, for any act or omission with respect to his
or her service on the Committee.
5. EMPLOYEES TO WHOM AWARDS MAY BE GRANTED. Awards may be granted in
each calendar year or portion thereof while the Plan is in effect to such of the
Employees as the Committee, in its discretion, shall determine. In determining
the Employees to whom Awards shall be granted and the number of Shares to be
issued or subject to purchase or issuance under such Awards, the Committee shall
take into account the recommendations of the Company's management as to the
duties of the respective Employees, their present and potential contributions to
the success of the Company and its Subsidiaries, and such other factors as the
Committee shall deem relevant in connection with accomplishing the purposes of
the Plan. No Award shall be granted to any member of the Committee so long as
his or her membership on the Committee continues or to any member of the Board
who is not also an officer or key employee of the Company or any Subsidiary.
6. Stock Options.
6.1 TYPES OF OPTIONS. Options granted under the Plan may be
(i) Incentive Stock Options, (ii) Non-Qualified Stock Options, (iii) a
combination of the foregoing or (iv) Reload Options. The Award
Agreement shall designate whether an Option is an Incentive Stock
Option or a Non-Qualified Stock Option and separate Award Agreements
shall be issued for each type of Option when a combination of an
Incentive Stock Option and a Non-Qualified Stock Option are granted on
the same date to the same Employee. Any Option which is designated as a
Non-Qualified Stock Option shall not be treated by the Company or the
Employee to whom the Option is granted as an Incentive Stock Option for
federal income tax purposes.
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6.2 OPTION PRICE. The option price per Share of any
Non-Qualified Stock Option granted under the Plan shall be the Fair
Market Value of the Shares covered by the Option on the date the Option
is granted unless the Committee, in its sole discretion, determines to
set the option price at an amount less than or greater than the Fair
Market Value of the Shares on such date. The option price per Share of
any Incentive Stock Option granted under the Plan shall not be less
than the Fair Market Value of the Shares covered by the Option on the
date the Option is granted, Notwithstanding anything herein to the
contrary, the option price per Share of any Incentive Stock Option
granted to an Employee Stockholder shall not be less than one hundred
ten percent (110%) of the Fair Market Value of the Shares covered by
the Option on the date the Option is granted.
6.3 TERM OF OPTIONS. Options granted hereunder shall be
exercisable for a Term of not more than ten (10) years from the date of
grant thereof, but shall be subject to earlier termination as
hereinafter provided. Each Award Agreement issued hereunder shall
specify the Term of the Option, which shall be determined by the
Committee in accordance with its discretionary authority hereunder. No
Option in tandem with an SAR shall be exercisable during the first six
(6) months following the date of grant of the SAR, except that this
limitation shall not apply in the event that it is permissible under
Rule 16b-3 to exercise the Option prior to the expiration of the six
(6) month period.
Notwithstanding anything herein to the contrary, if an
Incentive Stock Option is granted to an Employee Stockholder, then such
Incentive Stock Option shall not be exercisable more than five (5)
years from the date of grant thereof, but shall be subject to earlier
termination as hereinafter provided.
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7. LIMIT ON FAIR MARKET VALUE OF INCENTIVE STOCK OPTIONS. No Employee
may be granted an Incentive Stock Option hereunder to the extent that the
aggregate fair market value (such fair market value being determined as of the
date of grant of the option in question) of the stock with respect to which
incentive stock options are first exercisable by such Employee during any
calendar year (under all such plans of the Employee's employer corporation, its
Parent, if any, and its Subsidiaries, if any) exceeds One Hundred Thousand
Dollars ($100,000). For purposes of the preceding sentence, options shall be
taken into account in the order in which they were granted. Any Option granted
under the Plan which is intended to be an Incentive Stock Option, but which
exceeds the limitation set forth in this Section 7, shall be a Non-Qualified
Stock Option.
8. STOCK APPRECIATION RIGHTS.
8.1 GRANT OF SAR. The Committee, in its discretion, may grant
an Employee an SAR in tandem with an Option or may grant an Employee an
SAR on a stand alone basis. The Committee, in its discretion, may grant
an SAR in tandem with an Option either at the time the Option is
granted or at any time after the Option is granted, but no later than
six (6) months and one (1) day prior to the end of the Term of the
Option, so long as the grant of the SAR is made during the period in
which grants of SARs may be made under the Plan. The Committee, in its
discretion, may grant an SAR in tandem with an Option which is
exercisable either in lieu of, or in addition to, the exercise of the
related Option.
8.2 LIMITATIONS ON EXERCISE. Each SAR granted in tandem with
an Option shall be exercisable to the extent, and only to the extent,
the related Option is exercisable and shall be for such Term as the
Committee may determine (which Term, which is not to
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exceed ten (10) years, may expire prior to the Term of the related
Option). Each SAR granted on a stand alone basis shall be exercisable
to the extent, and for such Term, as the Committee may determine. No
SAR or any related Option shall be exercisable during the first six (6)
months following the date of grant of the SAR, except that this
limitation will not apply in the event it is permissible under Rule
16b-3 to exercise the SAR prior to the expiration of the six (6) month
period. If, and to the extent, an Employee who is subject to Section
16(b) of the Exchange Act is to receive cash in exchange for an SAR,
the SAR and any related Option are exercisable only during a Window
Period and the right of the Employee to request to be paid in cash may
only be made during a Window Period. T The SARs shall be subject to
such other terms and conditions as the Committee, in its d discretion,
shall determine, which are not otherwise inconsistent with the Plan.
The terms and conditions may include Committee approval of the exercise
of the SAR, limitations on the time within which and the extent to
which such SAR shall be exercisable, limitations, if any, on the amount
of appreciation in value which may be recognized with regard to such
SAR, and specification of what portion, if any, of the amount payable
to the Employee upon exercise of such SAR shall be payable in cash and
what portion if any, shall be payable in Shares. If, and tot he extent,
that Shares are issued in satisfaction of amounts payable on exercise
of an SAR, the Shares shall be valued at their Fair Market Value on the
date of exercise.
8.3 SARS IN TANDEM WITH INCENTIVE STOCK OPTIONS. With respect
to SARs granted in tandem with Incentive Stock Options, the following
shall apply:
(a) No SAR shall be exercisable unless the Fair Market
Value of the Shares on the date of exercise exceeds the option
price of the related Incentive Stock Option.
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(b) In no event shall any amounts paid pursuant to the SAR
exceed the difference between the Fair Market Value of the
Shares on the date of exercise and the option price of the
related Incentive Stock Opiton.
8.4 SURRENDER OF OPTION OR SAR GRANTED IN TANDEM. If the Award
Agreement related to the grant of an SAR in tandem with an Option
provides that the SAR can only be exercised in lieu of the related
Option, then, upon exercise of such SAR, the related Option or portion
thereof with respect to which such SAR is exercised shall be deemed
surrendered and shall not thereafter be exercisable, and, similarly,
upon exercise of the Option, the related SAR or portion thereof with
respect to which such Option is exercised shall be deemed surrendered
and shall not thereafter be exercisable. If the Award Agreement related
to the grant of an SAR in tandem with an Option provides that the SAR
can be exercised in addition to the related Option, then, upon exercise
of such SAR, the related Option or portion thereof with respect to
which such SAR is exercised shall not be deemed surrendered and shall
continue to be exercisable and, similarly, upon exercise of the Option,
the related SAR or portion thereof with respect to which such Option is
exercised shall not be deemed surrendered and shall continue to be
exercisable.
9. RESTRICTED STOCK AWARDS. Restricted Stock Awards granted under the
Plan shall be subject to such terms and conditions as the Committee may, in its
discretion, determine and set forth in the related Restricted Stock Award
Agreements. The Committee, in its discretion, may grant an Employee a Restricted
Stock Award on a stand alone basis or in
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tandem with an Option. Restricted Stock Awards shall be granted in accordance
with, and subject to, the provisions set forth below.
9.1 ISSUANCE OF SHARES. Each Restricted Stock Award shall be
evidenced by a Restricted Stock Award Agreement which shall set forth
the number of Shares issuable under the Restricted Stock Award. Subject
to the restrictions in Section 9.3 of the Plan, and subject further to
such other restrictions or conditions established by the Committee, in
its discretion, and set forth in the related Restricted Stock Award
Agreement (such as requiring the Employee to pay an amount equal to the
aggregate par value of the Shares to be issued thereunder), the number
of Shares granted under a Restricted Stock Award shall be issued in the
recipient Employee's name on the date of grant of such Restricted Stock
Award or as soon as reasonably practicable thereunder.
9.2 RIGHT OF RECIPIENT EMPLOYEES. Shares received pursuant to
Restricted Stock Awards shall be duly issued or transferred to the
Employee, and a certificate or certificates for such Shares shall be
issued in the Employee's name. Subject to the restrictions in Section
9.3 of the Plan, and subject further to such other restrictions or
conditions established by the Committee, in its discretion, and set
forth in the related Restricted Stock Award Agreement, the Employee
shall thereupon be a stockholder with respect to all the Shares
represented by such certificate or certificates and shall have the
rights of a stockholder with respect to such Shares, including the
right to vote such Shares and to receive dividends and other
distributions paid with respect to such Shares. In aid of the
restrictions in Section
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9.3 of the Plan and in the related Restricted Stock Award Agreement,
the certificate or certificates for Shares awarded hereunder, together
with a suitably executed stock power signed by such recipient Employee,
shall be held by the Company in its control for the account of such
Employee (i) until the restrictions in Section 9.3 of the plan and in
the related Restricted Stock Award Agreement lapse pursuant to the Plan
or the Restricted Stock Award Agreement, at which time a certificate
for the appropriate number of Shares (free of all restrictions imposed
by the Plan or the Restricted Stock Award Agreement) shall be delivered
to the Employee, or (ii) until such Shares are forfeited to the Company
and canceled as provided by the Plan or the Restricted Stock Award
Agreement.
9.3 RESTRICTIONS. Except as otherwise determined by the
Committee in its sole discretion, each share issued pursuant to a
Restricted Stock Award Agreement shall be subject, in addition to any
other restrictions set forth in the related Restricted Stock Award
Agreement, to the following restrictions until such restrictions have
lapsed pursuant to Section 9.4 of the Plan;
(a) DISPOSITION. The Shares awarded to an Employee and held
by the Company pursuant to Section 9.2 of the Plan, and the right to
vote such Shares or receive dividends on such Shares, may not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed
of; provided, however, that such Shares may be transferred upon the
death of the Employee to the Employee's Successor. Any transfer or
purported transfer of such Shares in violation of the restrictions
outlined in this Section 9.3 shall be null and void and shall result
in the forfeiture of the Shares transferred or
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purportedly transferred to the Company without notice and without
consideration.
(b) FORFEITURE. The Shares awarded to an Employee and held by
the Company pursuant to Section 9.2 of the Plan shall be forfeited to
the Company without notice and without consideration therefor
immediately upon the termination of the Employee's employment with the
Company and all Subsidiaries of the Company for any reason other than
(i) death, (ii) disability, (iii) retirement, (iv) the Employee's
attainment of age sixty-five (65), (v) Good Reason (as defined in the
related Restricted Stock Award Agreement) if by the Employee, or (vi)
other than for Cause (as defined in the related Restricted Stock Award
Agreement) if by the Company.
9.4 LAPSE OF RESTRICTIONS. Except as otherwise determined by
the Committee in its sole discretion, the restrictions set forth in
Section 9.3 of the Plan on Shares issued under a Restricted Stock Award
shall lapse on, and certificates for the Shares held for the account of
the Employee in accordance with Section 9.2 of the plan hereof shall be
appropriately distributed to the Employee as soon as reasonably
practical after, the earliest of:
(a) the Employee's death;
(b) the termination of the Employee's employment by reason of
the Employee being "disabled" or defined in Section 22(e)(3) of the
Code;
(c) the Employee's early, normal or late retirement pursuant
to the retirement plans of the Company or any of its Subsidiaries;
(d) the Employee's attainment of age sixty-five (65);
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(e) the termination of the Employee's employment by the
Employee for Good Reason (as defined in the related Restricted Stock
Award Agreement) or by the Company other than for Cause (as defined in
the related Restricted Stock Award Agreement); or
(f) (i) the first anniversary of the date of grant with
respect to one-third (1/3) of the Shares originally awarded,
(ii) the second anniversary of the date of grant
with respect to an additional one-third (1/3) of the Shares
originally awarded, and
(iii) the third anniversary of the date of grant with
respect to the balance of the Shares originally awarded.
9.5 SURRENDER OF OPTIONS OR RESTRICTED STOCK GRANTED IN
TANDEM. If the Restricted Stock Award Agreement related to the grant of
a Restricted Stock Award in tandem with an Option provides that the
Option can only be exercised in lieu of the scheduled vesting for he
Restricted Stock Award, then, upon vesting of the Shares subject to the
Restricted Stock Award, the related Option or portion thereof with
respect to which such Restricted Stock Award becomes vested shall be
deemed surrendered and shall not thereafter be exercisable and,
similarly, upon exercise of the Option, the Shares subject to the
related Restricted Stock Award or portion thereof with respect to which
such Option is exercised shall be deemed forfeited to the the Company
and shall be canceled as provided by the Plan or the Restricted Stock
Award Agreement.
10. STOCK BONUS AWARDS. Stock Bonus Awards may be granted under the
Plan with respect to Shares, and shall be granted, subject to the provisions of
the Plan, upon such
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terms and conditions as the Committee may determine in its discretion. The
Committee, in its discretion, may require the Employees to whom Stock Bonus
Awards are granted to pay the Company an amount equal to the aggregate par value
of the Shares to be issued to such Employees. Subject to the Employee delivering
in cash or by check the amounts, if any, required to be paid pursuant to this
Section 10 or pursuant to Section 21 of the Plan (relating to taxes), a
certificate or certificates for such Shares shall be issued in the Employee's
name as soon as reasonably practicable following the date of grant, or if such
payments are required, following the date of such payments. The Company shall
deliver such certificate or certificates to the Employee and the Employee shall
thereupon be a stockholder with respect to all Shares represented by such
certificate or certificates and shall have all the rights of a stockholder with
respect to such Shares.
11. PERFORMANCE PLAN AWARDS.
(a) PERFORMANCE PLAN AWARDS. Performance Plan Awards may be
granted under the Plan in such form as the Committee may from time to
time approve. Performance Plan Awards may be granted alone, in addition
to or in tandem with other Awards under the Plan. Subject to the terms
of the Plan, including the terms of the Plan applicable to any
underlying type of Award that is the subject of a Performance Plan
Award (i.e., an Option, an Option granted in tandem with an SAR,a
Reload Option, a Restricted Stock Award, a Restricted Stock Award
granted in tandem with an Option, an SAR or a Stock Bonus Award, as the
case may be), the Committee shall determine the number of Performance
Plan Awards to be granted to an Employee, the terms and conditions
applicable to any particular Performance Plan Award made to an Employee
and, in the case of a performance Plan Award of units, the monetary
amount represented by each such unit.
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(b) PERFORMANCE GOALS AND PERFORMANCE PERIODS. A Performance
Plan Award shall provide that in order for an Employee to vest, in
whole or in part, in such Performance Plan Award the Company and/or the
Employee must achieve certain individual and/or aggregate performance
criteria ("Performance Goals") over a designated performance period
("Performance Period"). The Performance Goals and Performance Period
shall be established by the Committee, in its sole discretion. The
Committee may also establish a schedule or schedules for any such
Performance Period setting forth the portion of the Performance Plan
Award which will be earned or forfeited based on the degree of
achievement of the Performance Goals actually achieved or exceeded. In
setting Performance Goals the Committee may use such measures as
cumulative or non-cumulative return on equity, earnings growth, revenue
growth or such other individual and/or aggregate measure or measures of
performance in such manner as it deems appropriate. During the
Performance Period, the Committee, except as provided otherwise in the
Award Agreement evidencing the Performance Plan Award, shall have the
authority to adjust upward or downward the Performance Goals in such
manner as it deems appropriate.
(c) PAYMENTS OF UNITS. An employee who has been granted a
Performance Plan Award of units shall be entitled to receive a payment
with respect to such units in an amount equal to the number of units
earned at the conclusion of the respective Performance Period times the
dollar value of each unit. Payment in settlement of such unit shall be
made in cash, in Shares, or in any combination thereof, as the
Committee in its sole discretion shall determine, and shall be made as
soon as practicable following the conclusion of the respective
Performance Period and the calculation of the dollar value of such
units.
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12. CASH PAYMENTS FOR TAXES. The Committee may, in its sole discretion,
provide in an Award Agreement that the Company will make a cash payment to the
Employee covered thereby equal to the aggregate of the amount of federal, state
and local income taxes which such Employee would be required to pay to each such
taxing authority attributable to the realization of taxable income, if any, as a
result of the receipt of Shares pursuant to any Award (other than an Incentive
Stock Option) granted under the Plan. The Committee may, in its discretion
require the Employee to make an election to be taxed immediately under Section
83(b) of the Code as a condition to receiving such payment. In computing the
amount of such payment, it shall be assumed that every Employee granted an Award
under the Plan is subject to tax by each taxing authority at the highest
marginal tax rate in the respective taxing jurisdiction of such Employee
(provided that the highest marginal tax rate for federal income tax purposes
shall be determined under Section 1 of the Code), taking into account the city
and state in which such Employee resides, but giving effect to the tax benefit,
if any, which such Employee may enjoy to the extent that any such tax is
deductible in determining the tax liability of any other taxing jurisdiction
(disregarding the effects of code Section 68 in determining deductibility for
federal income tax purposes). Likewise, the Committee may, in its sole
discretion, provided in an Award Agreement that the Company will make a cash
payment to the Employee covered thereby equal to the amount of excise taxes
(i.e., an "excise tax gross-up payment") which such Employee would be required
to pay pursuant to Section 4999 of the Code as a result of all or any part of
such Employee's Award being treated as an "excess parachute payment" within the
meaning of Section 280G(b) of the Code. In addition to the foregoing, the
Committee may, in its discretion, increase each cash payment due to an Employee
hereunder, such that each Employee who receives Shares and/or an excise tax
gross-up payment pursuant to any Award granted under this Plan shall
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receive such Shares and/or excise tax gross-up payment net of all income and/or
excise taxes imposed on such employee on account of the receipt of such Shares
and/or excise tax gross-up payment.
13. DATE OF GRANT. The date of grant of an Award granted hereunder
shall be the date on which the Committee acts in granting the Award.
14. EXERCISE OF RIGHTS UNDER OPTIONS OR SARS.
14.1 NOTICE OF EXERCISE. An Employee entitled to exercise an
Option or SAR shall do so by delivery of a written notice to that
effect specifying the number of Shares with respect to which the Option
or SAR is being exercised and any other relevant information the
Committee may require. The notice shall be accompanied by payment in
full of the purchase price of any Shares to be purchased, which payment
may be made in cash or, with the Committee's approval (which in the
case of Incentive Stock Options must be given at the time of grant), in
Shares valued at Fair Market Value at the time of exercise or a
combination thereof. No Shares shall be issued upon exercise of an
Option until full payment has been made therefor. An Employee
exercising a SAR of an Option granted in tandem with a SAR may, if the
terms and conditions of the Award so provide, state in the notice of
exercise what percentage of the SAR the Employee desires to be paid in
cash or Shares, in which event the Committee may honor the request so
made or satisfy the SAR in cash or Shares or some combination of each,
as the Committee may determine in its sole discretion. All notices or
requests provided for herein shall be delivered to the Company' s
Secretary, or such other person as the Committee may designate.
14.2 CASHLESS EXERCISE PROCEDURES. The Company, in its sole
discretion, may establish procedures whereby an Employee, subject to
the requirements of Rule 1 6b-3 , Regulation T, federal income tax
laws, and other federal, state and local tax and securities laws,
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can exercise an Option or a portion thereof without making a direct
payment of the option price to the Company; provided, however, that
these cashless exercise procedures shall not apply to Incentive Stock
Options which are outstanding on the date the Company establishes such
procedures unless the application of such procedures to such Options is
permitted pursuant to the Code and the regulations thereunder without
affecting the Options' qualification under Code Section 422 as
Incentive Stock Options. If the Company so elects to establish a
cashless exercise program, the Company shall determine, in its sole
discretion, and from time to time, such administrative procedures and
policies as it deems appropriate and such procedures and policies shall
be binding on any Employee wishing to utilize the cashless exercise
program.
15. AWARD TERMS AND CONDITIONS. Each Award or each agreement setting
forth an Award shall contain such other terms and conditions not inconsistent
herewith as shall be approved by the Committee. For example, an Award Agreement
evidencing an Option may provide for the automatic grant of a Reload Option to
an Employee who exercises an Option with Shares.
16. RIGHTS OF AWARD HOLDER. The holder of an Award shall not have any
of the rights of a stockholder with respect to the Shares subject to purchase or
receipt under the Award, except that (a) an Award holder's rights with respect
to a Restricted Stock Award shall be as prescribed in Section 9.2 and (b)
stockholder rights with respect to any other Award shall rise at the time and to
the extent that one or more certificates for such Shares shall be delivered to
the holder upon the due exercise or grant of the Award.
17. NONTRANSFERABILITY OF AWARDS. An Award shall not be transferable
other than: (a) by will or the laws of descent and distribution, and an Award
subject to exercise may be exercised, during the lifetime of the holder of the
Award, only by the holder or in the event of
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death, the holder's Successor, or in the event of disability, the holder's
personal representative, or (b) pursuant to a qualified domestic relations
order, as defined in the Code or ERISA or the rules thereunder; provided,
however, that an Incentive Stock Option may not be transferred pursuant to a
qualified domestic relations order unless such transfer is otherwise permitted
pursuant to the Code and the regulations thereunder without affecting the
Option' s qualification under Code Section 422 as an Incentive Stock Option.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes
in all of the outstanding Shares by reason of stock dividends, stock splits,
reclassifications, recapitalizations, mergers, consolidations, combinations, or
exchanges of shares, separations, reorganizations or liquidations, or similar
events, or in the event of extraordinary cash or non-cash dividends being
declared with respect to the Shares, or similar transactions or events, the
number and class of Shares subject to Awards theretofore granted, applicable
purchase prices and all other applicable provisions, shall, subject to the
provisions of the Plan, be equitably adjusted by the Committee (which adjustment
may, but need not, include payment to the holder of an Option or SAR in cash or
in shares, in an amount equal to the difference between the Price at which such
Option or SAR may be exercised and the then current fair market value of the
Shares subject to such Option or SAR as equitably determined by the Committee).
The foregoing adjustment and the manner of application of the foregoing
provisions shall be determined by the Committee, in its sole discretion. Any
such adjustment may provide for the elimination of any fractional share which
might otherwise become subject to an Award.
19. CHANGE IN CONTROL. Notwithstanding anything to the contrary in the
Plan or any Award Agreement in the case of a Change in Control of the Company,
the Committee may, in its
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discretion, taking into account the purposes of this Plan, determine, on a case
by case basis, that each Award granted under the Plan shall, subject to the
following provisions, terminate ninety (90) days after the occurrence of such
Change in Control but, in the event of any such termination:
(a) An Option or SAR holder ( not including the holder of an Option in
tandem with a Restricted Stock Award) shall have the right, commending at least
five (5) days prior to such Change in Control and subject to any other
limitation on the exercise of such Option or SAR in effect on the date of
exercise, (i) to immediately exercise any Options not in tandem with SARs or
Restricted Stock Awards in full, without regard to any vesting limitations, to
the extent they shall not have been theretofore exercised, and (ii) to exercise
at any time after the sixth (6th) month anniversary of the date of the grant of
the respective SAR (but subject to the restrictions of Rule 16b-3), any SARs or
Options in tandem with SARs in full, without regard to any vesting limitations,
to the extent they shall not have been theretofore exercised, provided, however,
that no SAR or Option in tandem with a SAR shall terminate prior to the end of
the first Window Period Following the occurrence of such Change in Control;
(b) All restrictions on Restricted Stock Awards shall immediately
lapse, certificates for the affected Shares shall be appropriately distributed
and any Options in tandem with Restricted Stock Awards will be deemed to have
been surrendered; and
(c) All vesting limitations with respect to performance Plan Awards
shall be deemed satisfied and any Option, Reload Option, Restricted Stock Award,
SAR, Share or Stock Bonus Award issuable thereunder shall, subject to (a) and
(b) above, be appropriately issued, and any cash payment required to be made
with respect to a unit shall be appropriately made.
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<PAGE> 26
20. FORMS OF AWARDS. Nothing contained in the Plan nor any resolution
adopted or to be adopted by the Board or by the stockholders of the Company
shall constitute the granting of any Award. An Award shall be granted hereunder
only by action taken by the Committee in granting an Award. Whenever the
Committee shall designate an Employee for the receipt of an Award, the Company'
s Secretary, or such other person as the Committee may designate, shall
forthwith send notice thereof to the Employee, in such form as the Committee
shall approve, stating the number of Shares subject to the Award, its Term, and
the other terms and conditions thereof. The notice shall be accompanied by a
written Award Agreement in such form as may from time to time hereafter be
approved by the Committee, which shall have been duly executed by or on behalf
of the Company. If the surrender of previously issued Awards is made a condition
of the grant, the notice shall set forth the pertinent details of such
condition. Execution by the Employee to whom such Award is granted of said Award
Agreement in accordance with the provisions set forth in this Plan shall be a
condition precedent to the exercise or receipt of any Award.
21. TAXES.
21.1 RIGHT TO WITHHOLD REQUIRED TAXES. The Company shall have
the right to require a person entitled to receive Shares pursuant to
the receipt, vesting or exercise of an Award under the Plan to pay the
Company the amount of any taxes which the Company is or will be
required to withhold with respect to such Shares before the certificate
for such Shares is delivered pursuant to the Award. Furthermore, the
Company may elect to deduct such taxes from any other amounts then
payable in cash or in shares or from any other amounts payable any time
thereafter to the Employee. The Company shall also have the right to
deduct from any cash payment payable to a person pursuant to an Award
the amount of any taxes which the Company
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is required by law to withhold with respect to such cash payment. If
the Employee disposes of Shares acquired pursuant to an Incentive Stock
Option in any transaction considered to be a disqualifying disposition
under Sections 42 1 and 422 of the Code, the Employee shall notify the
Company of such transfer and the Company shall have the right to deduct
any taxes required by law to be withheld from any amounts otherwise
payable then or at any time thereafter to the Employee.
21.2 EMPLOYEE ELECTION TO WITHHOLD SHARES. Subject to
Committee approval (which in the case of Incentive Stock Options must
be given at the time of grant), an Employee may elect to satisfy the
tax liability with respect to the exercise of an Option by having the
Company withhold Shares otherwise issuable upon exercise of the Option;
provided, however, that if an Employee is subject to Section 1 6(b) of
the Exchange Act at the time the Option is exercised, such election
must satisfy the requirements of Rule 1 6b-3 .
22. TERMINATION OF THE PLAN. The Plan shall terminate ten (10) years
from the date hereof, and an Award shall not be granted under the Plan after
that date although the terms of any Awards may be amended at any date prior to
the end of its Term in accordance with the Plan. Any Awards outstanding at the
time of termination of the Plan shall continue in full force and effect
according to the terms and conditions of the Award and this Plan.
23. AMENDMENT OF THE PLAN. The Plan may be amended at anytime and from
time to time by the Board, but no amendment without the approval of the
stockholders of the Company shall be made if stockholder approval under Section
422 of the Code or Rule 1 6b-3 would be required. Notwithstanding the
discretionary authority granted to the Committee in Section 4 of the Plan, no
amendment of the Plan or any Award granted under the Plan shall impair any of
the
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rights of any holder, without the holder' s consent, under any Award
theretofore granted under the Plan.
24. DELIVERY OF SHARES ON EXERCISE OR GRANT. Delivery of certificates
for Shares pursuant to the grant or exercise of an Award may be postponed by the
Company for such period as may be required for it with reasonable diligence to
comply with any applicable requirements of any federal, state or local law or
regulation or any administrative or quasi-administrative requirement applicable
to the sale, issuance, distribution or delivery of such Shares. The Committee
may, in its sole discretion, require an Employee to furnish the Company with
appropriate representations and a written investment letter prior to the
exercise of an Award or the delivery of any Shares pursuant to an Award.
25. FEES AND COSTS. The Company shall pay all original issue taxes on
the issuance or exercise of any Award granted under the Plan and all other fees
and expenses necessarily incurred by the Company in connection therewith.
26. EFFECTIVENESS OF THE PLAN. The Plan shall become effective when
approved by the Board. The Plan shall thereafter be submitted to the Company's
stockholders for approval and unless the Plan is approved by the affirmative
votes of the holders of shares having a majority of the voting power of all
shares either (i) represented at a meeting duly held in accordance with Delaware
law within twelve (12) months after being approved by the Board, the Plan and
all Awards made under it shall be void and of no force and effect. In aid of
this provision, any Award granted prior to their approval of the Plan by the
Company's stockholders shall be conditioned upon receipt of such approval.
27. OTHER PROVISIONS. As used in the Plan, and in Awards and other
documents prepared in implementation of the Plan, references to the masculine
pronoun shall be deemed to
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refer to the feminine or neuter, and references in the singular or the plural
shall refer to the plural or the singular, as the identify of the person or
persons or entity or entities being referred to may require. The captions used
in the Plan and in such Awards and other documents prepared in implementation of
the Plan are for convenience only and shall not affect the meaning of any
provision hereof or thereof.
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Exhibit 10.55
1993 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN OF
MICHAEL ANTHONY JEWELERS, INC.
1. PURPOSE OF THE PLAN. This 1993 Non-Employee Directors' Stock Option
Plan of Michael Anthony Jewelers, Inc. adopted on this 22nd day of April 1993,
is intended to encourage directors of the Company who are not officers or key
employees of the Company or any of its Subsidiaries to acquire or increase their
ownership of common stock of the Company. The opportunity so provided is
intended to foster in participants an incentive to put forth maximum effort for
the continued success and growth of the Company and its Subsidiaries, to aid in
retaining individuals who put forth such efforts, and to assist in attracting
the best available individuals to the Company in the future.
2. DEFINITIONS.
When used herein, the following terms shall have the meaning set
forth below:
2.1 "BOARD" means the Board of Directors of Michael Anthony
Jewelers, Inc.
2.2 "CHANGE IN CONTROL" means a change in control of the
Company of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act (as in effect on the date the Plan is adopted by the
Board), whether or not the Company is then subject to such reporting
requirement; provided, that, without limitation, such a Change in
Control shall be deemed to have occurred if:
(a) any "person" (as defined in Section 13(d) and
14(d) of the
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<PAGE> 2
Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing forty percent (40%)
or more of the combined voting power of the Company's then
outstanding securities; provided, however, that a Change in
Control shall not be deemed to occur under this clause (a) by
reason of the acquisition of securities by the Company or an
employee benefit plan (or any trust funding such a plan)
maintained by the Company, or by reason of the new issuance of
securities directly by the Company; or
(b) during any period of two (2) consecutive years
(not including any period prior to the adoption of this Plan)
there shall cease to be a majority of the Board comprised of
Continuing Directors; or
(c) (i) the stockholders of the Company approve a
merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty-one
percent (51%) of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
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immediately after such merger or consolidation, or (ii) the
stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
2.3 "CODE" means the Internal Revenue Code of 1986, as in
effect at the time of reference, or any successor revenue code which
may hereafter be adopted in lieu thereof, and any reference to any
specific provisions of the Code shall refer to the corresponding
provisions of the Code as it may hereafter be amended or replaced.
2.4 "COMMITTEE" means the Stock Option Committee of the Board
or any other committee appointed by the Board which is invested by the
Board with responsibility for the administration of the Plan and whose
members meet the requirements for eligibility to serve as set forth in
Rule 16b-3 and in the Plan.
2.5 "COMPANY" means Michael Anthony Jewelers, Inc.
2.6 "CONTINUING DIRECTORS" means individuals who at the
beginning of any period of two (2) consecutive years (not including any
period prior to the adoption of this Plan) constitute the Board and any
new director(s) whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least a
majority of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved.
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<PAGE> 4
2.7 "DIRECTORS" means directors who serve on the Board and who
are not officers or key employees of the Company or any of its
Subsidiaries.
2.8 "ERISA" means the Employee Retirement Income Security Act
of 1974, as in effect at the time of reference, or any successor law
which may hereafter be adopted in lieu thereof, and any reference to
any specific provisions of ERISA shall refer to the corresponding
provisions of ERISA as it may hereafter be amended or replaced.
2.9 "EXCHANGE ACT" means the Securities Act of 1934, as in
effect at the time of reference, or any successor law which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of the Exchange Act shall refer to the corresponding
provisions of the Exchange Act as it may be amended or replaced.
2.10 "FAIR MARKET VALUE" means with respect to the Shares, the
closing price of the Shares on the American Stock Exchange or other
national securities exchange, on the last business day prior to the
date on which the value is to be determined, as reported in the Wall
Street Journal or such other source of quotations for, or report of
trading of, the Shares as the Committee may reasonably select from time
to time; provided, however, if the Shares are not then traded on such
an exchange, but are then traded on the over-the-counter market, Fair
Market Value means the mean between the high and low bid and asked
prices for the Shares on the over-the-counter market on the last
business day prior to the date on which the value is to be determined
(or the next preceding day on which sales occurred if there
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<PAGE> 5
were no sales on such date); provided further, however, if no sales
have occurred in the over-the-counter market during the three week
period preceding the date on which the value is to be determined, Fair
Market Value means the average of the mean between the high and the low
bid and asked prices for the Shares on the over-the-counter market for
the three (3) month period ending on the last business day prior to the
date on which the value is to be determined; provided further, however,
if the Shares are reported in the National Market List of the National
Association of Securities Dealers, Inc. Automated Quotation System, the
closing price shall be substituted above for the mean of the high and
low bid and asked prices.
2.11 "OPTION" means the right to purchase the number of Shares
specified by the Plan at a price and for a term fixed by the Plan, and
subject to such other limitations and restrictions as the Plan and the
Committee may impose.
2.12 "OPTION AGREEMENT" means a written agreement in such form
as may be, from time to time, hereafter approved by the Committee,
which shall be duly executed by the Company and the Director and which
shall set forth the terms and conditions of an Option under the Plan.
2.13 "PLAN" means the 1993 Non-Employee Directors' Stock
Option Plan of Michael Anthony Jewelers, Inc.
2.14 "REGULATION T" means Part 220, chapter II, title 12 of
the Code of Federal Regulations, issued by the Board of Governors of
the Federal Reserve System pursuant to the Exchange Act, as amended
from time to time, or any successor regulation which may hereafter be
adopted in lieu thereof.
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<PAGE> 6
2.15 "RULE 16B-3" means Rule 16b-3 of the General Rules and
Regulations of the Securities and Exchange Commission as in effect at
the time of reference, or any successor rules or regulations which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of Rule 16b-3 shall refer to the corresponding provisions of
Rule 16b-3 as it may hereafter be amended or replaced.
2.16 "SHARES" means shares of the Company's $.001 par value
common stock or, if by reason of the adjustment provisions contained
herein, any rights under an Option under the Plan pertain to any other
security, such other security.
2.17 "SUBSIDIARY" OR "SUBSIDIARIES" means any corporation or
corporations other than the Company in an unbroken chain of
corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain owns stock
possessions fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
2.18 "SUCCESSOR" means the legal representative of the estate
of a deceased Director or the person or persons who shall acquire the
right to exercise or receive an Option by bequest or inheritance or by
reason of the death of the Director.
2.19 "TERM" means the period during which a particular Option
may be exercised.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for use, upon the
exercise of Options to be granted from time to time under the Plan, an aggregate
of Two Hundred Fifty Thousand (250,000) Shares, which Shares may be, in whole or
in part, as the Board shall from time to time determine, authorized but unissued
Shares, or issued Shares which shall
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<PAGE> 7
have been reacquired by the Company. Any Shares subject to issuance upon
exercise of Options but which are not issued because of a surrender, lapse,
expiration or termination of any such Option prior to issuance of the Shares
shall once again be available for issuance in satisfaction of Options.
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee,
which shall consist of not less than two (2) disinterested directors as defined
in Rule 16b-3. Subject to the provisions of the Plan, the Committee shall have
full authority, in its discretion, to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, and generally to
interpret and determine any and all matters whatsoever relating to the
administration of the Plan and the granting of Options hereunder. The Board may,
from time to time, appoint members to the Committee in substitution for or in
addition to members previously appointed and may fill vacancies, however caused,
in the Committee. The Committee shall select one of its members as its chairman
and shall hold its meetings at such times and places as it shall deem advisable.
A majority of its members shall constitute a quorum. Any action of the Committee
may be taken by a written instrument signed by all of the members, and any
action so taken shall be fully as effective as if it had been taken by a vote of
a majority of the members at a meeting duly called and held. The Committee shall
make such rules and regulations for the conduct of its business as it shall deem
advisable and shall appoint a Secretary who shall keep minutes of its meetings
and records of all action taken in writing without a meeting. No member of the
Committee shall be liable, in the absence of bad faith, for any act or omission
with respect to his or her service on the Committee.
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<PAGE> 8
5. GRANT OF OPTIONS.
5.1 EXISTING DIRECTORS. Each Director who is a Director on the
date the Plan is approved by the Board shall be granted an Option on
such date to purchase Five Thousand (5,000) Shares without further
action by the Board or the Committee. On each anniversary date of such
date, each such Director who is still a Director on such anniversary
date shall be granted an Option to purchase Five Thousand (5,000)
Shares without further action by the Board or the Committee.
5.2 FUTURE DIRECTORS. Each Director who joins the Board after
the date the Plan is approved by the Board shall be granted an Option
on the first day of his initial term on the Board to purchase Five
Thousand (5,000) Shares without further action by the Board or the
Committee. On each anniversary date of the date the Plan is approved by
the Board following the date the Director joined the Board (which first
anniversary date is at least twelve (12) months following the initial
grant date for such Director pursuant to this Section 5.2), each such
Director who is still a Director on such anniversary date shall be
granted an Option to purchase Five Thousand (5,000) Shares without
further action by the Board or the Committee.
5.3 LIMITATIONS. Notwithstanding anything to the contrary
herein, no Director shall receive Options to acquire more than One
Hundred Thousand (100,000) Shares. If the number of Shares available to
grant under the Plan on a scheduled date of grant is insufficient to
make all automatic grants required to be made pursuant to the Plan on
such date, then each eligible Director shall receive an Option to
purchase a pro rata number of the remaining Shares available under the
Plan; provided
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<PAGE> 9
further, however, that if such proration results in fractional Shares,
then such Option shall be rounded down to the nearest number of whole
Shares.
6. BASIC STOCK OPTION PROVISIONS.
6.1 OPTION PRICE. The option price per share of any Option
granted under the Plan shall be the Fair Market Value of the Shares
covered by the Option on the date the Option is granted.
6.2 TERMS OF OPTIONS.
(a) Options granted hereunder shall be exercisable
for a Term of five (5) years from the date of grant thereof,
but shall be subject to earlier termination as hereinafter
provided, and
(b) Except as otherwise provided in the Plan, prior
to its expiration or termination, any Option granted hereunder
may be exercised within the following time limitations:
(i) After one (1) year from the date of grant, it may
be exercised as to not more than 34% of the Shares originally
subject to the Option.
(ii) After two (2) years from the date of grant, it
may be exercised as to not more than an aggregate of 67% of
the Shares originally subject to the Option.
(iii) After three (3) years from the date of grant,
it may be exercised as to any part or all of the Shares
originally subject to the Option.
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<PAGE> 10
6.3 TERMINATION OF DIRECTORSHIP. In the event a Director ceases to be a
member of the Board (other than by reason of death or disability), then (a) an
Option may be exercised by the Director (to the extent that the Director was
entitled to do so at the termination of his or her directorship) at any time
within three (3) months after he or she ceases to be a member of the Board, but
not beyond the Term of the Option and (b) the portion of the Option that has not
vested as of the date the Director ceases to be a member of the Board shall
automatically terminate.
6.4 DEATH OR DISABILITY OF DIRECTOR. If a Director dies or becomes
disabled while he or she is a member of the Board, an Option may be exercised in
full, by his or her Successor in the event of death, or by him or her or his or
her personal representative, as the case may be, in the event of disability, at
any time within six (6) months after he or she ceases to be a member of the
Board on account of such death or disability, but not beyond the Term of the
Option. If a Director shall die within three (3) months after the date he or she
ceases to be a member of the Board, an Option may be exercised (to the extent
the Director shall have been entitled to do so at the time of his or her death),
by his or her Successor, at any time within six (6) months after his or her
death, but not beyond the Term of the Option, or before the approval of the Plan
by the Company's stockholders.
7. EXERCISE OF RIGHTS UNDER AWARDS.
7.1 NOTICE OF EXERCISE. A Director entitled to exercise an
Option may do so by delivery of a written notice to that effect
specifying the number of Shares with respect to which the Option is
being exercised and any other information the Committee may require.
The notice shall be accompanied by payment in full of the
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<PAGE> 11
purchase price of any Shares to be purchased, which payment shall be
made in cash or by certificates of Shares held for more than six (6)
months duly endorsed in blank, equal in value to the purchase price of
the Shares to be purchased based on their Fair Market Value at the time
of exercise or a combination thereof. No Shares shall be issued upon
exercise of an Option until full payment has been made therefor. All
notices of requests provided for herein shall be delivered to the
Company's Chairman of the Board, or such other person as the Committee
may designate. No fractional Shares shall be issued.
7.2 CASHLESS EXERCISE PROCEDURES. The Company, in its sole
discretion, may establish procedures whereby a Director, subject to the
requirements of Rule 16b-3, Regulation T, federal income tax laws, and
other federal, state and local tax and securities laws, can exercise an
Option or a portion thereof without making a direct payment of the
option price to the Company. If the Company so elects to establish a
cashless exercise program, the Company shall determine, in its sole
discretion, and from time to time, such administrative procedures and
policies as it deems appropriate and such procedures and policies shall
be binding on any Director wishing to utilize the cashless exercise
program.
8. RIGHTS OF OPTION HOLDER. The holder of an Option shall not have any
of the rights of a stockholder with respect to the Shares subject to purchase or
receipt under his or her Option, except to the extent that one or more
certificates for such Shares shall be issuable to the holder upon the due
exercise of the Option and if the payment in full of the purchase price
therefor.
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<PAGE> 12
9. NONTRANSFERABILITY OF OPTIONS. An Option shall not be transferable,
other than: (a) by will or the laws of descent and distribution, and an Option
may be exercised, during the lifetime of the holder of the Option, only by the
holder, or in the event of death, the holder's Successor, or in the event of
disability, the holder's personal representative, or (b) pursuant to a qualified
domestic relation order, as defined in the Code or ERISA or the rules
thereunder.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes
in all of the outstanding Shares by reason of stock dividends, stock splits,
reclassifications, recapitalizations, mergers, consolidations, combinations, or
exchanges of shares, separations, reorganizations or liquidations, or similar
events, or in the event of extraordinary cash or non-cash dividends being
declared with respect to the Shares, or similar transactions or events, the
number and class of Shares available under the Plan in the aggregate, the number
and class of Shares subject to Options theretofore granted, applicable purchase
prices and all other applicable provisions, shall, subject to the provisions of
the Plan, be equitably adjusted by the Committee (which adjustment may, but not
need, include payment to the holder of an Option, in cash or in shares, in an
amount equal to the difference between the price at which such Option may be
exercised and the then current fair market value of the Shares subject to such
Option as equitably determined by the Committee). The foregoing adjustment and
the manner of application of the foregoing provisions shall be determined by the
Committee, in its sole discretion. Any such adjustment may provide for the
elimination of any fractional share which might otherwise become subject to an
Option.
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<PAGE> 13
11. CHANGE IN CONTROL. Notwithstanding anything to the contrary herein
or in any Option Agreement, in the case of a Change in Control, each Option
granted under the Plan shall terminate ninety (90) days after the occurrence of
such Change in Control, and an Option holder shall have the right, commencing at
least five (5) days prior to such Change in Control and subject to any other
limitation on exercise of an Option in effect on the date of exercise, to
immediately exercise any Option in full, without regard to any vesting
limitations, to the extent it shall not have been previously exercised.
12. FORMS OF OPTIONS. An Option shall be granted hereunder on the date
or dates specified in the Plan. Whenever the Plan provides for the receipt of an
Option by an Director, the Company's Chairman of the Board or such other person
as the Committee shall appoint, shall forthwith send notice thereof to the
Director, in such form as the Committee shall approve, stating the number of
Shares subject to the Option, its Term, and the other terms and conditions
thereof. The notice shall be accompanied by a written Option Agreement, in such
form as may from time to time hereafter be approved by the Committee, which
shall have been duly executed by or on behalf of the Company. Execution by the
Director to whom such Option is granted of said Option Agreement in accordance
with the provisions set forth in this Plan shall be a condition precedent to the
exercise of any Option.
13. TAXES.
13.1 RIGHT TO WITHHOLD REQUIRED TAXES. The Company shall have
the right to require a person entitled to receive Shares pursuant to
the exercise of an Option under the Plan to pay the Company the amount
of any taxes which the Company is
-13-
<PAGE> 14
or will be required to withhold, if any, with respect to such Shares
before the certificate for such Shares is delivered pursuant to the
Option. Furthermore, the Company may elect to deduct such taxes from
any other amounts then payable in cash or in shares or from any other
amounts payable any time thereafter to the Director.
13.2 DIRECTOR ELECTION TO WITHHOLD SHARES. A Director may
satisfy the withholding tax liability, if any, with respect to the
exercise of an Option, by having the Company withhold Shares otherwise
issuable upon exercise of the Option if such Director makes an election
to do so which satisfies the requirements of Rule 16b-3.
14. TERMINATION OF THE PLAN. The Plan shall terminate ten (10) years
from the date hereof, and an Option shall not be granted under the Plan after
that date although the terms of any Option may be amended at any date prior to
the end of its Term in accordance with the Plan. Any Option outstanding at the
time of termination of the Plan shall continue in full force and effect
according to the terms and conditions of the Option and this Plan.
15. AMENDMENT OF THE PLAN. The Plan may be amended at any time and from
time to time by the Board, but no amendment without the approval of the
stockholders of the Company shall be made if stockholder approval under Rule
16b-3 would be required. Notwithstanding the foregoing, the Plan may not be
amended more than once every six (6) months to change the Plan provisions listed
in section (c)(2)(ii)(A) of Rule 16b-3, other than to comport with changes in
the Code, ERISA or Rule 16b-3. Notwithstanding the discretionary authority
granted to the Committee in Section 4 of the Plan, no amendment
-14-
<PAGE> 15
of the Plan or any Option granted under the Plan shall impair any of the rights
of any holder, without the holder's consent, under any Option theretofore
granted under the Plan.
16. DELIVERY OF SHARES ON EXERCISE. Delivery of certificates for Shares
pursuant to an Option exercise may be postponed by the Company for such period
as may be required for it with reasonable diligence to comply with any
applicable requirements of any federal, state or local law or regulation or any
administrative or quasi-administrative requirement applicable to the sale,
issuance, distribution or delivery of such Shares. The Committee may, in its
sole discretion, require a Director to furnish the Company with appropriate
representations and a written investment letter prior to the exercise of an
Option or the delivery of any Shares pursuant thereto.
17. FEES AND COSTS. The Company shall pay all original issue taxes on
the exercise of any Option granted under the Plan and all other fees and
expenses necessarily incurred by the Company in connection therewith.
18. EFFECTIVENESS OF THE PLAN. The Plan shall become effective when
approved by the Board. The Plan shall thereafter be submitted to the Company's
stockholders for approval and unless the Plan is approved by the affirmative
votes of the holders of shares having a majority of the voting power of all
shares either (i) represented at a meeting duly held in accordance with Delaware
law within twelve (12) months after being approved by the Board or (ii) obtained
by a written consent in accordance with Delaware law within twelve (12) months
after being approved by the Board, the Plan and all Options made under it shall
be void and of no force and effect. In aid of this provision, any Option granted
prior
-15-
<PAGE> 16
to the approval of the Plan by the Company's stockholders shall be conditioned
upon receipt of such approval.
19. OTHER PROVISIONS. As used in the Plan, and in Option Agreement and
other documents prepared in implementation of the Plan, references to the
masculine pronoun shall be deemed to refer to the feminine or neuter, and
references in the singular or the plural shall refer to the plural or the
singular, as the identity of the person or persons or entity or entities being
referred to may require. The captions used in the Plan and in such Option
Agreement and other documents prepared in implementation of the Plan are for
convenience only and shall not affect the meaning of any provision hereof or
thereof.
20. DELAWARE LAW TO GOVERN. This Plan shall be governed by and
construed in accordance with the laws of the State of Delaware.
-16-
<PAGE> 1
Exhibit 10.56
April 14, 1998
Michael Anthony Jewelers, Inc.
115 South MacQuesten Pkwy
Mount Vernon, New York 10550
Gentlemen:
Reference is made to the Note Purchase Agreement dated as of May 1,
1992, among Michael Anthony Jewelers, Inc. (the "Company") and the undersigned
insurance company lenders (collectively, the "Lenders" and individually,
"Lender"). Capitalized terms used in this letter, but not otherwise defined
herein, shall have the meanings given such terms in the Note Purchase Agreement.
Among the provisions contained in the Note Purchase Agreement is a
covenant in Section 5 (b) which requires the Company to maintain a Fixed Charge
Ratio for any four quarter period of the Company that is not less than 175%,
provided that the Fixed Charge Ratio may be less than 175%, but in no event less
than 100%, for any four fiscal quarter period if the Fixed Charge Ratio for the
corresponding period in the previous fiscal year of the Company was at least
175% (the "Fixed Charge Ratio Requirements").
The Company has requested that Lenders waive compliance with the Fixed
Charge Ratio requirements for the Company's fiscal year ending January 31, 1998
(FY 98) and the following three fiscal quarters specified below. Lenders hereby
grant such waiver; provided, however, that the Company will be required to
maintain a Fixed Charge Ratio of not less than the following ratios for the
corresponding periods:
PERIOD RATIO
------ -----
As of the First Quarter ending 5-2-98 110%
As of the Second Quarter ending 8-1-98 130%
As of the Third Quarter ending 10-31-98 150%
Notwithstanding anything to the contrary, for purposes of the Fixed Charge
Ratios specified above, the special one-time charge to be taken by the Company
in the fourth quarter of FY 98 in an approximate amount not to exceed $4.5
million will not be included in the calculations.
In consideration for the Lenders' agreements herein, the Company agrees to pay
the Lenders an aggregate amount of $50,000, to be allocated pro rata among the
Lenders in accordance with the outstanding principal balances under the Notes.
This waiver shall be effective during the periods specified above conditioned
upon the Company's compliance with the Fixed Charge Ratios specified above. As
of the fourth quarter and year ending January 30, 1999, the Fixed Charge Ratio
Requirements in the Note Purchase Agreement, as previously amended, will be
reinstated. Except as otherwise specified herein, the Note Purchase Agreement
shall remain in full force and effect and is unaffected hereby.
<PAGE> 2
This letter (a) is not intended, nor shall it, establish any course of dealing
between the Company and Lenders that is inconsistent with the express terms of
the Note Purchase Agreement and (b) shall not be effective until each of Lenders
has signed below.
RELIASTAR INSURANCE COMPANY OF NEW YORK
By: /s/ JAMES WITTICH
-------------------------
Title: Vice President
NORTHERN LIFE INSURANCE COMPANY
By: /s/ JAMES WITTICH
-------------------------
Title: Assistant Treasurer
FARM BUREAU LIFE INSURANCE COMPANY OF MICHIGAN
By: /s/ STEVE HARKNESS
-------------------------
Title: Portfolio Manager
FARM BUREAU MUTUAL INSURANCE COMPANY OF MICHIGAN
By: /s/ STEVE HARKNESS
-------------------------
Title: Portfolio Manager
FARM BUREAU MUTUAL INSURANCE COMPANY OF MICHIGAN
Assignee for FB ANNUITY CO.
By: /s/ STEVE HARKNESS
-------------------------
Title: Portfolio Manager
ROYAL MACCABEES INSURANCE COMPANY
By: /s/ LEONARD D. DAVENPORT
-------------------------
Title:
----------------------
Acknowledged and agreed
this 14th day of April, 1998
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ ALLAN CORN
-----------------------------------
Allan Corn, Chief Financial Officer
and By: /s/ MICHAEL A. PAOLERCIO
-------------------------------
Michael A. Paolercio, Treasurer
<PAGE> 1
Exhibit 10.57
April 14, 1998
Michael Anthony Jewelers
115 South MacQuesten Pkwy
Mount Vernon, New York 10550
Gentlemen:
Reference is made to the Note Purchase Agreement dated as of February
16, 1995, among Michael Anthony Jewelers, Inc. (the "Company") and the
undersigned insurance company lenders (collectively, the "Lenders" and
individually, "Lender"). Capitalized terms used in this letter, but not
otherwise defined herein, shall have the meanings given such terms in the Note
Purchase Agreement.
Among the provisions contained in the Note Purchase Agreement is a
covenant in Section 5 (b) which requires the Company to maintain a Fixed Charge
Ratio for any four quarter period of the Company that is not less than 175%,
provided that the Fixed Charge Ratio may be less than 175%, but in no event less
than 100%, for any four fiscal quarter period if the Fixed Charge Ratio for the
corresponding period in the previous fiscal year of the Company was at least
175% (the "Fixed Charge Ratio Requirements").
The Company has requested that Lenders waive compliance with the Fixed
Charge Ratio requirements for the Company's fiscal year ending January 31, 1998
(FY 98) and the following three fiscal quarters specified below. Lenders hereby
grant such waiver; provided, however, that the Company will be required to
maintain a Fixed Charge Ratio of not less than the following ratios for the
corresponding periods:
PERIOD RATIO
------ -----
As of the First Quarter ending 5-2-98 110%
As of the Second Quarter ending 8-1-98 130%
As of the Third Quarter ending 10-31-98 150%
Notwithstanding anything to the contrary, for purposes of the Fixed Charge
Ratios specified above, the special one-time charge to be taken by the Company
in the fourth quarter of FY 98 in an approximate amount not to exceed $4.5
million will not be included in the calculations.
<PAGE> 2
In consideration for the Lenders' agreements herein, the Company agrees that
from May 15, 1998 through the maturity of the Notes, the interest rate on the
Notes shall be LIBOR plus 2.50%, calculated in the same manner as previously
agreed upon.
This waiver shall be effective during the periods specified above conditioned
upon the Company's compliance with the Fixed Charge Ratios specified above. As
of the fourth quarter and year ending January 30, 1999, the Fixed Charge Ratio
Requirements in the Note Purchase Agreement, as previously amended, will be
reinstated. Except as otherwise specified herein, the Note Purchase Agreement
shall remain in full force and effect and is unaffected hereby.
This letter (a) is not intended, nor shall it, establish any course of dealing
between the Company and Lenders that is inconsistent with the express terms of
the Note Purchase Agreement and (b) shall not be effective until each of Lenders
has signed below.
RELIASTAR LIFE INSURANCE COMPANY,
formerly known as NORTHWESTERN NATIONAL
LIFE INSURANCE COMPANY
By: /s/ JAMES WITTICH
-----------------------------
Title: Authorized Representative
NORTHERN LIFE INSURANCE COMPANY
By: /s/ JAMES WITTICH
-----------------------
Title: Assistant Treasurer
Acknowledged and agreed
this 14th day of April, 1998
MICHAEL ANTHONY JEWELERS, INC.
By: /s/ ALLAN CORN
-----------------------------------
Allan Corn, Chief Financial Officer
and By: /s/ MICHAEL A. PAOLERCIO
--------------------------------
Michael A. Paolercio, Treasurer
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
The following are the Company's subsidiaries as of April 10, 1998. All
beneficial interests are wholly-owned by the Company and are included in the
Company's consolidated financial statements.
<TABLE>
<CAPTION>
Name of Subsidiary State of Organization Date of Incorporation
------------------ --------------------- ---------------------
<S> <C> <C>
F & F Acquisition Corp. New York 9-12-94
Mount Vernon Distributors, Inc. New York 10-15-93
MA Brands, Inc. Delaware 9-16-97
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for Michael Anthony Jewleers, Inc. and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 6,747
<SECURITIES> 0
<RECEIVABLES> 23,470
<ALLOWANCES> 1,196
<INVENTORY> 12,913
<CURRENT-ASSETS> 45,961
<PP&E> 42,768
<DEPRECIATION> 24,723
<TOTAL-ASSETS> 65,644
<CURRENT-LIABILITIES> 8,701
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 43,389
<TOTAL-LIABILITY-AND-EQUITY> 65,644
<SALES> 129,949
<TOTAL-REVENUES> 129,949
<CGS> 107,182
<TOTAL-COSTS> 107,182
<OTHER-EXPENSES> 23,869
<LOSS-PROVISION> 284
<INTEREST-EXPENSE> 2,827
<INCOME-PRETAX> (4,213)
<INCOME-TAX> (1,601)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,612)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> 0
</TABLE>
