<PAGE>
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    ---------

                                    FORM 10-K
                                    ---------

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
              FOR THE FISCAL YEAR ENDED AUGUST 29, 1998

                                         OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934


                           COMMEMORATIVE BRANDS, INC.
             (Exact name of registrant as specified in its charter)

              DELAWARE                                      13-3915801
  (State or other jurisdiction of                        (I.R.S. Employer
  incorporation or organization)                      Identification Number)

                               7211 CIRCLE S ROAD
                               AUSTIN, TEXAS 78745
               (Address of principal executive offices) (Zip Code)

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (512) 444-0571

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

    TITLE OF EACH CLASS              NAME OF EACH EXCHANGE ON WHICH REGISTERED
          None                                          None

         SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                    None

    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 [ ]No [X]. 
    (Effective December 31, 1997, registrant is no longer subject to such 
    filing requirements.)

    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 amendment to this Form 10-K [X] (Not Applicable)

    The aggregate market value of the voting stock held by non-affiliates at
    August 29, 1998: $0.00

                           377,156 shares of common stock
               (Number of shares outstanding as of November 27, 1998)


<PAGE>

                              COMMEMORATIVE BRANDS, INC.
                                       FORM 10-K
                       FOR THE FISCAL YEAR ENDED AUGUST 29, 1998
                                         INDEX

<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                               ----
      <S>       <C>                                                                                            <C>
      PART I

      Item 1.   Business........................................................................................  1

      Item 2.   Properties......................................................................................  6

      Item 3.   Legal Proceedings...............................................................................  6

      Item 4.   Submission of Matters to a Vote of Security Holders.............................................  6

      PART II

      Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters...........................  7

      Item 6.   Selected Financial Data.........................................................................  7

      Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations..........  12

      Item 8.   Financial Statements and Supplementary Data....................................................  20

      Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........  20

      PART III

      Item 10.  Directors and Executive Officers of the Registrant.............................................  21

      Item 11.  Executive Compensation.........................................................................  23

      Item 12.  Security Ownership of Certain Beneficial Owners and Management.................................  25

      Item 13.  Certain Relationships And Related Transactions.................................................  26

      Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K................................  27

                Signatures.....................................................................................  29

                Financial Statements...........................................................................  31

                Exhibit Index..................................................................................  73

</TABLE>

<PAGE>

                                    PART I

ITEM 1.  BUSINESS

GENERAL

      Commemorative Brands, Inc. (the "Company") is a leading manufacturer of 
class rings in the United States. The Company also supplies other 
graduation-related scholastic products for the high school and college 
markets and manufactures and markets recognition and affinity jewelry 
designed to commemorate significant events, achievements and affiliations.

       On December 16, 1996, the Company completed the acquisitions
("Acquisitions") of substantially all of the scholastic and recognition and
affinity products, assets and business of the ArtCarved ("ArtCarved") operations
of CJC Holdings, Inc. ("CJC") and the Balfour operations ("Balfour") of the L.
G. Balfour Company, Inc., a wholly-owned subsidiary of Town & Country
Corporation ("Town & Country").

      The Company was formed as a Delaware corporation in March 1996, by Castle
Harlan Partners II, L.P., a Delaware limited partnership and private equity
investment fund, for the purpose of acquiring ArtCarved and Balfour, and until
December 16, 1996, engaged in no business or activities other than in connection
with the Acquisitions and the financing thereof.

PRODUCTS

      Most of the Company's sales (approximately 88% of net sales during fiscal
1998) were derived from the sale of scholastic products, consisting of high
school and college class rings, graduation-related fine paper products and other
graduation accessories. The balance of the Company's sales (approximately 12% of
net sales during fiscal 1998) were derived from the sale of recognition and
affinity products, consisting of jewelry and other products which are designed
to enable purchasers to show affinity or support for their favorite teams, to
show pride in their affiliations and to help companies and other organizations
promote and recognize achievement.

      The Company's largest product offerings are its high school and college
class rings. The Company offers over 200 styles of high school class rings
ranging from traditional to highly stylish and fashion oriented. Most of the
Company's high school class rings are available in gold or nonprecious metal,
and most are available with a choice of more than 50 different types of stones
in each of several different cuts. More than 400 designs can be placed on or
under the stone, and emblems of over 100 activities or sports can appear on the
sides. As a result, students have the ability to customize their rings by
designing highly personal and meaningful rings to commemorate their high school
education. During fiscal 1998, the Company's high school class rings generally
ranged in price to the student from approximately $50 for a nonprecious metal
ring up to approximately $500 for a gold ring with precious stones.

      The Company's college class rings are similar to the Company's high school
class rings in terms of the variety of customization and personalization options
available. However, college rings tend to be larger than high school rings, and
many more college rings are ordered in 14- and 18-karat gold or with precious or
semiprecious stones. During fiscal 1998, the average selling price of the
college class ring was higher than that of the Company's high school class ring,
with prices generally ranging from approximately $100 for a nonprecious metal
ring to as much as $2,000 for a gold ring with precious stones.

      The Company produces and markets a wide array of fine paper products,
including customized graduation announcements, name cards, thank-you stationery,
business cards, diplomas, mini-diplomas, certificates, appreciation covers,
diploma covers, and fine paper accessory items. Through its independent sales
representatives, the Company also markets certain graduation accessories that it
does not produce, such as T-shirts and pendants denoting class year, caps and
gowns, yearbooks, memory books and other scholastic products.

      The Company manufactures and markets a variety of recognition and affinity
jewelry for specialty niche markets. The Company's "recognition" products are
designed to commemorate accomplishments and achievements in business, sporting

                                     -1-

<PAGE>

or other endeavors, and "affinity" products are designed to express pride in 
one's affiliations with a particular organization or support for one's 
favorite teams and organizations. The Company's recognition and affinity 
jewelry products are grouped into four primary categories. The personalized 
family jewelry products consist of rings custom-made to include children's 
names, birth dates and birthstones, and personalized jewelry such as 
necklaces and bracelets designed to commemorate family celebrations and 
holidays such as Mother's Day and Valentine's Day. The Company distinguishes 
its personalized family jewelry from that of its competitors through 
extensive personalization with family names, dates, crests and events. The 
Company's licensed consumer sports jewelry includes rings, pins and pendants 
containing team logos, mascots and colors, that are manufactured for fans to 
express their support for their favorite professional or amateur sports team. 
The Company's professional sports championship jewelry consists of similar 
products but is designed for the championship individual or team to 
commemorate its championship, accomplishments or achievements. The Company 
offers sports championship jewelry for professional sports organizations 
(including Super Bowl rings to the San Francisco 49ers in 1995 and World 
Series rings to the New York Yankees in 1996) as well as jewelry for 
individuals to commemorate American Bowling Congress-sanctioned perfect 
games. Corporate recognition and reward jewelry includes jewelry awards for 
employees of various corporations.

SALES AND MARKETING

      The Company has a national presence in all three primary sales channels 
for class rings and scholastic products: (i) the high school in-store sales 
channel of independent retail jewelers, retail jewelry chains and mass 
merchants; (ii) the high school in-school sales channel of independent sales 
representatives; and (iii) the college on-campus sales organization 
(primarily on-campus and local bookstores). No single customer of the Company 
represented more than 5% of net sales in fiscal 1998.

      The Company markets its class rings: (i) in-store to independent and 
chain jewelers under the names ARTCARVED-Registered Trademark- and R. 
JOHNS-Registered Trademark- and to mass merchants under the names 
KEYSTONE-Registered Trademark-, MASTER CLASS RINGS-Registered Trademark- and 
CLASS RINGS, LTD.-Registered Trademark-; (ii) in high schools under the 
BALFOUR-Registered Trademark- name; and (iii) on college campuses under the 
ARTCARVED-Registered Trademark-, BALFOUR-Registered Trademark- and 
KEEPSAKE-Registered Trademark- names. The Company markets its 
graduation-related fine paper and accessories under the BALFOUR-Registered 
Trademark- and ARTCARVED-Registered Trademark- names directly to students 
in-school and on college campuses through approximately 100 college 
bookstores. The Company markets its licensed consumer sports jewelry and its 
corporate recognition and reward jewelry under the BALFOUR-Registered 
Trademark- name, its sports championship jewelry under the BALFOUR-Registered 
Trademark- and KEEPSAKE-Registered Trademark- names and its personalized 
family jewelry under the CELEBRATIONS OF LIFE-Registered Trademark-, 
GENERATIONS OF LOVE-Registered Trademark- and NAME-SAKE-Registered 
Trademark- names.

      The Company is one of the leading suppliers of high school class rings 
in the in-store channel based on net sales for fiscal 1998. A predecessor of 
the Company introduced the concept of in-store sales for high school class 
rings in 1963 as an alternative to traditional in-school sales. The Company 
sells its high school class rings in-store to independent jewelry retailers, 
large jewelry chains and to mass merchants. The Company was also the first 
class ring manufacturer to sell class rings to mass merchants such as 
Wal-Mart and Kmart, an area of strong sales growth within the class ring 
industry over the last ten years. The Company utilizes distinct product 
brands, product line characteristics and pricing for each of the in-store 
sales channels. Advertising is particularly important in the in-store market 
to inform students and parents that the retailer offers alternatives to the 
products sold at school. The Company utilizes a combination of national, 
regional, local and co-op print and local direct mail advertising for its 
products depending on the type of retailer involved.

      The Company also markets its products in high schools using the 
BALFOUR-Registered Trademark- brand name through its independent sales 
representatives, who offer both class rings and a variety of fine paper 
products and graduation accessories directly to high school students. The 
Company's in-school sales channel is supported through a sales organization 
that consists of approximately 135 regional independent representatives who 
work exclusively for the Company with respect to the types of products 
represented by the Company's product lines.

      The Company compensates its independent sales representatives on a 
commission basis, and most independent sales representatives receive a 
monthly draw against commissions earned, although all expenses, including 
promotional materials made available by the Company, are the responsibility 
of the representative. The Company's independent sales representatives 
operate under contract with exclusive non-compete arrangements that prohibit 
such representatives from selling competing products during the term of their 
arrangement with the Company and for a period of time, generally two

                                     -2-

<PAGE>

years, thereafter. Depending on geographical size and volume, independent 
sales representatives may employ one or more additional sales representatives 
in addition to part-time or full-time personnel.

      The Company's college class rings are sold under the 
ARTCARVED-Registered Trademark- brand name and under the BALFOUR-Registered 
Trademark- brand name primarily through on-campus bookstores and, to a lesser 
extent, through local bookstores, both of which typically also offer class 
rings distributed by one or more of the Company's competitors. The college 
bookstores display the Company's products, although approximately 85% of all 
orders are taken by the Company's sales representatives at special events 
periodically set up at the bookstore or campus student center. College class 
ring sales are principally supported by sales promotions with school 
newspaper advertising and direct mailings to students and parents. The 
Company uses promotions to stimulate sales in the critical back-to-school, 
pre-Christmas and pre-graduation periods. The Company differentiates itself 
from its competitors through its high quality rings, innovative styles, quick 
delivery times and promotional services that attract students to tables 
containing product information. Beginning during the fourth quarter of fiscal 
1997, the Company began to offer BALFOUR-Registered Trademark- fine paper 
products through the more extensive ArtCarved college on-campus sales 
channels. At August 29, 1998, BALFOUR-Registered Trademark- fine paper 
products, primarily personalized college announcements and name cards, were 
being sold in approximately 100 college bookstores.

      Recognition and affinity products are sold either (i) to retail outlets 
or directly to the group or organization, or (ii) by a combination of field 
sales personnel and corporate sales personnel. The Company's 
BALFOUR-Registered Trademark- licensed consumer sports jewelry and 
CELEBRATIONS OF LIFE-Registered Trademark-, GENERATIONS OF LOVE-Registered 
Trademark- and NAME-SAKE-Registered Trademark- personalized family jewelry 
are primarily distributed to retail outlets and through merchandise 
catalogues. The Company markets its BALFOUR-Registered Trademark- sports 
championship jewelry directly to the championship team or organization or its 
members and its KEEPSAKE-Registered Trademark- bowling rings directly to 
individuals. Corporate recognition and reward programs are developed in 
conjunction with corporate clients, who order and purchase products directly 
from the Company.

      In fiscal l997, the Company introduced the BALFOUR-Registered 
Trademark- licensed consumer sports rings to Wal-Mart and, at August 29, 
1998, this product line was being sold in more than 2,400 Wal-Mart stores. In 
addition, the Company began selling BALFOUR-Registered Trademark- fine paper 
products to college bookstores during fiscal 1997 and, at August 29, 1998, 
such products were being sold in approximately 100 college bookstores.

INDUSTRY

      Management believes there are three national competitors in the sale of 
class rings and fine paper products (the Company, Jostens, Inc. and Herff 
Jones, Inc.) and numerous regional producers. The class rings and fine paper 
markets are highly competitive and numerous alternative suppliers for the 
Company's products exist.

      Consumers differentiate scholastic products on the basis of price, 
quality, marketing and customer service. Customer service is particularly 
important in the sale of class rings because of the high degree of 
customization and the emphasis on timely delivery. Class rings with different 
quality and price points are marketed through different channels and, within 
the in-store sales channel, through different retailers.

      Scholastic products are sold in retail stores and directly to students 
in schools and on college campuses. Management estimates that, historically, 
approximately 65% of high school class rings have been sold through the 
in-school sales channel. In schools, administrators or student 
representatives select the authorized supplier for their school. Suppliers 
contact these administrators or student representatives through their sales 
forces, which are generally comprised of independent sales representatives 
who market products directly to high school students.

      In addition to the in-school sales channel, the scholastic product 
market is also characterized by a strong in-store distribution channel. In 
1963, a predecessor of ArtCarved initiated the use of the in-store sales 
channel, and management estimates that this segment represents, historically, 
approximately 35% of high school class rings sold. The in-store channel 
consists primarily of independent jewelry retailers, large jewelry chains and 
mass merchants.

      College class rings are sold primarily through on-campus bookstores 
and, to a lesser extent, through local bookstores, both of which typically 
also offer class rings distributed by one or more of the Company's major 
national competitors.

                                     -3-

<PAGE>

Historically, on-campus bookstores have been owned and operated by the 
colleges and universities; however, during the last several years an 
increasing number of campus bookstores have been leased to companies engaged 
in retail bookstore operations, primarily Barnes & Noble Bookstores, Inc. and 
Follett Corporation. The Company also sells its college class rings in 
on-campus bookstores operated by Barnes & Noble Bookstores, Inc. and Follett 
Corporation.

      The market for the Company's recognition and affinity products is a 
broad collection of market niches. It includes championship jewelry for 
winners of professional sports championships as well as individual events. 
The market for retail affinity products is well developed in the apparel 
category but not with respect to non-apparel products (such as the Company's 
licensed consumer sports jewelry). Management believes that the demand for 
licensed consumer sports jewelry is influenced by trends in the popularity of 
professional and amateur sports. An important success factor in the licensed 
consumer jewelry business is obtaining the right to use and market a team 
name and mascot.

PRODUCTION AND TECHNOLOGY

      The Company produces high school and college class rings only upon the 
receipt of a customer order and deposit, and each ring is custom 
manufactured. The entire production process takes approximately two to eight 
weeks from receipt of the customer's order to product shipment, depending on 
tooling requirements. Consequently, only a limited amount of finished 
products inventory is necessary, reducing the Company's exposure to 
fluctuations in the price of the gold material content of its rings and the 
Company's investment in working capital.

      The Company employs advanced design and manufacturing techniques at its 
jewelry manufacturing plants. The use of computer-aided design and 
manufacturing equipment, computer integrated manufacturing, cell 
manufacturing and the craftsmanship of the Company's highly-skilled jewelers 
enable the Company to produce increasingly personalized and high quality 
jewelry while maintaining critical delivery schedules.

      The Company's fine paper manufacturing and distribution activities are 
housed at a 100,000 square-foot facility in Louisville, Kentucky. Each fine 
paper product requires a high level of customization and is characterized by 
having short production runs. For a typical graduation product order, the 
Company's salespeople meet with the next class of graduating seniors to chose 
their graduation announcements and related designs in the spring of their 
junior year or early fall of their senior year. Designs are chosen and 
artwork is produced on the Company's computerized design systems.

RAW MATERIALS

      The principal raw materials that the Company purchases are gold and 
precious, semiprecious and synthetic stones. The cost (and, with respect to 
precious, semiprecious and synthetic stones, the availability) of these 
materials are affected by market conditions. Operating results during fiscal 
1998 were not materially affected by market volatility. Any material increase 
in the price of these raw materials could adversely impact the Company's cost 
of sales.

      The Company requires significant amounts of gold for the manufacture of 
its jewelry. The Company finances the majority of its gold inventory 
requirements through borrowings by the Company under its Revolving Credit and 
Gold Facilities, described below. Management believes that it has sufficient 
availability under its Revolving Credit and Gold Facilities to finance all of 
its gold inventory requirements. See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations-Liquidity and Capital 
Resources" below. The Company reduces its exposure to fluctuations in the 
price of gold in several ways. In the Company's in-school sales channel for 
the sale of high school class rings, the Company resets its ring prices from 
time to time on new ring sales to reflect the then current price of gold. 
However, the Company does not have the same flexibility to reset its ring 
prices in the in-store and on-campus sales channels for high school and 
college rings, respectively, where rings are sold on the basis of seasonal 
prices. In either of these two cases, the Company must bear the risk of a 
change in the price of gold either from the time the order is placed or from 
the time the price is set until the product is shipped. As a result, since 
there may be a change in the price of gold during such periods, the Company 
may from time to time engage in certain hedging transactions to reduce the 
effects of fluctuations in the price of gold during these periods. As of 
August 29, 1998, the Company had no hedges in place.

      The Company also uses precious metals and precious, semiprecious and 
synthetic stones in its products. The Company

                                     -4-

<PAGE>

purchases substantially all synthetic and semiprecious stones from a single 
supplier, located in Germany, which supplies semiprecious and synthetic 
stones to almost all of the class ring manufacturers in the United States. 
The Company believes that the loss of this source of synthetic and 
semiprecious stones would adversely affect its business during the time 
period in which alternate sources adapted production capabilities to meet 
increased demand.

ENVIRONMENTAL MATTERS

      The Company is subject to federal, state and local laws, ordinances and 
regulations that establish various health and environmental quality standards 
and provide penalties for violations of those standards. Past and present 
manufacturing operations of the Company subject to environmental laws include 
the use, handling, and contracting for disposal or recycling of hazardous or 
toxic substances, the discharge of particles into the air, and the discharge 
of process wastewaters into sewers. Management believes that the Company's 
current operations are in substantial compliance with all material 
environmental laws and that the Company does not currently face environmental 
liabilities that would have a material adverse effect on the Company's 
financial position or results of operations.

INTELLECTUAL PROPERTY

      The Company markets its products under many trademarked brand names, 
some of which rank among the most recognized and respected names in the 
jewelry industry, including ARTCARVED-Registered Trademark-, 
BALFOUR-Registered Trademark-, CELEBRATIONS OF LIFE-Registered Trademark-, 
CLASS RINGS, LTD.-Registered Trademark-, GENERATIONS OF LOVE-Registered 
Trademark-, KEEPSAKE-Registered Trademark-, KEYSTONE-Registered Trademark-, 
MASTER CLASS RINGS-Registered Trademark-, NAME-SAKE-Registered Trademark- 
and R. JOHNS-Registered Trademark-. Generally, a trademark registration will 
remain in effect so long as the trademark remains in use by the registered 
holder and any required renewals are obtained. The Company also holds several 
patented ring designs. The Company's patents expire at varying dates, but 
management does not believe that the loss of any one of which would have a 
material adverse effect on the Company's financial position or results of 
operations.

      The Company has non-exclusive licensing arrangements with numerous 
colleges and universities under which the Company has the right to use the 
name and other trademarks and logos of these schools on the Company's 
products. In addition, the Company has licensing agreements with certain 
major professional sports organizations. Management does not believe that 
there are any franchises or licenses the loss of which, individually, would 
have a material adverse effect on the Company's financial position or results 
of operations.

      In 1988, CJC had granted to Lenox, Inc. a ten-year license to use the 
KEEPSAKE-Registered Trademark- name for the sale of non-jewelry goods on a 
royalty-free, worldwide and exclusive basis for non-jewelry products. This 
license expired by its terms on April 28, 1998. ArtCarved has nonexclusive 
licensing arrangements with two manufacturers in Canada for the 
ARTCARVED-Registered Trademark- trademark and exclusive licensing 
arrangements for the ARTCARVED-Registered Trademark- trademark to a retailer 
in Central America.

      During October 1997, the Company entered into a Trademark License 
Agreement with Aurafin, Inc. ("Aurafin") pursuant to which the Company 
granted to Aurafin the right to use the ARTCARVED-Registered Trademark- 
trademark in connection with wedding rings, engagement rings and anniversary 
bands for an initial term of ten years, which is automatically renewable for 
additional successive five-year periods, unless terminated prior thereto. 
Under the terms of the agreement, Aurafin will pay the Company royalties 
based on decreasing marginal percentages of annual net sales of various 
licensed products.

      During December 1997, the Company entered into a Trademark License 
Agreement with Frederick Goldman, Inc. ("Goldman") pursuant to which the 
Company granted Goldman the right to use the KEEPSAKE-Registered Trademark- 
trademark in connection with rings, bracelets, pendants, necklaces, earrings, 
earring jackets, brooches, pins, neck chains, watches, and related services, 
excluding licensor products. The agreement, which has an initial term of ten 
(10) years which automatically renews for successive five-year periods, 
assuming it is not otherwise terminated pursuant to its terms, provides for 
royalty payments based on percentages of sales of various licensed products, 
subject to an annual minimum royalty.

                                     -5-

<PAGE>

EMPLOYEES

      At August 29, 1998, the Company employed 1,809 individuals, of whom 
approximately 1,345 were involved in manufacturing, operations and production 
support, 323 were involved in customer service, marketing and sales and 141 
were employed in various administrative and data processing functions. Many 
employees engaged in manufacturing operations are highly skilled technicians 
and craftspersons.

      Other than 801 hourly production and maintenance employees (at August 
29, 1998) at the Austin, Texas manufacturing facility, no employees of the 
Company are represented by a labor union. The production and maintenance 
workers are represented by the United Brotherhood of Carpenters and Joiners 
Union (the "Union"). After the Company and its predecessor had operated 
without an agreement for nearly three years, the Company and the Union signed 
a collective bargaining agreement on April 24, 1997, which provided for wage 
rate increases of $0.30 an hour on April 21, 1997,and $0.25 an hour on June 
1, 1998 and provides for an additional wage rate increase of $0.20 an hour on 
June 1, 1999. Neither the Company nor its predecessors have experienced any 
work stoppages or significant employee-related problems at its Austin, Texas 
manufacturing facility in the recent past. Management considers the 
relationship between the Company and all of its employees to be satisfactory.

      The Company employs two separate sales forces to support its in-store 
retail products and its on-campus products, with approximately 50 salespeople 
concentrating on in-store and approximately 35 full-time territory managers 
(supplemented by approximately 80 to 90 part-time representatives during peak 
buying seasons) concentrating on college campuses.

ITEM 2.  PROPERTIES

      The Company's headquarters and principal executive offices are located 
at 7211 Circle S Road, Austin, Texas 78745. The Company's other principal 
properties as of August 29, 1998, are as set forth below. Management believes 
the Company's properties are in good condition.

<TABLE>
<CAPTION>

Primary Use                         Location                  Approximate Size                Owned/Leased
-----------                         --------                  ----------------                ------------
<S>                                 <C>                       <C>
Administrative Offices              Austin, Texas             20,000 Square Feet                 Owned
Jewelry Manufacturing               Austin, Texas             99,830 Square Feet                 Owned
Jewelry Manufacturing               Juarez, Mexico            20,000 Square Feet                 Leased
Jewelry Manufacturing               North Attleboro, MA       35,000 Square Feet                 Leased
Fine Paper Manufacturing            Louisville, KY            100,000 Square Feet                Leased
Warehouse Facility                  Austin, Texas             50,060 Square Feet                 Leased
</TABLE>

ITEM 3.  LEGAL PROCEEDINGS

       There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject. The Company monitors all
claims, and the Company accrues for those, if any, which management believes are
probable of payment. The Company has no pending administrative proceedings
related to environmental matters involving governmental authorities.

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

      On July 7, 1998 the stockholders of the Company voted on and approved the
Commemorative Brands, Inc. Incentive Stock Purchase Plan (the "Plan"). See
"Executive Compensation - Incentive Stock Purchase Plan" below.

                                     -6-

<PAGE>

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      There is no established public trading market for the Company's common
stock, par value $0.01 per share ("Common Stock"). At November 27, 1998, there
were four (4) holders of record of the Common Stock.

      The Company has never declared dividends on its Common Stock. The Company
is restricted from paying dividends by certain of its bank debt covenants and
the indenture pursuant to which its senior subordinated notes were issued (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources") and by provisions of the Company's
outstanding classes of preferred stock. The Company intends to retain any
earnings for internal investment and debt reduction, and does not intend to
declare dividends on its Common Stock in the foreseeable future.

ITEM 6.  SELECTED FINANCIAL DATA

      This item is presented in three tables for the historical reporting
requirements. The Company began operations on December 16, 1996, by acquiring
and merging two predecessor companies with different fiscal year ends. Selected
historical data for the Company, ArtCarved, and Balfour are presented in tables
(A), (B) and (C), respectively.

TABLE (A)

      The Company completed the Acquisitions of ArtCarved and Balfour on
December 16, 1996 and prior to such date engaged in no business activities other
than those in connection with the Acquisitions and financing thereof. The
following table presents summary historical financial and other data for the
Company and should be read in conjunction with the financial statements of the
Company and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Item 7 herein. The
following information with respect to the Company as of and for the fiscal years
ended August 29, 1998 and August 30, 1997 has been derived from the audited
financial statements of the Company, which have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report dated November
27, 1998 included herein. See "Financial Statements". The results of operations
for the Company for the fiscal year ended August 29, 1998 are not comparable to
the results of operations for the fiscal year ended August 30, 1997 because the
information presented for the fiscal year ended August 29, 1998 includes
business operations for a full twelve month period in contrast to the fiscal
year ended August 30, 1997 in which the Company had not been engaged in
significant business operations prior to the completion of the Acquisitions on
December 16, 1996. Due to the highly seasonal nature of the class ring business,
a significant amount of revenue and income were earned by the Company's
predecessors in the three and one-half month period ended December 16, 1996, due
to the back to school and pre-holiday season. See "Seasonality" below.

                                     -7-

<PAGE>

TABLE (A)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                       Fiscal Year Ended
                             ---------------------------------------
                                 August 30,           August 29,
                                   1997(1)               1998
                             ----------------------------------------
                             (Dollars in thousands, except share data)
<S>                              <C>                  <C>
STATEMENT OF INCOME DATA:
Net sales                        $   87,600             $  151,101
Cost of sales                    $   45,189             $   72,615
                                -----------            ------------
Gross profit                     $   42,411             $   78,486
Selling, general and  
  administrative expenses        $   41,481             $   68,294
                                -----------            ------------
                                                        $   10,192
Operating income                 $      930              
Income (loss) from continuing 
  operations                     $   (8,867)             $  (4,637)
Net loss to common stockholders  $   (9,717)             $  (5,837)
Basic and diluted earnings 
   (loss) per share              $   (25.91)             $  (15.55)

OTHER DATA:
EBITDA (2)                       $    5,025              $  17,093
Depreciation and amortization    $    4,095              $   6,901
Capital expenditures             $    3,493              $   6,610
Cash flows provided by 
  (used in):
     Operating activities        $     (677)             $  (3,749)
     Investing activities        $ (173,693)             $  (6,552)
     Financing activities        $  175,450              $   9,102

BALANCE SHEET DATA (AT END OF 
  PERIOD):

Total assets                     $  200,869              $ 203,805
Total long-term debt             $  125,450              $ 134,322
Total stockholders' equity       $   40,453              $  34,846
</TABLE>
------------------------------------------------------------------------------

(1)   The Company completed the Acquisitions of ArtCarved and Balfour on
      December 16, 1996, and prior to such date, engaged in no business
      activities other than those in connection with the Acquisitions and
      financing thereof. Due to the highly seasonal nature of the class ring
      business, a significant amount of revenues and income were earned by the
      Company's predecessors in the three and one-half month period ended
      December 16, 1996, due to the back to school and pre-holiday season.

(2)   EBITDA represents operating income (loss) before depreciation and
      amortization. EBITDA is not intended to, and does not, represent cash
      flows as defined by generally accepted accounting principles and does not
      necessarily indicate that cash flows are sufficient to fund all of the
      Company's cash needs. EBITDA should not be considered in isolation or as a
      substitute for or more meaningful than net income (loss), cash flows from
      operating activities or other measures of liquidity determined in
      accordance with generally accepted accounting principles. The Company has
      presented EBITDA data because the Company understands that such
      information is commonly used by investors to analyze and compare companies
      on the basis of operating performance and to determine a company's ability
      to service debt. The EBITDA measure presented herein is not necessarily
      comparable to similarly titled measures reported by other companies.

                                      -8-

<PAGE>

Table (B) Summary Historical Financial and Other Data - ArtCarved

      The following table presents summary historical financial and other 
data for ArtCarved and should be read in conjunction with the financial 
statements of ArtCarved and the notes thereto and "Management's Discussion 
and Analysis of Financial Condition and Results of Operations" included in 
Item 7 herein. The following information with respect to ArtCarved for the 
fiscal year ended August 31, 1996 and for the period from September 1, 1996 
to December 16, 1996 has been derived from the audited financial statements 
of ArtCarved, which have been audited by Arthur Andersen LLP, independent 
public accountants, as indicated in their report dated October 24, 1997, 
included in the Financial Statements included herein. See "Financial 
Statements". The following information with respect to ArtCarved as of August 
31, 1996 and December 16, 1996 and for the fiscal year ended August 26, 1995 
has been derived from the audited financial statements of ArtCarved, which 
have been audited by Arthur Andersen LLP as stated in their report dated 
October 24, 1997, which is not included herein. The following information 
with respect to ArtCarved as of August 27, 1994 and August 26, 1995 and for 
the fiscal year ended August 27, 1994 has been derived from the audited 
financial statements of ArtCarved, which have been audited by Arthur Andersen 
LLP as stated in their report dated November 13, 1996, which is not included 
herein. The results for the period September 1, 1996, to December 16, 1996, 
are not necessarily indicative of the results to be expected for the full 
fiscal year. The information presented below does not include adjustments 
related to the ArtCarved acquisition.

<TABLE>
<CAPTION>

Table (B)
------------------------------------------------------------------------------------------------------
                                                                      Fiscal Year Ended (1)
                                                ------------------------------------------------------
                                                                                          The Period
                                                                                        from September
                                                                                          1, 1996 -
                                                August 27,     August 26,   August 31,   December 16,
                                                  1994           1995         1996          1996
                                                ------------------------------------------------------
                                                               (Dollars in thousands)
<S>                                             <C>            <C>          <C>         <C>
STATEMENT OF INCOME DATA:
Net sales                                       $ 69,820       $ 71,994      $ 70,671      $27,897
Cost of sales                                   $ 30,572       $ 32,879      $ 32,655      $11,988
                                                --------       --------      --------      -------
Gross profit                                    $ 39,248       $ 39,115      $ 38,016      $15,909
Selling, general and administrative expenses    $ 26,618       $ 28,224      $ 27,940      $ 9,862
Restructuring charges (2)                       $      -       $  3,244      $      -      $     -
                                                --------       --------      --------      -------
Operating income(3)                             $ 12,630       $  7,647      $ 10,076      $ 6,047
                                                                                          
OTHER DATA:                                                                               
EBITDA (4)                                      $ 17,324       $ 16,505      $ 15,091      $ 8,039
Depreciation and amortization                   $  4,694       $  5,614      $  5,015      $ 1,992
Capital expenditures (5)                        $  1,186       $  1,120      $    844      $   195
Cash flows provided by (used in):                                                         
     Operating activities                       $ 11,132       $ (3,164)     $  1,663      $ 1,498
     Investing activities                       $ (1,186)      $ (1,120)     $   (844)     $  (195)
     Financing activities                       $ (9,946)      $  4,284      $   (819)     $ 4,261
                                                                                          
BALANCE SHEET DATA (AT END OF PERIOD):                                                    

Total assets                                    $ 78,900       $ 75,955      $ 74,542      $86,065
Total long-term debt (6)                        $ 98,728       $ 99,900      $ 91,221      $80,144
Advances in equity (deficit) (6)                $(51,504)      $(53,186)     $(28,524)     $(6,464)
-----------------------------------------------------------------------------------------------------
</TABLE>

                                     -9-
<PAGE>

(1)      During the periods presented, ArtCarved was not operated or accounted
         for as a separate entity. As a result, allocations for certain accounts
         of CJC were reflected in the financial statements of ArtCarved.
         Selling, general and administrative expenses for ArtCarved represent
         all the expenses incurred by CJC excluding only the expenses directly
         related to the non-ArtCarved operations of CJC. Since CJC used the
         proceeds from the sale of ArtCarved to repay its outstanding debt
         obligations, the statement of income data, other data and the balance
         sheet data include all of CJC's debt and related interest expense.

(2)      For the fiscal year ended August 26, 1995, the restructuring charges of
         $3.2 million consisted of the write-off of $2.9 million of capitalized
         financing costs incurred in 1990 by CJC and $0.3 million of related
         professional advisory fees incurred by CJC. The balance sheet data
         includes all of CJC's debt and related interest expense, and therefore
         all of the restructuring charges are allocated to ArtCarved assets.

(3)      The results of operations for the period from September 1, 1996,
         through December 16, 1996, are not comparable to the results of
         operations for the fiscal years presented and are not necessarily
         indicative of the results that could be expected for a full fiscal
         year. Due to the highly seasonal nature of the class ring business, a
         significant amount of revenues and income occurred in the three and
         one-half month period ended December 16, 1996, due to the
         back-to-school and pre-holiday season.

(4)      EBITDA represents operating income (loss) before depreciation,
         amortization and restructuring charges. EBITDA is not intended to, and
         does not, represent cash flows as defined by generally accepted
         accounting principles and does not necessarily indicate that cash flows
         are sufficient to fund all of ArtCarved's cash needs. EBITDA should not
         be considered in isolation or as a substitute for or more meaningful
         than net income (loss), cash flows from operating activities or other
         measures of liquidity determined in accordance with generally accepted
         accounting principles. The Company has presented EBITDA data because
         the Company understands that such information is commonly used by
         investors to analyze and compare companies on the basis of operating
         performance and to determine a company's ability to service debt. The
         EBITDA measure presented herein is not necessarily comparable to
         similarly titled measures reported by other companies.

(5)      Historical capital expenditure levels are not necessarily indicative of
         the future capital expenditure level for ArtCarved's ongoing operations
         when merged with Balfour.

(6)      The changes in total long-term debt and advances in equity (deficit)
         from August 31, 1996, to December 16, 1996, are due to the sale of
         CJC's non-ArtCarved operations.

Table (C) Summary Historical Financial and Other Data - Balfour

      The following table presents summary historical financial and other data
for Balfour and should be read in conjunction with the financial statements of
Balfour and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Item 7 herein. The
following information with respect to Balfour for the year ended February 25,
1996 and for the period ended December 16, 1996 has been derived from the
audited financial statements of Balfour, which have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report dated
November 19, 1997, included herein. See "Financial Statements". The following
information with respect to Balfour as of February 25, 1996 and for the year
ended February 26, 1995 has been derived from the audited financial statements
of Balfour, which have been audited by Arthur Andersen LLP as stated in their
report dated November 19, 1997, which is not included herein. The following
information with respect to Balfour as of February 27, 1994 and February 26,
1995 and for the year ended February 27, 1994 has been derived from the audited
financial statements of Balfour and is not included herein. The results for the
period from February 26, 1996 to December 16, 1996 are not necessarily
indicative of the results that could be expected for the full fiscal year. The
information presented below does not include adjustments related to the Balfour
acquisition.

                                     -10-
<PAGE>

<TABLE>
<CAPTION>

Table (C)
---------------------------------------------------------------------------------------------------------
                                                               Fiscal Year Ended (1)
                                         ----------------------------------------------------------------
                                                                                      The Period from
                                                                                    February 26, 1996 to
                                         February 27,  February 26,   February 25,      December 16,
                                             1994         1995           1996              1996
                                         ----------------------------------------------------------------
                                                              (Dollars in thousands)
<S>                                      <C>           <C>            <C>           <C>
STATEMENT OF INCOME DATA:
Net sales                                $85,304        $77,491         $71,300         $60,233
Cost of sales                            $35,860        $35,406         $35,598         $29,350
                                         -------        -------         -------         -------
Gross profit                             $49,444        $42,085         $35,702         $30,883
Selling, general and administrative
expenses                                 $43,350        $51,743         $33,496         $31,020
                                         -------        -------         -------         -------
Operating income (loss)                  $ 6,094        $(9,658)        $ 2,206         $  (137)
                                                                                       
OTHER DATA:                                                                            
EBITDA (2)                               $ 7,993        $(7,680)        $ 4,232         $ 1,396
Depreciation and amortization            $ 1,899        $ 1,978         $ 2,026         $ 1,533
Capital expenditures (3)                 $ 1,820        $ 1,274         $   530         $   345
Adjusted net sales (4)                   $61,784        $64,891         $70,111         $59,384
Cash flows provided by (used in):                                                      
     Operating activities                $(2,413)       $(7,077)        $ 1,604         $(7,264)
     Investing activities                $(1,807)       $(1,209)        $   421         $   226
     Financing activities                $ 4,245        $ 8,286         $(1,970)        $ 6,977
                                                                                       
BALANCE SHEET DATA (AT END OF PERIOD):                                                 

Total assets                             $47,989        $45,236         $42,563         $45,127
Total long-term debt                     $ 6,136        $15,136         $13,166         $20,201
Total stockholders' equity               $24,966        $14,024         $13,888         $11,735
-----------------------------------------------------------------------------------------------
</TABLE>
(1)      During the periods presented, Balfour was operated as a wholly owned
         subsidiary of Town & Country and Town & Country administered certain
         programs (such as health insurance, workmen's compensation and gold
         consignment) and charged all directly identifiable costs to Balfour.
         Indirect costs were not allocated to Balfour; however, management
         believes these amounts are not significant for the periods presented.

(2)      EBITDA represents operating income (loss) before depreciation,
         amortization and restructuring charges. EBITDA is not intended to, and
         does not, represent cash flows as defined by generally accepted
         accounting principles and does not necessarily indicate that cash flows
         are sufficient to fund all of Balfour's cash needs. EBITDA should not
         be considered in isolation or as a substitute for or more meaningful
         than net income (loss), cash flows from operating activities or other
         measures of liquidity determined in accordance with generally accepted
         accounting principles. The Company has presented EBITDA data because
         the Company understands that such information is commonly used by
         investors to analyze and compare companies on the basis of operating
         performance and to determine a company's ability to service debt. The
         EBITDA measure presented herein is not necessarily comparable to
         similarly titled measures reported by other companies.

(3)      Historical capital expenditure levels are not necessarily indicative of
         the future capital expenditure level for Balfour's ongoing operations
         when merged with ArtCarved.

                                      -11-
<PAGE>

(4)      Adjusted net sales represents, for all periods presented, net sales
         excluding results from: (i) the direct distribution of licensed
         consumer sports jewelry, which was discontinued in February 1995; (ii)
         the fraternity jewelry product line, which was sold in March 1994; and
         (iii) the service award recognition product line, which was sold in
         April 1993. Although Balfour sold substantially all of the service
         award recognition product line, Balfour continues to have sales of
         service award recognition products, which management believes will not
         be a significant percentage of net sales in future periods.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
        RESULTS OF OPERATIONS

      For purposes of the discussion contained in this Item 7, unless the
context otherwise requires (i) the term "CBI" refers to Commemorative Brands,
Inc. prior to the consummation of the Acquisitions, (ii) the term "ArtCarved"
refers to the predecessor assets, businesses, and operations of CJC acquired by
CBI, (iii) the term "Balfour" refers to the predecessor class rings assets,
businesses and operations of L. G. Balfour Company, Inc. acquired by CBI, and
(iv) the term "the Company" refers to CBI consolidated with its subsidiaries as
combined with ArtCarved and Balfour after giving effect to the Acquisitions.

GENERAL

      On December 16, 1996, CBI completed the Acquisitions. CBI was initially 
formed by Castle Harlan Partners II, L.P., ("CHPII") a Delaware limited 
partnership and private equity investment fund. In March 1996 for the purpose 
of acquiring ArtCarved and Balfour. Until December 16, 1996, CBI engaged in 
no business activities other than in connection with the Acquisitions and the 
financing thereof.

      The Company uses a 52/53 week fiscal year ending on the last Saturday of
August.

RESULTS OF OPERATIONS

      The financial statements of the Company for the fiscal year ended August
29, 1998 reflect operations of the Company for the period from August 31, 1997
to August 29, 1998. The financial statements of the Company for the fiscal year
ended August 30, 1997 reflect operations for the period from December 16, 1996
(the date of consummation of the Acquisitions) to August 30, 1997. The financial
statements are presented for the predecessors, ArtCarved for the period from
September 1, 1996 through December 16, 1996 and Balfour for the period from
February 26, 1996 through December 16, 1996. See "Financial Statements". The
results of operations for the Company for the fiscal year ended August 29, 1998
are not comparable to the results of operations for the fiscal year ended August
30, 1997 because the information presented for the fiscal year ended August 29,
1998 includes business operations for a full twelve month period in contrast to
the fiscal year ended August 30, 1997 which includes no significant business
operations prior to December 16, 1996. Due to the highly seasonal nature of the
class ring business, a significant amount of revenue and income were earned by
the Company's predecessors in the three and one-half month period ended December
16, 1996, due to the back to school and pre-holiday season. The results of
operations of the Company for the fiscal year ended August 30, 1997, are not
comparable to the results of operations for the comparable prior periods for
each of the predecessor companies, because (i) CBI was not engaged in business
operations prior to December 16, 1996, and (ii) the information presented for
the predecessor companies includes the operations of such entities for a
twelve-month period in contrast to the approximately eight and one-half month
period of operations in the Company's fiscal year ended August 30, 1997.

      The results of operations of the Company for the fiscal years ended 
August 29, 1998 and August 30, 1997, were negatively impacted as a result of 
the consolidation of the Attleboro and North Attleboro, Massachusetts 
operations into the Austin, Texas facilities. Although, the consolidation of 
the Attleboro and North Attleboro, Massachusetts operations in the Company's 
Austin, Texas facilities was substantially completed in the fiscal year ended 
August 29, 1998, there can be no assurance that the operations formerly 
conducted by each of the Company's predecessors will be fully integrated 
or as to the amount of any costs savings that may result from such 
integration.

                                      -12-
<PAGE>

      ELIMINATION OF OCCUPANCY AND FIXED OVERHEAD COSTS - Two of the three 
Balfour facilities were closed during fiscal 1997 and the occupancy and 
overhead costs including duplicative facilities-related personnel associated 
with these two facilities (the Attleboro, Massachusetts ring manufacturing 
plant and the North Attleboro, Massachusetts administrative facility) were 
eliminated. The closure of these facilities resulted in permanent cost 
savings of approximately $1.5 million on an annual basis of which the full 
$1.5 million of costs savings were realized during fiscal 1998 and 
approximately $400,000 of cost savings were realized during fiscal 1997. The 
third Balfour facility which contains the insignia plant and the Balfour 
ring tooling operation, was not closed.

      MANUFACTURING INTEGRATION - The move of the Balfour ring manufacturing
operation was substantially completed in June, 1997. Expanded manufacturing
capacity in Austin was adequate to absorb the additional production of the
Balfour rings. However, difficulties were encountered in the efficient
manufacture of the Balfour rings. Certain of the costs savings achieved by the
Company by the reduction of duplicative personnel were offset by additional
labor and overhead incurred to manufacture Balfour rings. Manufacturing
inefficiencies were primarily caused by:

       -       People - The specific Balfour product knowledge that was "lost"
               due to Massachusetts employees electing not to relocate to Texas
               resulted in higher than normal training expenses and additional
               costs to temporarily place former Balfour employees (manager and
               supervisors) in the Texas plant.

       -       Tooling - Because Balfour ring tooling is older and more
               complicated to use than the ArtCarved ring tooling, the Company
               experienced higher than normal training costs and lower levels of
               efficiencies than the mold operations at the Balfour Attleboro
               ring plant.

       -       Systems - The Balfour computer system is heavily dependent on
               manual processing and human interaction. Difficulties were
               experienced in the transfer of user knowledge and system
               documentation. Therefore, labor costs in excess of those
               anticipated by management were incurred to enter, schedule, track
               and ship the Balfour rings.

      During January 1998, the Company began a major computer project which, 
among other things, will convert the more inefficient Balfour computer 
systems to the more efficient ArtCarved systems, unifying the Company's 
computer system thereby reducing computer operation and maintenance costs, 
streamlining and making the Company's order entry system and process more 
accurate, and eliminating any "Year 2000" problems that may be inherent in 
the Company's existing computer systems. Management believes that this 
computer conversion project will be completed by July 1999, although there 
can be no assurance that it will be completed by that date.

THE COMPANY

      TWELVE  MONTHS ENDED AUGUST 29, 1998 ("FISCAL  1998") AS COMPARED TO 
THE TWELVE MONTHS ENDED AUGUST 30, 1997 ("FISCAL 1997")

      The results of operations for the Company for fiscal 1998, are not
comparable to the results of operations for fisca1 1997 because the information
presented for fiscal 1998 includes business operations for a full twelve-month
period in contrast to fiscal 1997 which includes no significant business
operations prior to December 16, 1996.

      NET SALES - Net sales increased $63.5 million, or 72.5%, to $151.1 
million for fiscal 1998, as compared to $87.6 million in fiscal 1997. This 
increase in net sales is primarily a result of the fact that fiscal 1998 
includes a full twelve months of business operations in contrast to fiscal 
1997 which includes only approximately eight and one-half months of business 
operations. Due to the highly seasonal nature of the class ring business, 
approximately 35% of the Company's fiscal 1997 sales were recognized by the 
Company's predecessors in the three and one-half month period ended December 
16, 1997. This period included the back-to-school period and the pre-holiday 
season. Approximately 18% of the company's increase in net sales was a result 
of increases in sales volume of high school and college rings and an increase 
in the sales volume of the personalized family jewelry product segment of 
recognition and affinity products.

                                      -13-
<PAGE>

      GROSS PROFIT - Gross profit increased $36.1 million, or 85.1%, to $78.5 
million for fiscal 1998, as compared to $42.4 million for fiscal 1997 which 
was primarily a result of the fact that fiscal 1998 includes a full twelve 
months of business operations in contrast to fiscal 1997 which includes only 
approximately eight and one-half months of business operations. As a 
percentage of net sales, gross profit was 51.9% for fiscal 1998, compared to 
48.4% for fiscal 1997. Cost of sales for fiscal 1997 includes an incremental 
charge of $4.7 million related to an increase in inventory valuation at the 
time of the Acquisitions in accordance with purchase price accounting which 
was expensed to cost of sales as the related inventory was sold. Gross profit 
for fiscal 1997, excluding this $4.7 million charge, would have been 53.8% of 
sales.

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and 
administrative expenses increased $26.8 million, or 64.6%, to $68.3 million 
for fiscal 1998, compared to $41.5 million for fiscal 1997. The increase was 
primarily a result of the fact that fiscal 1998 includes a full twelve months 
of business operations in contrast to fiscal 1997 which includes only 
approximately eight and one-half months of business operations. As a 
percentage of net sales, selling, general and administrative expenses 
decreased to 45.2% for fiscal 1998, compared to 47.4% for fiscal 1997. The 
decrease was a result of decreased marketing expenditures offset by an 
increase in general and administrative expenses as a percentage of net sales 
as a result of the increased expense incurred in the consolidation of the 
Massachusetts operations with the Texas operations.

      OPERATING INCOME - As a result of the foregoing, operating income 
increased $9.3 million to $10.2 million for fiscal 1998 compared to $0.9 
million for fiscal 1997 which was primarily a result of the fact that fiscal 
1998 includes a full twelve months of business operations in contrast to 
fiscal 1997 which includes only approximately eight and on-half months of 
business operations. As a percentage of net sales, operating income increased 
to 6.7% for fiscal 1998 compared to 1.1% for fiscal 1997.

      INTEREST EXPENSE, NET - Interest expense, net, was $14.8 million for
fiscal 1998 and $9.8 million for fiscal 1997 primarily consisting of interest on
the Bank Credit Facility which had an average outstanding balance of $46.6
million and $32.7 million for fiscal 1998 and 1997, respectively, at rates
ranging from 8.5% to 10.5% and interest on the $90.0 million of notes, at a rate
of 11%.

      PROVISION FOR INCOME TAXES - For fiscal 1998 and fiscal 1997, no
provisions or benefits were recorded as management believes the net operating
losses and carry-forwards incurred by the Company in prior periods will be
sufficient to cover any tax liability.

      NET INCOME (LOSS) - As a result of the foregoing, net loss decreased 
$4.2 million to a net loss of $4.6 million for fiscal 1998 compared to a net 
loss of $8.9 million for fiscal 1997 which was primarily a result of the fact 
that fiscal 1998 includes a full twelve months of business operations in 
contrast to fiscal 1997 which includes only approximately eight and one-half 
months of business operations.

      PREFERRED  DIVIDENDS  - Preferred  dividends  were $1.2  million for 
fiscal 1998 and $0.9  million for fiscal 1997.  No dividends were paid in 
fiscal 1998 or fiscal 1997.

      NET LOSS TO COMMON STOCKHOLDERS - As a result of the foregoing, net 
loss to common stockholders decreased an aggregate of $3.9 million to a net 
loss to common stockholders of $5.8 million for fiscal 1998 compared to a net 
loss to common stockholders of $9.7 million for fiscal 1997 which was 
primarily a result of the fact that fiscal 1998 includes a full twelve months 
of business operations in contrast to fiscal 1997 which includes only 
approximately eight and one-half months of business operations.

ARTCARVED

      THE PERIOD FROM  SEPTEMBER 1, 1996 THROUGH  DECEMBER 16, 1996 ("THE  
ARTCARVED  PERIOD  THROUGH  DECEMBER 16, 1996")

      The results of operations for the ArtCarved period through December 16,
1996, are not comparable to the results of operations for the fiscal year ended
August 31, 1996, and are not necessarily indicative of the results that could be
expected for a full fiscal year. Due to the highly seasonal nature of the class
ring business, a significant amount of revenues and income were earned in the
three and one-half month period ended December 16, 1996, due to the
back-to-school and pre-holiday season.

                                      -14-
<PAGE>

      NET SALES - Net sales for the ArtCarved period through December 16, 1996,
were $27.9 million.

      GROSS PROFIT - Gross profit for the ArtCarved period through  December 
16, 1996, was $15.9 million,  or 57.0% of net sales.

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and 
administrative expenses for the ArtCarved period through December 16, 1996, 
were $9.9 million, or 35.4% of net sales.

      OPERATING  INCOME - As a result of the  foregoing,  operating  income 
was $6.0  million or 21.7% of net sales for the ArtCarved period through 
December 16, 1996.

      INTEREST EXPENSE, NET - Interest expense, net, for the ArtCarved period 
through December 16, 1996, was $2.9 million. Average interest rates on debt 
during the ArtCarved period through December 16, 1996, were approximately 
11.9% for ArtCarved long-term debt and 9.75% for the ArtCarved gold loan.

      INCOME TAX PROVISION - There was no income tax provision for the 
ArtCarved period through December 16, 1996, due to available federal net 
operating tax losses and other credit carry forwards of CJC that eliminated 
the need for a tax provision.

      NET INCOME (LOSS) - As a result of the foregoing, net income for the 
ArtCarved period through December 16, 1996, was $3.2 million, or 11.4% of net 
sales.

      TWELVE MONTHS ENDED AUGUST 31, 1996 ("FISCAL 1996")

      NET SALES.  Net sales for fiscal 1996 were $70.7 million.

      GROSS PROFIT. Gross profit for fiscal 1996 was $38.0 million, or 53.8% 
of net sales.

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and 
administrative expenses for fiscal 1996 were $27.9 million, or 39.5% of net 
sales.

      OPERATING INCOME. As a result of the foregoing, for fiscal 1996 
operating income was $10.1 million, or 14.3% of net sales.

      INTEREST EXPENSE, NET. Interest expense, net, for fiscal 1996 was 
$11.9 million.

      INCOME TAX PROVISION. There was no income tax provision in fiscal 1996, 
due to available federal net operating tax losses and other credit carry 
forwards of CJC that eliminated the need for a federal tax provision.

      NET INCOME (LOSS). As a result of the foregoing, net loss for fiscal 
1996 was $1.8 million.

BALFOUR

      THE PERIOD FROM FEBRUARY 26, 1996 THROUGH DECEMBER 16, 1996 ("THE BALFOUR
PERIOD THROUGH DECEMBER 16, 1996")

      NET SALES - Net sales for the Balfour period through December 16, 1996,
were $60.2 million.

      GROSS PROFIT - Gross profit for the Balfour period through December 16,
1996, was $30.9 million, or 51.3% of net sales.

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses for the Balfour period through December 16, 1996, were
$31.0 million, or 51.5% of net sales.

                                      -15-
<PAGE>

      OPERATING INCOME (LOSS) - As a result of the foregoing, operating loss 
for the Balfour period through December 16, 1996, was $0.1 million, or 0.2% 
of net sales.

      INTEREST EXPENSE, NET - Interest expense, net, for the Balfour period 
through December 16, 1996 was $2.0 million, substantially on account of 
intercompany debt at a rate of 11.5%.

      INCOME TAX EXPENSE - There was no income tax provision due to available 
federal net operating tax losses and other credit carry forwards at Town & 
Country that eliminated the need for a federal tax provision. The $63,000 
provision for income taxes represents the state income taxes for the Balfour 
period through December 16, 1996.

      NET INCOME (LOSS) - As a result of the foregoing, net loss for the 
Balfour period through December 16, 1996, was $2.2 million, or 3.6% of net 
sales.

      TWELVE MONTHS ENDED FEBRUARY 25, 1996 (THE "1996 PERIOD")

      NET SALES. Net sales for the 1996 period were $71.3 million.

      GROSS PROFIT. Gross profit for the 1996 period was $35.7 million, or
50.1% of net sales.

      SELLING GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the 1996 period were $33.5 million or 47.0% of net
sales.

      OPERATING INCOME (LOSS). As a result of the foregoing, operating income
for the 1996 period was $2.2 million or 3.1% of net sales.

      INTEREST EXPENSE, NET. Interest expense, net for the 1996 period was $2.6
million which related primarily to intercompany debt. Town & Country charged
Balfour an interest rate of 11.5% in the 1996 period.

      INCOME TAX EXPENSE. There was no federal income tax provision in the 1996
period due to available federal net operating tax losses and other tax credit
carry forwards of Town & Country that eliminated the need for a federal tax
provision. The income tax expense represents a provision for state income taxes
in the 1996 period.

      NET INCOME (LOSS). As a result of the foregoing, net loss for the 1996
period was $0.1 million.

SEASONALITY

      The Company's scholastic product sales tend to be seasonal. Class ring
sales are highest during October through December (which overlaps the Company's
first and second fiscal quarters), when students have returned to school after
the summer recess and orders are taken for class rings for delivery to students
before the winter holiday season. Sales of the Company's fine paper products are
predominantly made during February through April (which overlaps the Company's
second and third fiscal quarters) for graduation in May and June. ArtCarved and
Balfour historically experienced operating losses during the period of the
Company's fourth fiscal quarter, which includes the summer months when school is
not in session. The Company's recognition and affinity product line is not
seasonal in any material respect, although sales generally are highest during
the winter holiday season and in the period prior to Mother's Day. As a result,
the effects of seasonality of the class ring business on the Company are
tempered by the Company's relatively broad product mix. As a result of the
foregoing, the Company's working capital requirements tend to exceed its
operating cash flows from July through December.

LIQUIDITY AND CAPITAL RESOURCES

      As of August 29, 1998, the Company had $35.0 million available under the
Revolving Credit and Gold Facilities (as defined below) and an $8.0 million
short term line of credit expiring March 31, 1999 (the "Short Term Revolving
Credit"). The Company had $19,589,000 outstanding under the Revolving Credit
Facility, $3,786,000 outstanding under the Gold Facility and $733,000
outstanding under the Short Term Revolving Credit as of August 29, 1998. At
August 29, 1998 the Company had no availability under its Revolving Credit,
$6,214,000 available under its Gold Facility and $7,267,000 

                                     -16-
<PAGE>

available under its Short Term Revolving Credit. Management believes that 
cash flows generated by existing operations and its available borrowings 
under its Bank Credit Facility and Short Term Revolving Credit will be 
sufficient to fund its ongoing operations. The Company's liquidity needs 
arise primarily from debt service on the Bank Credit Facility, the Short Term 
Revolving Credit and the Notes (as defined below), working capital and 
capital expenditure requirements and payments required under a Management 
Agreement with Castle Harlan, Inc. ("CHP Management Fee") (see "Certain 
Relationships and Related Transactions").

      The Company's cash flows from operating activities for the fiscal year 
ended August 29, 1998, were primarily the net result of decreased 
receivables, increased inventories, increased prepaid expenses and other 
current assets, increased other assets and decreased overdraft, accounts 
payable and accrued expenses. The decreased receivables were primarily the 
result of the acceleration of the cash collections from the Balfour sales 
representatives, the increased inventories were primarily the result of 
increased units in the factory in fiscal 1998, the increase in prepaid 
expenses and other assets resulted primarily from an increase in prepaid 
marketing expenses and draws paid in advance to the Balfour representatives. 
The Company's cash flows from operating activities for the fiscal year ended 
August 30, 1997, were primarily the net result of decreased accounts 
receivable, decreased inventories, increased prepaid expenses and other 
current and noncurrent assets and decreased overdraft, accounts payable and 
accrued expenses. The decrease in accounts receivable, inventories, accounts 
payable and accrued expenses were primarily due to the fact that the period 
included in fiscal 1997 began on December 17, 1996, the day following the 
date of the consummation of the Acquisitions, when inventory and receivables 
were at a high point of the year. The majority of the higher than average 
prepaid expenses and other current assets is primarily due to advances to 
sales representatives and prepaid advertising being higher at this time of 
year before the busy season begins. The majority of the increase in other 
assets relates to transaction fees and expenses arising from the Acquisitions.

      Also affecting cash usage in fiscal 1997 and fiscal 1998 are the 
one-time costs associated with the closing of the Attleboro facilities, 
moving expenses and set-up expenses in Austin. As of August 29, 1998 and 
August 30, 1997, $11.3 million and $9.3 million, respectively, of the costs 
had been incurred with the remaining balance of $0.8 million in reserves for 
remaining expenses associated with the metal stamping and tooling operations 
currently operating in Attleboro. The Company's projected capital 
expenditures for the fiscal year 1999 are $9.5 million for manufacturing 
equipment, tools and dies, software development, and the Balfour computer 
project.

      The following summarizes certain provisions of the bank credit 
agreement governing the Revolving Credit, Term Loan and Gold Consignment 
Agreement as amended, (the "Bank Credit Facility"), dated as of December 16, 
1996, by and among the Company, as borrower, BankBoston (formerly known as 
The First National Bank of Boston and successor by merger to Rhode Island 
Hospital Trust National Bank), Rhode Island Hospital Trust National Bank 
("RIHT", and together with BankBoston, as agent, the "Agents") and the 
financial institutions party thereto, and the Company's Short Term Revolving 
Credit.

      The Bank Credit Facility consists of a senior secured credit facility 
of up to $60,000,000, including (i) a $25,000,000 term loan facility (the 
"Term Loan Facility"), (ii) a $25,000,000 revolving credit facility (with a 
letter of credit sublimit of $5,000,000) (the "Revolving Credit Facility") 
and (iii) a $10,000,000 gold consignment and revolving credit facility (the 
"Gold Facility" and, together with the Revolving Credit Facility, the 
"Revolving Credit and Gold Facilities").

      The Term Loan Facility of $24,000,000 matures on December 16, 2003. The 
Company may prepay the Term Loan Facility at any time, and must repay the 
Term Loan Facility in 28 consecutive quarterly installments, which commenced 
March 31, 1997. The final installment of principal of the Term Loan Facility 
is due and payable on December 16, 2003. In addition, subject to certain 
exceptions set forth in the Bank Credit Agreement, the Company must make 
mandatory prepayments of the Term Loan Facility from certain asset sales, 
equity issuances, and 50% of Consolidated Excess Cash Flow (as defined).

      Availability under the Revolving Credit and the Gold Facilities 
is subject to a borrowing base limitation (the "Borrowing Base") based on the 
aggregate of certain percentages of Eligible Receivables (as defined) and 
Eligible Inventory (as defined) of the Company. The Borrowing Base is 
recalculated each month. If the aggregate amount of loans and other 
extensions of credit under the Revolving Credit and the Gold 
Facilities exceeds the Borrowing Base, the Company must immediately prepay or 
cash collateralize its obligations under the Revolving Credit Facility to the 
extent of such excess. 
                                     -17-
<PAGE>

At August 29, 1998, the Company had no availability under its Revolving 
Credit Facility and $6,214,000 available under its Gold Facility.

      The Gold Facility consists of (a) a purchase and consignment facility, 
pursuant to which BankBoston, as gold agent, on behalf of the lenders under 
the Gold Facility, will purchase amounts of gold inventory for the Company 
and consign such amounts to the Company, (b) a consignment facility, pursuant 
to which the gold agent, on behalf of the lenders under the Gold Facility, 
will obtain and consign amounts of gold to the Company and (c) a revolving 
loan facility.

      Loans outstanding under the Bank Credit Facility bear interest at 
either fixed or floating rates based upon the interest rate option selected 
by the Company. The weighted average interest rate of debt outstanding at 
August 29, 1998 and August 30, 1997, was 10.3% and10.5%, respectively.

      The Revolving Credit and Gold Facilities may be borrowed, repaid and 
reborrowed from time to time until December 16, 2001, subject to certain 
conditions on the date of any such borrowing. Amounts of principal repaid on 
the Term Loan Facility may not be reborrowed.

      The Bank Credit Facility is secured by a first priority lien on 
substantially all assets of the Company, including all accounts receivable, 
inventory, equipment, general intangibles, real estate, buildings and 
improvements and the outstanding stock of its subsidiaries. The Company's 
U.S. subsidiary, CBI North America, Inc., has guaranteed the Company's 
obligations and granted a similar security interest.

      The Bank Credit Facility contains certain customary affirmative and 
negative covenants, including, among other things, requirements that the 
Company (i) periodically deliver certain financial information (including 
monthly borrowing base, consigned metal and receivables aging reports), (ii) 
not merge or make certain asset sales, (iii) not permit certain liens to 
exist on its assets, (iv) not incur additional debt or liabilities except as 
may be permitted under the terms of the Bank Credit Facility (v) not make 
capital expenditures in excess of limits set forth in the Bank Credit 
Facility (vi) not declare or make certain dividend payments, (vii) not make 
certain investments or consummate certain acquisitions, (viii) not enter into 
any consignment transactions as consignee (except for deliveries of 
diamonds), (ix) not create a new subsidiary, (x) not establish any new bank 
account, and (xi) establish concentration accounts with BankBoston and direct 
all of its depositary banks to transfer all amounts deposited (on a daily 
basis) to such concentration accounts (for application in accordance with the 
Bank Credit Facility). In addition, the Company must comply with certain 
financial covenants, including maintaining a specified minimum interest 
coverage ratio of Consolidated EBITDA to Consolidated Interest Expense, 
maximum Consolidated Senior Funded Debt to Consolidated EBITDA, minimum 
Consolidated EBITDA (as those terms are defined in the Bank Credit Facility) 
in amounts set forth in the Bank Credit Facility. Furthermore, the covenants 
were amended on November 27, 1998, and additional covenants were added in 
which the Company must not permit its Consolidated Net Worth (as defined) as 
of March 30, 1999 to be less than $42,000,000, not pay the CHP Management Fee 
unless at the time of payment (A) no Event of Default shall have occurred and 
be continuing or would result from the payment thereof; (B) the Short Term 
Revolving Credit shall have been paid in full; and (C) the Company meets the 
requisite Modified Funded Debt Ratio (as defined in the Bank Credit Facility) 
and will not permit or make certain capital expenditures for computer 
conversion projects in excess of $6,500,000 in the aggregate during fiscal 
1998 and 1999 and the first fiscal quarter of 2000. Most of the covenants 
apply to the Company and its subsidiaries. The Company was in compliance with 
all of its covenants under the Bank Credit Facility as of August 29, 1998 and 
August 30, 1997. However, the Company may enter into additional transactions 
which may require further amendments in the upcoming year. Management 
believes the Company can maintain compliance pursuant to the amended Bank 
Credit Facility throughout the next year.

      The Bank Credit Facility contains certain customary events of default, 
including nonpayment, misrepresentation, breach of covenant, bankruptcy, 
ERISA, judgments, change of control and cross defaults. In addition, the Bank 
Credit Facility provides that it shall be an Event of Default if the Company 
or any of its subsidiaries (other than its Mexican subsidiary) shall be 
enjoined or restrained from conducting any material part of its business for 
more than 30 days.

      On August 26, 1998, the Company obtained the Short Term Revolving 
Credit from BankBoston pursuant to which the Company may, from time to time, 
borrow up to $8,000,000 from BankBoston, until March 31, 1999. At August 29, 
1998, the Company had $7,267,000 available under the Short Term Revolving 
Credit. Amounts outstanding under the Short Term Revolving Credit bear 
interest at either fixed or floating rates based upon the interest rate 
option selected by the 

                                    -18-
<PAGE>

Company. All amounts borrowed under the Short Term Revolving Credit are due 
and payable on March 31, 1999. Any Event of Default under the Bank Credit 
Facility will also constitute an Event of Default under the Short Term 
Revolving Credit. Pursuant to the terms of the Company's Bank Credit 
Facility, the Company is prohibited from repaying the outstanding principal 
on the Short Term Revolving Credit unless at the time of such repayment and 
both before and after giving effect to such payment, no Default or Event of 
Default exists under the Bank Credit Facility and the Borrowing Base exceeds 
all outstanding amounts under the Bank Credit Facility by at least $2 
million. The Short Term Revolving Credit is unsecured. All of the Company's 
obligations under the Short Term Revolving Credit are guaranteed by CHPII. 
The Company has agreed to indemnify CHPII and pay CHPII upon demand any 
amounts that CHPII must pay pursuant to such guaranty. The Short Term 
Revolving Credit constitutes Designated Senior Indebtedness for purposes of 
the Indenture.

      The Company's $90,000,000 aggregate principal amount of 11% Senior 
Subordinated Notes ("the Notes") mature on January 15, 2007. The Notes are 
redeemable at the option of the Company, in whole or in part, at any time on 
or after January 15, 2002, plus accrued and unpaid interest and Liquidated 
Damages (as defined), if any, thereon to the date of redemption. In the event 
the Company completes one or more Public Equity Offerings (as defined) on or 
before January 15, 2000, the Company may, in its discretion, use the net cash 
proceeds to redeem up to 33 1/3% of the original principal amount of the 
Notes at a redemption price equal to 111% of the principal amount thereof, 
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to 
the date of redemption, with the net proceeds of one or more Public Equity 
Offerings, provided that at least 66-2/3% of the original principal amount of 
the Notes remains outstanding immediately after each such redemption.

      In the event of a Change of Control (as defined), each holder of the 
Notes will have the right to require the Company to purchase all or any part 
of such holder's Notes at a purchase price in cash equal to 101% of the 
aggregate principal amount thereof, plus accrued and unpaid interest and 
Liquidated Damages, if any, thereon to the date of purchase. The Bank Credit 
Facility prohibits the Company from purchasing any Notes upon a Change of 
Control, and certain Change of Control events with respect to the Company 
would constitute a default thereunder.

      In the event of an Asset Sale (as defined), the Company is required to 
apply any Net Proceeds (as defined) to permanently reduce senior 
indebtedness, to acquire another business or long-term assets or to make 
capital expenditures. To the extent such amounts are not so applied within 
thirty days and the amount not applied exceeds $5.0 million, the Company is 
required to make an offer to all holders of the Notes to purchase an 
aggregate principal amount of Notes equal to such excess amount at a purchase 
price in cash equal to 100% of the principal amount thereof, plus accrued and 
unpaid interest and Liquidated Damages, if any, thereon to the date of 
purchase.

      The Indenture, dated as of December 16, 1996, between the Company and 
Marine Midland Bank, as trustee (the "Indenture") pursuant to which the Notes 
were issued contains certain covenants that, among other things, limit the 
ability of the Company and its subsidiaries to (a) incur additional 
indebtedness and issue preferred stock, (b) pay dividends or make certain 
other restricted payments, (c) enter into transactions with affiliates, (d) 
create certain liens, (e) make certain asset dispositions, and (f) merge or 
consolidate with, or transfer substantially all of its assets to, another 
person. The Company was in compliance with the Indenture covenants at August 
29, 1998 and August 30, 1997.

YEAR 2000 COMPLIANCE

      The Company has conducted a review of its computer systems, 
applications and equipment and has contacted external parties (such as 
suppliers) regarding their preparedness for year 2000 to identify the systems 
that could be affected by the "Year 2000" problem and is making certain 
investments in its software applications and systems to ensure that the 
Company's systems and applications function properly to and through the year 
2000. The Company expects its Year 2000 conversion project to be completed by 
July 1999, although there can be no assurance that it can be completed by 
that date. Failure to meet this schedule could have a material impact on the 
operations of the Company. The cost to the Company of the Year 2000 project 
as well as the related potential effect on the Company's earnings are not 
expected to have a material adverse impact on the financial position, cash 
flows or results of operations of the Company.

      The materiality of the costs of the project and the date when the Company
believes it will complete the Year 2000 project are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,

                                    -19-
<PAGE>

including the continued availability of certain resources and other factors. 
However, there can be no guarantee that these estimates will be achieved, and 
actual results could differ materially from those anticipated. Specific 
factors that might cause such material differences include, but are not 
limited to, the availability and cost of personnel trained in this area, the 
ability to locate and correct all relevant computer codes and similar 
uncertainties.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

      This report includes forward-looking statements within the meaning of 
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the 
Securities Exchange Act of 1934, as amended. Although management believes 
that the expectations reflected in such forward looking statements are based 
upon reasonable assumptions, the Company can give no assurance that these 
expectations will be achieved. Any change in the following factors may impact 
the achievement of results in forward-looking statements: the price of gold 
and precious, semiprecious and synthetic stones; the Company's access to 
students and consumers in schools; the seasonality of the Company's business; 
regulatory and accounting rules; the Company's relationship with its 
independent sales representatives; fashion and demographic trends; general 
economic, business and market trends and events, especially during peak 
buying seasons for the Company's products; the Company's ability to respond 
to customer change orders and delivery schedules; development and operating 
costs; competitive pricing changes; successful completion of management 
initiatives designed to achieve operating efficiencies; and completion of 
Year 2000 compliance projects with respect to internal and external 
computer-based systems. The foregoing factors are not exhaustive. New factors 
may emerge or changes may occur that impact the Company's operations and 
businesses. Forward-looking statements attributable to the Company or persons 
acting on behalf of the Company are expressly qualified on the foregoing or 
such other factors as may be applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The financial statements of the Company and the predecessor financial
statements of ArtCarved and Balfour are included as part of this report. (See
page 30.)

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

      None.

                                    -20-


<PAGE>



                                  PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The following table sets forth in alphabetical order each person who 
was an executive officer or director of the Company as of August 29, 1998:

<TABLE>
<CAPTION>
NAME                                                                    POSITION
----                                                                    --------
<S>                                               <C>
EXECUTIVE OFFICERS AND DIRECTORS:

      Jeffrey H. Brennan                          President, Chief Executive Officer and Director

      John K. Castle                              Director

      Richard H. Fritsche*                        Vice President and Chief Financial Officer

      William J. Lovejoy                          Director

      David B. Pittaway                           Director

      Zane Tankel                                 Director

      Edward O. Vetter                            Director
</TABLE>

      *Mr. Fritsche's employment with the Company was terminated as of August 
29, 1998.

      For a description of the Company's employment arrangements with Messrs. 
Brennan and Fritsche (hereinafter, the "Named Executive Officers") see 
"Executive Compensation --Employment Agreements". No family relationship 
exists between any of the executive officers or between any of them and any 
director of the Company.

      JEFFREY H. BRENNAN (54) has been President, Chief Executive Officer and 
a director of the Company since December 16, 1996, and prior thereto was 
President and Chief Executive Officer of CJC from September 1995 through 
December 1996. He also held the position of Chief Financial Officer of CJC 
from August 1988 to December 1996 and served as a director of CJC from 
December 1988 through December 1996. Before joining CJC in August 1988, Mr. 
Brennan served in various financial management positions with Baker Hughes 
Incorporated, a provider of oilfield services, supplies and equipment.

      JOHN K. CASTLE (57) has been a director of the Company  since  December 
16, 1996,  and has been  Chairman of Castle Harlan,  Inc., a private 
merchant bank, since 1987. Mr. Castle is Chairman of Castle Harlan Partners 
II GP, Inc., which is the general partner of Castle Harlan  Partners II, 
L.P., the Company's controlling stockholder. Mr. Castle is also Chairman 
and Chief Executive Officer of Branford Castle Holdings, Inc. and Chairman 
of Castle Harlan Partners III GP, Inc., the general partner of the general 
partner of Castle Harlan Partners III, L.P. Immediately prior to forming 
Castle Harlan, Inc., Mr. Castle was President and Chief Executive 
Officer and a director of Donaldson, Lufkin and Jenrette, Inc., one of the 
nation's leading investment banking firms. Mr. Castle is a director of 
Sealed Air Corporation, Morton's Restaurant Group, Inc. and Universal
Compression, Inc.; a Managing Director of Statia Terminals Group,
N.V.; and a member of the corporation of the  Massachusetts Institute of
Technology.  Mr. Castle is also a Trustee of the New York and  Presbyterian  
Hospitals, Inc., the Whitehead Institute of Biomedical Research and New 
York Medical College (for 11 years serving as Chairman of the Board). 
Formerly, Mr. Castle was a Director of the Equitable Life Assurance Society 
of the United States.

                                   -21-

<PAGE>

      WILLIAM J. LOVEJOY (31) has been a director of the Company since December
16, 1996, and served as Secretary of the Company from April 1996 through
December 1996. Mr. Lovejoy is a Vice President of Castle Harlan, Inc., a private
merchant bank, with which he has been associated since December 1994. From June
to August of 1992 and from August 1993 to November 1994, Mr. Lovejoy was a
management consultant at The Boston Consulting Group, Inc. From 1991 to 1993 he
attended Harvard Business School, and prior to that worked as an analyst at
Wasserstein Perella & Co., Inc. Mr. Lovejoy also serves as a director of
Homestead Insurance Company.

      DAVID B. PITTAWAY (47) has been a director of the Company since December
16, 1996, and was President, Treasurer and the sole director of the Company from
April 1996 through December 1996. Mr. Pittaway has been Vice President and
Secretary of Castle Harlan, Inc., a private merchant bank, since February 1987
and Managing Director since February 1992. Mr. Pittaway is Secretary of Castle
Harlan Partners II GP, Inc., which is the general partner of the general partner
of Castle Harlan Partners II, L.P., the Company's controlling stockholder. Mr.
Pittaway is also Secretary of Castle Harlan Partners III GP, Inc., the general
partner of the general partner of Castle Harlan Partners III, L.P. Mr. Pittaway
has been Vice President and Secretary of Branford Castle, Inc., an investment
company, since October 1986; Vice President, Chief Financial Officer and a
director of Branford Chain, Inc., a marine wholesale company, since June 1987; a
director of Morton's Restaurant Group, Inc., a public restaurant company and of
Charlie Browns Acquisition Corp; and Managing Director of Statia Terminals
Group, N.V., a holder of marine terminals. Prior to 1987, Mr. Pittaway was Vice
President of Strategic Planning and Assistant to the President of Donaldson
Lufkin & Jenrette. Inc. from 1985.

      ZANE TANKEL (58) has been a director of the Company since December 16,
1996, and has been Chairman and Chief Executive Officer of Zane Tankel
Consultants, Inc., a sales company, since 1990. In 1994, Mr. Tankel formed Apple
Metro, Inc., a restaurant franchisee for the New York metropolitan area, for the
franchiser Applebee's Neighborhood Grill & Bar. He is presently Chairman and
Chief Executive Officer of Apple Metro, Inc. In 1995, Mr. Tankel was elected
chairman of the Federal Law Enforcement Foundation, which aids the federal law
enforcement community in times of crisis, and was elected to the Board of
Directors of the Metropolitan Presidents Organization, the New York chapter of
the World Presidents Organization, with which Mr. Tankel has been associated
since 1977. Mr. Tankel is also on the advisory board to the Boys Choir of Harlem
and has also served on the Board of Directors of Beverly Hills Securities
Corporation, a wholesale mortgage brokerage company, from 1987 until its sale in
January 1994. In addition, Mr. Tankel founded Saga Communications, Inc. in 1988.

      EDWARD O. VETTER (78) has been a director of the Company since January 
28, 1998 and has served as President of Edward O. Vetter & Associates, a 
private management consulting firm, since 1978 and has also served as a 
Trustee for the Massachusetts Institute of Technology since 1979. Mr. Vetter 
also served from 1987 to 1991 as Chairman of the Texas Department of 
Commerce, from 1979 to 1983 as Energy Advisor to the Governor of Texas and 
from 1976 to 1977 as U.S. Undersecretary of Commerce, serving as Director of 
Overseas Private Investment Corporation and as Director of Pension Benefit 
Guaranty Corporation. From 1952 through 1975, Mr. Vetter was employed by 
Texas Instruments, Inc. in various capacities and was the Executive 
Vice-President and Chief Financial Officer at the time of his retirement in 
1975. Formerly, Mr. Vetter has served as a director of AMR Corporation, 
Champion International, Cabot Corporation, Dual Drilling Company, and Bell 
Packaging Company.

      The Board of Directors has established two committees, a Compensation 
Committee and an Audit Committee. The Compensation Committee reviews general 
policy matters relating to compensation and benefits of employees and 
officers of the Company. The Audit Committee recommends the firm to be 
appointed as independent accountants to audit the Company's financial 
statements, discusses the scope and results of the audit with the independent 
accountants, reviews with management and the independent accountants the 
Company's interim and year-end operating results, considers the adequacy of 
the internal controls and audit procedures of the Company and reviews the 
non-audit services to be performed by the independent accountants. The 
Compensation Committee consists of Messrs. Castle, Pittaway and Tankel and 
the Audit Committee consists of Messrs. Pittaway, Lovejoy and Vetter.


                                      -22-

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

      The table below summarizes the total value of compensation received by 
the Named Executive Officers who received compensation which exceeded 
$100,000 during fiscal 1998.

<TABLE>
<CAPTION>
                                               SUMMARY COMPENSATION TABLE


                                                                          Long Term
                                       Annual Compensation              Compensation
                                       -------------------     --------------------------------
                                                                   Awards          Payouts
                                                                   ------          -------
                                                                 Securities
         Name and                                                Underlying          LTIP            All Other
    Principal Position       Year     Salary($)    Bonus($)     Options(#)(1)      Payouts        Compensation($)
    ------------------       ----     ---------    --------     -------------      -------        ---------------
<S>                          <C>      <C>          <C>          <C>                <C>            <C>
George Agle(2)
Former Chairman of the       1998        -0-          -0-            -0-                 -0-        300,000(2)
Board                        1997      207,692      50,000           -0-                 -0-            -0-

Jeffrey H. Brennan
President and Chief          1998      195,292        -0-            -0-                 -0-            -0-
Executive Officer            1997      131,538        -0-           8,617                -0-            -0-

Richard H. Fritsche(3)
Vice President and Chief     1998      118,309      50,000           -0-                 -0-         27,894(4)
Financial Officer            1997      79,618         -0-           1,723                -0-         46,940(4)
</TABLE>
------------------------
 (1)   The right to exercise the underlying options granted pursuant to the
       Company's Amended and Restated 1997 Stock Option Plan (the "Plan") vest
       at the rate of 25% per year at the end of the second through fifth year
       following the grant. As of August 29, 1998, there were no options
       exercisable under the Plan. Unless otherwise terminated earlier in
       accordance with the terms of the Plan, the options expire ten years from
       the date of grant.
 (2)   Mr. Agle's employment with the Company was terminated as of March 31,
       1997. Payments to Mr. Agle continued in accordance with the terms of
       his employment agreement through September 25, 1998.
 (3)   Mr. Fritsche's employment with the Company was terminated as of August
       29, 1998. Payments to Mr. Fritsche after such date continued to 
       be made in accordance with the terms of his employment agreement. Mr. 
       Fritsche's options under the Plan terminated effective August 29, 1998 
       upon the termination of his employment.
 (4)   Consists of reimbursement for relocation expenses.

      No stock options under the Plan were granted to or exercised by any of 
the named executives or officers during fiscal 1998. Options to purchase an 
aggregate of 937 shares were granted to each of Messrs. Tankel and Vetter 
pursuant to the Plan during fiscal 1998.

      Effective January 1, 1998, directors who are neither managers of the 
Company nor affiliates of CHPII, are entitled to receive a fee of $25,000 per 
year for their services as a director. In addition, all directors are 
reimbursed for expenses incurred by them in attending meetings of the Board 
of Directors or any committee thereof.

      The Company has entered into indemnification agreements with each of 
its directors that, among other things, require the Company to indemnify such 
directors to the fullest extent permitted by law and to advance to the 
directors all related expenses, subject to reimbursement if it is 
subsequently determined that indemnification is not permitted. The Company 
has also agreed to indemnify and advance all expenses incurred by directors 
seeking to enforce their rights under the indemnification agreements, and to 
cover directors under the Company's directors' and officers' liability 
insurance.

                                    -23-

<PAGE>

EMPLOYMENT CONTRACTS

      Pursuant to the purchase agreement related to the acquisition of 
Balfour, the Company agreed to employ Mr. Agle effective as of December 16, 
1996, at an annual base salary of $300,000 plus a bonus of $50,000 payable 
under certain circumstances. In addition, the Company agreed to assume 
Balfour's obligations under Mr. Agle's employment agreement with Balfour to 
pay Mr. Agle a severance payment equal to 18 months of his yearly salary 
payable on a monthly basis in the event he voluntarily terminated employment 
with the Company under certain circumstances or was terminated without cause. 
Mr. Agle's employment by the Company ended as of March 31, 1997, whereupon 
Mr. Agle was paid a $50,000 bonus and the Company commenced making severance 
payments to Mr. Agle in accordance with the foregoing. All payments due to 
Mr. Agle under his employment agreement were completed on September 25, 1998.

      The Company entered into an employment agreement with Jeffrey H. 
Brennan, effective as of December 16, 1996, pursuant to which Mr. Brennan 
serves as Chief Executive Officer of the Company at an annual base salary of 
$190,000 per year for an initial term of four years, which will automatically 
be extended for additional one-year terms on December 15th of each succeeding 
year thereafter unless earlier terminated by the Company by not less than 60 
days' prior notice. Mr. Brennan will be entitled to participate in all 
employee benefit plans and programs (including any incentive bonus plans and 
incentive stock option plans) maintained by the Company from time to time for 
the benefit of its employees. In addition, Mr. Brennan's employment agreement 
provides that, in the event Mr. Brennan's employment is terminated by the 
Company without Cause (as defined) or by Mr. Brennan with Good Reason (as 
defined), Mr. Brennan will be entitled to receive bi-weekly severance 
payments during the two-year period following his termination in an amount 
equal to the average of his bi-weekly base compensation in effect within the 
two years preceding his termination. Mr. Brennan has agreed not to compete 
with the Company in the United States for a period of one year after the 
termination of his employment under his employment agreement.

      The Company entered into an employment agreement with Richard H. 
Fritsche, effective as of December 16, 1996, pursuant to which Mr. Fritsche 
was to serve as an executive of the Company at an annual base salary of 
$115,000 per year for an initial term of three years, which could be 
automatically extended for additional one year terms on December 15th of each 
succeeding year thereafter unless earlier terminated by the Company by not 
less than 60 days' prior notice. Mr. Fritsche's employment pursuant to his 
employment agreement was terminated on August 29, 1998. In accordance with 
Mr. Fritsche's employment agreement, Mr. Fritsche is entitled to receive 
bi-weekly severance payments during the 18-month period following his 
termination in an amount equal to the average of his bi-weekly base 
compensation in effect within the two years preceding his termination. Mr. 
Fritsche has agreed not to compete with the Company in the United States for 
a period of one year after the termination of his employment under his 
employment agreement.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

      No member of the Compensation Committee is an employee of the Company. 
There are no compensation committee interlocks (i.e., no executive officer of 
the Company serves as a member of the board of directors or the compensation 
committee of another entity which has an executive officer serving on the 
Company's Board or the Compensation Committee.)

MANAGEMENT OPTIONS

      The Board of Directors of the Company approved the Commemorative 
Brands, Inc. Amended and Restated 1997 Stock Option Plan (the "Option Plan") 
effective July 29, 1997, as amended December 9, 1997, pursuant to which 
approximately 15% of the Common Stock of the Company on a fully diluted basis 
(after giving effect to the issuance of the shares of Common Stock underlying 
such options) or 69,954 shares of Common Stock have been reserved for 
issuance upon exercise of future stock options under the Option Plan. The 
Option Plan provides for the granting of both incentive and nonqualified 
stock options. On July 29, 1997, the Board approved the grant of 34,470 
options to management employees at an exercise price of $6.67. No options 
were granted to management in fiscal 1998. On January 28, 1998 the Board 
approved the grant of 937 nonqualified options to each of Messrs. Tankel and 
Vetter, at an exercise price of $6.67. The Compensation Committee is 
responsible for monitoring the Option Plan. All Common Stock issued upon 
exercise of options granted pursuant to the Option Plan will be subject to a 
voting trust agreement. 
                                     -24-
<PAGE>
INCENTIVE STOCK PURCHASE PLAN

      On July 7, 1998 the stockholders of the Company unanimously approved 
the Commemorative Brands, Inc. Incentive Stock Purchase Plan (the "Stock 
Purchase Plan"). Pursuant to the terms of the Stock Purchase Plan, the 
Company may from time to time offer shares of the Company's Class B Preferred 
Stock and Common Stock to employees, consultants and independent sales 
representatives who are determined to be eligible to purchase shares pursuant 
to the Stock Purchase Plan by the Plan Administrator (as defined in the Stock 
Purchase Plan) upon such terms and at such prices as are set forth in the 
Stock Purchase Plan and as are determined by the Plan Administrator.

      On July 20, 1998, the Company commenced an offering pursuant to the 
Stock Purchase Plan of up to an aggregate of 18,750 shares of each of the 
Company's Common Stock and Series B Preferred Stock to eligible employees, 
consultants and independent sales representatives. The offering is currently 
scheduled to terminate on December 22, 1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth certain information known by the Company 
regarding the beneficial ownership of the Company's voting securities as of 
August 29, 1998, with respect to (i) each person or entity who is the 
beneficial owner of more than 5% of any class of the Company's voting 
securities, (ii) each of the Company's directors, (iii) each of the Named 
Executive Officers, and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
                                                    NUMBER OF        PERCENTAGE          NUMBER OF     PERCENTAGE
                                                    SHARES OF         OF TOTAL           SHARES OF      OF TOTAL
                                                     COMMON            COMMON            SERIES B       SERIES B
NAME AND ADDRESS OF BENEFICIAL OWNER (1)              STOCK             STOCK            PREFERRED      PREFERRED
-----------------------------------------------------------------------------------------------------------------
<S>                                                 <C>              <C>                 <C>           <C>
Castle Harlan Partners II, L.P.(2)                    330,840           87.7              330,840        87.7
Castle Harlan Offshore Partners, L.P.(2) (3)           20,804            5.5               20,804         5.5
John K. Castle (2) (3) (4)                            377,156          100.0              377,156       100.0
William J. Lovejoy (2)                                     --             --                   --          --
David B. Pittaway (2)                                     469              *                  469           *
Zane Tankel (2)                                           938              *                  938           *
Edward O. Vetter(2)                                       400              *                  400           *
Jeffrey H. Brennan (5)                                    937              *                  937           *
Richard H. Fritsche (5)(6)                                234              *                  234           *
Directors and executive officers as a group
  (9 persons, including those listed above)(5)        377,156          100.0              377,156       100.0
</TABLE>
----------------------
* Denotes beneficial ownership of less than one percent of the class of capital
  stock.

(1)      Beneficial ownership is determined in accordance with the rules of the
         Securities and Exchange Commission. Except as indicated in the
         footnotes to this table, each stockholder named in the table has sole
         voting and investment power with respect to the shares set forth
         opposite such stockholder's name except for John K. Castle who, in his
         capacity as voting trust, has sole voting power on such shares, but
         disclaims any economic interest in any shares so held.
(2)      The address for each such stockholder or director identified above is
         c/o Castle Harlan, Inc., 150 East 58th Street, New York, New York
         10155.
(3)      Affiliates of CHPII include among others, Castle Harlan Offshore
         Partners, L.P. ("Offshore"), Dresdner Bank AG, Grand Cayman Branch
         Managed Account (the "Managed Account") and the limited partners of the
         sole general partner of CHPII. Castle Harlan, Inc. acts as the
         investment manager for CHPII, Offshore and the Managed Account,
         pursuant to separate investment management agreements. Castle Harlan
         Associates, L.P. ("CHALP") is the sole general partner of each of CHPII
         and Offshore, therefore, may be deemed to be a beneficial owner of the
         shares owned by each of those two partnerships. Castle Harlan Partners
         II GP, Inc. is the sole general partner of CHALP and, therefore, may be
         deemed to be a beneficial owner of the shares owned by CHALP. Castle
         Harlan, Inc., as the investment manager for each of CHPII, Offshore and
         the Managed Account (the owner of 18,483 shares of common stock and
         18,483 shares of Series B Preferred Stock representing 4.9% of the
         total outstanding common stock and 4.9% of the total Series B Preferred
         Stock,), may be deemed to be beneficial owner of the shares owned by
         such entities.
                                     -25-
<PAGE>

(4)      John K. Castle is a director of the Company and is the controlling
         stockholder of Castle Harlan Partners II GP, Inc., the general partner
         of the general partner of CHPII, and as such may be deemed to be a
         beneficial owner of the shares owned by CHPII and its affiliates. Mr.
         Castle disclaims beneficial ownership of such shares in excess of his
         proportionate partnership share. In addition, Mr. Castle serves as
         voting trustee under a voting trust agreement (the "Voting Trust
         Agreement") with certain officers and directors of the Company, and
         limited partners of CHALP and a corporate entity of which Mr. Castle is
         Chairman, Chief Executive Officer and principal stockholder. As such
         voting trustee, Mr. Castle may be deemed the beneficial owner of the
         shares of Common Stock and Series B Preferred beneficially held by such
         persons and entities (which amounts are included in the numbers set
         forth above). Mr. Castle disclaims any economic interest in such
         shares.
(5)      The address for each individual  identified above is c/o Commemorative
         Brands, Inc., 7211 Circle S Road. Austin, Texas 78745.
(6)      Following termination of Mr. Fritsche's employment on August 29, 1998, 
         Mr. Fritsche requested pursuant to the terms of the Stock Purchase and 
         Subscription Agreement, dated as of June 30, 1998, by and between the 
         Company and Mr. Fritsche, that the Company repurchase his shares at 
         the Fair Market Value (as defined in the Agreement) thereof.

      In the Spring of 1998, Mr. Edward O. Vetter and Mr. Zane Tankel, both 
directors of the Company, purchased an aggregate of 400 and 938 shares, 
respectively, of Series B Preferred Stock and 400 and 938 shares, 
respectively, of Common Stock from certain members of the Castle Harlan Group 
(as defined below) at a purchase price of $100 per share of Series B 
Preferred Stock and $6.67 per share of Common Stock. Concurrently with such 
purchases, Messrs. Vetter and Tankel deposited their shares into the voting 
trust created by the Voting Trust Agreement, of which John K. Castle is 
voting trustee.

      During June 1998, the company sold 937 newly issued shares of Series B 
Preferred Stock and 937 newly issued shares of Common Stock to Jeffrey H. 
Brennan, the Chief Executive Officer and President and director of the 
Company, and 234 newly issued shares of Series B Preferred Stock and 234 
newly issued shares of Common Stock to Richard H. Fritsche, former Vice 
President and Chief Financial Officer of the Company. The Company also sold 
an aggregate of 985 newly issued shares of Series B Preferred Stock and 985 
shares of Common Stock to three other officers of the Company. All such sales 
were effected at a purchase price of $100 per share of Series B Preferred 
Stock and $6.67 per share of Common Stock. Each of the foregoing purchases of 
shares by officers of the Company are subject to stock purchase agreements 
that give the Company the right to repurchase such shares or the officer the 
right to require the Company to repurchase such shares upon termination of 
employment under certain circumstances. Concurrently with such purchases, the 
officers placed all of the shares acquired by them into the voting trust 
created by the Voting Trust Agreement, of which John K. Castle is voting 
trustee.

      In accordance with a subscription agreement entered into by the Company 
and certain of CHPII's affiliates (together, the "Castle Harlan Group") in 
conjunction with the Acquisitions, the Company granted to the Castle Harlan 
Group and their permitted transferees, including Messrs. Vetter and Tankel, 
certain registration rights with respect to the shares of its capital stock 
owned by them, pursuant to which the Company agreed, among other things, to 
effect the registration of such shares under the Securities Act at any time 
at the request of the Castle Harlan Group and Messrs. Vetter and Tankel and 
granted to the Castle Harlan Group and Messrs. Vetter and Tankel unlimited 
piggyback registration rights on certain registrations of shares by the 
Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The Company entered into a Management Agreement dated December 16, 
1996, with Castle Harlan, Inc. (the "Manager"), pursuant to which the Manager 
agreed to provide business and organizational strategy, financial and 
investment management and merchant and investment banking services to the 
Company upon the terms and conditions set forth therein. As compensation for 
such services, the Company agreed to pay the Manager $1.5 million per year, 
which amount has been paid in advance for the first year and is payable 
quarterly in arrears thereafter. The agreement is for a term of 10 years, 
renewable automatically from year to year thereafter unless the Castle Harlan 
Group then owns less than 5% of the then outstanding capital stock of the 
Company. The Company has agreed to indemnify the Manager against liabilities, 
costs, charges and expenses relating to the Manager's performance of its 
duties, other than such of the foregoing resulting from the Manager's gross 
negligence or willful misconduct. The Bank Credit Facility prohibits payment 
of the CHP Management Fee unless at the time of payment (i) no Event of Default 
(as defined in the Bank Credit Facility) shall have occurred and is

                                     -26-

<PAGE>
continuing or would result from the payment of the management fee; (ii) the 
Short Term Revolving Credit shall have been repaid in full; and (iii) the 
Company meets the requisite Modified Funded Debt Ratio (as defined in the 
Bank Credit Facility). The Indenture also prohibits payment of the CHP 
Management Fee in the event of a default by the Company in the payment of 
principal, Redemption Price, Purchase Price (both as defined in the 
Indenture), interest, or Liquidated Damages (if any) on the Notes. 

      On June 30, 1998, the Company sold shares of Common Stock and Series B 
Preferred Stock to certain executive officers of the Company including 
Jeffrey H. Brennan, President and Chief Executive Officer of the Company and 
Richard Fritsche, formerly Chief Financial Officer. In conjunction therewith, 
the Company lent Mr. Brennan $75,000 to purchase shares of the Company's 
stock pursuant to a promissory note in the original principal amount of 
$75,000, which amount is due and payable in full on June 16, 2003, and which 
bears interest at the rate of 5.77% per annum, payable annually on the 15th 
of June. Mr. Brennan has granted to the Company a security interest in the 
937 shares of Common Stock and Series B Preferred Stock acquired by him and 
his interest in the voting trust into which the shares have been deposited as 
collateral security for the repayment in full of the promissory note. The 
Company also lent another officer of the Company the sum of $25,000 to 
purchase shares of the Company's stock on substantially identical terms as 
the promissory note issued by Mr. Brennan.

      The Company has agreed to indemnify CHPII pursuant to an 
indemnification agreement, dated August 26, 1998 for any amounts that may be 
incurred by CHPII under CHPII's guaranty of the Company's obligations under 
the Short Term Revolving Credit. See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations - Liquidity and Capital 
Resources."

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     The following documents have been filed as a part of this report or 
where noted incorporated by reference:

      (a) (1) and (2)  The  response to this portion of Item 14 is submitted
                       as a separate section of this report. (See page 30.)

      (b)              The Company has not filed any reports on Form 8-K over
                       the last  quarter  of the  period covered by this report.

      (a) (3) and (c) The following exhibits are filed as a part of the report:
<TABLE>
<CAPTION>
         EXHIBIT NO.   DESIGNATION
         ----------    -----------
         <C>           <S>
         2.1(a)        Asset purchase Agreement dated as of May 20, 1996
                       ("ArtCarved Purchase Agreement"), among the Company, CJC
                       and CJC North America, Inc. ("CJCNA").
         2.2(a)        First Amendment to the ArtCarved Purchase Agreement dated
                       as of November 21, 1996, among the Company, CJC and CJCNA.
         2.3(a)        Letter Agreement amending the ArtCarved Purchase Agreement
                       dated December 16, 1996, among the Company, CJC and CJCNA.
         2.4(a)        Amended and Restated Asset Purchase Agreement dated as of
                       November 21, 1996 ("Balfour Purchase Agreement"), among the
                       Company, Town & Country, L. G. Balfour Company, Inc., and
                       Gold Lance, Inc.
         2.5(a)        Letter Agreement amending the Balfour Purchase Agreement dated
                       December 16, 1996, by and among the  Company, Town & Country,
                       L. G. Balfour  Company,  Inc. and Gold Lance.
         3.1(a)        Certificate of Incorporation of the Company, as amended.
         3.2(a)        Certificate of Designations, Preferences and Rights of
                       Series A Preferred Stock of the Company, effective
                       December 13, 1996, together with a Certificate of
                       Correction thereof.
         3.3(a)        Certificate of Designations, Preferences and Rights of
                       Series B Preferred Stock of 3.3(a) the Company effective
                       December 13, 1996.
         3.4(a)        Restated by-laws of the Company, as amended.
         3.5           Certificate of Increase of Series B Preferred Stock dated
                       June 10, 1998. Filed herewith.
         4.1(a)        Indenture dated as of December 16, 1996, between the
                       Company and Marine Midland  Bank, as trustee (including the
                       form of Note).
</TABLE>
                                           -27-
<PAGE>

<TABLE>
        <C>            <S>
        4.2(a)         Form of Note (Included as part of Indenture).
        4.3(a)         Registration Rights Agreement dated as of December 16, 1996,
                       among the Company, Lehman Brothers Inc. and BT Securities
                       Corporation.
        4.4            Amended and Restated Stockholders' and Subscription
                       Agreement, dated as of April 29, 1998, by and among the
                       Company, CHPII, Dresdner Bank AG, Grand Cayman Branch,
                       Offshore, John K. Castle, as Voting Trustee, and the
                       individuals party thereto. Filed herewith.
        4.5(b)         Amended and restated 1997 Stock Option Plan of the
                       Company. Incorporated by reference to the corresponding
                       Exhibit of the Company's Annual Report - Form 10K
                       (File No. 333-20759) dated August 30, 1997.
        9.1            Voting Trust Agreement, as amended and restated as of
                       April 29, 1998, among the Company, certain stockholders of
                       the Company party thereto and John K. Castle, as
                       Voting Trustee.  Filed herewith.
        10.1(a)        Revolving Credit, Term Loan and Gold Consignment Agreement
                       dated as of December 16, 1996, among the Company, the
                       lending institutions listed therein and The First National
                       Bank of Boston and Rhode Island Hospital Trust National
                       Bank, as Agents for the Banks.
        10.2(a)        Purchase Agreement dated December 10,1 996, among the Company
                       and the Initial Purchasers.
        10.3(a)(b)     Employment Agreement dated as of December 16, 1996, between the
                       Company and Jeffrey H. Brennan.
        10.4(a)(b)     Employment Agreement dated as of December 16, 1996, between the
                       Company and Richard H. Fritsche.
        10.5(a)(b)     Employment arrangements between the Company and Balfour with
                       respect to George  Agle.
        10.6(a)(b)     Form of Indemnification Agreement between the Company and
                       (i) each director and (ii) certain officers.
        10.7           Management Agreement dated as of December 17, 1996, between the
                       Company and Castle Harlan, Inc. Incorporated by reference to the
                       corresponding Exhibit of the Company's Annual Report on Form 10-K
                       (File No. 333-20759) dated August 30, 1997.
        10.8           First Amendment to Revolving Credit, Term Loan and Gold Consignment
                       Agreement, dated March 16, 1998 - incorporated by reference to Exhibit 10.1
                       to the Company's Quarterly Report on Form 10-Q (File No. 333-20759) dated
                       February 28, 1998.
        10.9           Second Amendment to Revolving Credit, Term Loan and Gold Consignment
                       Agreement, dated July 10, 1998 - incorporated by reference to Exhibit 10.1
                       to the Company's Quarterly Report on Form 10-Q (File No. 333-20759) dated
                       May 30, 1998.
        10.10          Incentive Stock Purchase Plan, effective as of July 7, 1998. Filed herewith.
        10.11          Third Amendment to Revolving Credit, Term Loan and Gold Consignment Agreement,
                       dated August 26, 1998. Filed herewith.
        10.12          Revolving Credit Note, dated as of August 26, 1998, issued by the Company and
                       payable to the order of BankBoston, N.A. Filed herewith.
        10.13          Indemnity Agreement, dated August 26, 1998, by and between the Company and CHPII.
                       Filed herewith.
        10.14          Fourth Amendment to Revolving  Credit, Term Loan and Gold Consignment Agreement,
                       dated November 27, 1998. Filed herewith.
        11.1           Statement re: Computation of per share earnings. Filed herewith.
        27.1           Financial Data Schedule. Filed herewith.
</TABLE>
----------------------
(a)   Incorporated by reference to the corresponding Exhibit number of the
      Company's Registration Statement on Form S-4 (Registration No. 333-20759),
      dated April 11, 1997.
(b)   Management contract or compensatory plan or arrangement.

                                     -28-

<PAGE>

                                  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.

                                  COMMEMORATIVE BRANDS, INC.




                                  By:/s/ Sherice P. Bench
                                    ------------------------------------------
                                                   (Signature)
                                           Sherice P. Bench
                                           Vice President Finance and Principal
                                           Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this 
report has been signed below by the following persons on behalf of the 
registrant in the indicated capacities on November 27, 1998.

<TABLE>

      <S>                                         <C>
      /s/ Jeffrey H. Brennan                      President, Chief Executive Officer and Director
      ----------------------------------
      Jeffrey H. Brennan


      /s/ John K. Castle                          Director
      ----------------------------------
      John K. Castle


      /s/ William J. Lovejoy                      Director
      ----------------------------------
      William J. Lovejoy


      /s/ David B. Pittaway                       Director
      ----------------------------------
      David B. Pittaway


      /s/ Zane Tankel                             Director
      ----------------------------------
      Zane Tankel


      /s/ Edward O. Vetter                        Director
      ----------------------------------
      Edward O. Vetter


</TABLE>

                                            -29-

<PAGE>

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO 
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES 
PURSUANT TO SECTION 12 OF THE ACT:

The Company has not sent to any of the Company's security holders either (i) 
an annual report covering the Company's last fiscal year or (ii) any proxy 
statement, form of proxy or other proxy material with respect to any annual 
or other meeting of security holders.



                                     -30-


<PAGE>

                                                FINANCIAL STATEMENTS

                                            Index to Financial Statements
<TABLE>
<CAPTION>
                                                                                                               Page
<S>                                                                                                             <C>
Consolidated Financial Statements of Commemorative Brands, Inc. and Subsidiaries

         Report of Independent Public Accountants.........................................................      32

         Consolidated Balance Sheets as of August 29, 1998 and August 30, 1997............................      33

         Consolidated Statements of Operations for the Fiscal Years Ended August 29, 1998 and
                  August 30, 1997.........................................................................      34

         Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended August 29, 1998 and
                  August 30, 1997.........................................................................      35

         Consolidated Statements of Cash Flows for the Fiscal Years Ended August 29, 1998 and
                  August 30, 1997.........................................................................      36

         Notes to Consolidated Financial Statements.......................................................      37

Financial Statements of CJC Holdings, Inc., Class Rings Business (ArtCarved)

         Report of Independent Public Accountants.........................................................      52

         Statements of Income (Loss) for the Fiscal Year Ended August 31, 1996,
                  and for the Period from September 1, 1996, through December 16, 1996....................      53

         Statements of Changes in Advances and Equity (Deficit) for the Fiscal Year Ended
                  August 31, 1996, and for the Period from September 1,
                  1996, through December 16, 1996.........................................................      54

         Statements of Cash Flows for the Fiscal Year Ended August 31, 1996,
                  and for the Period from September 1, 1996, through December 16, 1996....................      55

         Notes to Financial Statements....................................................................      56

Financial Statements of L. G. Balfour Company, Inc.

         Report of Independent Public Accountants.........................................................      63

         Statements of Operations for the Year Ended February 25, 1996, and for the Period
                  Ended December 16, 1996.................................................................      64

         Statements of Stockholder's Equity for the Year Ended February 25, 1996, and
                  for the Period Ended December 16, 1996..................................................      65

         Statements of Cash Flows for the Year Ended February 25, 1996, and for the
                  Period Ended December 16, 1996..........................................................      66

         Notes to Financial Statements....................................................................      67
</TABLE>

                                                                   -31-
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS






To the Stockholders of
Commemorative Brands, Inc.:

We have audited the accompanying consolidated balance sheets of Commemorative 
Brands, Inc. (a Delaware corporation), and subsidiaries as of August 29, 1998 
and August 30, 1997, and the related consolidated statements of operations, 
stockholders' equity and cash flows for the fiscal years ended August 29, 
1998 and August 30, 1997. These consolidated financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these consolidated financial statements based on our audit.

We conducted our audit 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 audit provides a 
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of 
Commemorative Brands, Inc., and subsidiaries, as of August 29, 1998 and 
August 30, 1997, and the results of their operations and their cash flows for 
the fiscal years ended August 29, 1998 and August 30, 1997, in conformity 
with generally accepted accounting principles.





Houston, Texas
November 27, 1998


                                      -32-
<PAGE>

                                            COMMEMORATIVE BRANDS, INC.

                                            CONSOLIDATED BALANCE SHEETS

                                         (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                     August 29,          August 30,
                                                                                        1998                1997
                                                                                  ----------------     --------------
<S>                                                                               <C>                  <C>
ASSETS
Current assets:
      Cash and cash equivalents                                                   $         975        $     2,174
      Accounts  receivable,  net of allowance for doubtful accounts of $2,356
        and $3,750, respectively                                                         24,705             26,444
      Inventories                                                                        14,299             11,767
      Prepaid expenses and other current assets                                          10,517              8,522
                                                                                  ----------------     --------------
           Total current assets                                                          50,496             48,907
Property, plant and equipment, net                                                       36,294             33,460
Trademarks, net of accumulated amortization of $1,313
           and $543, respectively                                                        29,427             30,197
Goodwill, net of accumulated amortization of $3,844 and
           $1,426, respectively                                                          80,517             82,935
Other assets                                                                              7,071              5,370
                                                                                  ----------------     --------------
           Total assets                                                           $     203,805        $   200,869
                                                                                  ================     ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Bank overdraft                                                              $       3,138        $     4,188
      Accounts payable and accrued expenses                                              22,116             20,893
      Current portion of long-term debt                                                   1,983                750
                                                                                  ----------------     --------------
           Total current liabilities                                                     27,237             25,831

Long-term debt, net of current portion                                                  132,339            124,700
Other long-term liabilities                                                               9,383              9,885
                                                                                  ----------------     --------------
           Total liabilities                                                            168,959            160,416

Commitments and contingencies

Stockholders' equity:
      Preferred stock, $.01 par value, 750,000 shares authorized (in total)-
           Series A, 100,000 shares issued and outstanding                                    1                  1
           Series B, 377,156 and 375,000 shares issued and outstanding                        4                  4
      Common Stock, $.01 par value, 750,000 shares authorized, 377,156 and
           375,000 shares issued and outstanding                                              4                  4
      Additional paid-in capital                                                         50,391             50,161
      Retained earnings (deficit)                                                      (15,554)            (9,717)
                                                                                  ----------------     --------------
           Total stockholders' equity                                                    34,846             40,453
                                                                                  ----------------     --------------

           Total liabilities and stockholders' equity                             $     203,805        $   200,869
                                                                                  ================     ==============
</TABLE>

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


                                           -33-
<PAGE>

                                            COMMEMORATIVE BRANDS, INC.


                                       CONSOLIDATED STATEMENTS OF OPERATIONS

                                         (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                   August 29,           August 30,
                                                                      1998                 1997
                                                                -----------------    -----------------
<S>                                                             <C>                  <C>
Net sales                                                       $      151,101       $      87,600
Cost of sales                                                           72,615              45,189
                                                                -----------------    -----------------
Gross profit                                                            78,486              42,411

Selling, general and administrative expenses                            68,294              41,481
                                                                -----------------    -----------------
Operating income                                                        10,192                 930
Interest expense, net                                                   14,829               9,797
                                                                -----------------    -----------------
     Loss before provision for income taxes                            (4,637)             (8,867)
Provision for income taxes                                                   -                   -
                                                                -----------------    -----------------
     Net loss                                                   $      (4,637)       $     (8,867)
Preferred dividends                                                    (1,200)               (850)
                                                                -----------------    -----------------
     Net loss to common stockholders                            $      (5,837)       $     (9,717)
                                                                =================    =================
     Basic and diluted loss per share                           $      (15.55)       $     (25.91)
                                                                =================    =================

Weighted average common shares outstanding and common and
     common equivalent shares outstanding                              375,323             375,000
                                                                =================    =================
</TABLE>

----------------------------------------


         Commemorative  Brands,  Inc.  completed the acquisitions of ArtCarved
         and Balfour on December 16, 1996,  and prior to such date engaged in no
         business  activities  other than those in  connection with the
         Acquisitions and financing thereof.


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


                                           -34-


<PAGE>


                                           COMMEMORATIVE BRANDS, INC.
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                         Preferred Stock                               Common Stock           
                                      ------------------------------------------------------     -------------------------    
                                              Series A                     Series B
                                      -------------------------     ------------------------
                                        Shares        Amount          Shares       Amount          Shares       Amount
                                      ------------ -------------    ------------ ------------    ----------- -------------
<S>                                   <C>          <C>              <C>          <C>              <C>        <C>
Balance, March 28, 1996
     (date of formation)                   -       $        -                -   $      -                 -  $       -        
Issuance of Common Stock                   -                -                -          -           375,000          4        
Issuance of Preferred Stock             100,000             1          375,000          4                 -          -        
Accrued Preferred Stock dividends          -                -                -          -                 -          -        
Net loss                                   -                -                -          -                 -          -        
                                      ------------ -------------    ------------ ------------    ----------- -------------    
Balance, August 30, 1997                100,000             1          375,000          4           375,000          4        
Issuance of Common Stock                   -                -                -          -             2,156          -        
Issuance of Preferred Stock                -                -            2,156          -                 -          -        
Accrued Preferred Stock dividends          -                -                -          -                 -          -        
Net loss                                   -                -                -          -                 -          -        
                                                                                                                              
                                      ------------ -------------    ------------ ------------    ----------- -------------    
Balance, August 29, 1998                100,000    $        1          377,156   $      4           377,156  $       4        
                                      ============ =============    ============ ============    =========== =============    


<CAPTION>
                                      Additional        Retained                     
                                        paid-in         earnings                     
                                        capital         (deficit)          Total     
                                      ------------     ------------     ------------ 
<S>                                   <C>              <C>              <C>
Balance, March 28, 1996               $       -        $        -       $        -   
     (date of formation)
Issuance of Common Stock                  2,666                 -            2,670   
Issuance of Preferred Stock              47,495                 -           47,500   
Accrued Preferred Stock dividends             -             (850)            (850)   
Net loss                                      -           (8,867)          (8,867)   
                                      ------------     ------------     ------------ 
Balance, August 30, 1997                 50,161           (9,717)           40,453   
Issuance of Common Stock                     14                 -               14   
Issuance of Preferred Stock                 216                 -              216   
Accrued Preferred Stock dividends             -           (1,200)          (1,200)   
Net loss                                      -           (4,637)          (4,637)   
                                      ------------     ------------     ------------ 
Balance, August 29, 1998              $  50,391        $ (15,554)       $   34,846   
                                      ============     ============     ============ 
</TABLE>

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


                                            -35-

<PAGE>

                                 COMMEMORATIVE BRANDS, INC.
                                  STATEMENTS OF CASH FLOWS
                                        (In thousands)

<TABLE>
<CAPTION>
                                                                              For the Fiscal Year Ended
                                                                           -------------------------------
                                                                             August 29,        August 30,
                                                                               1998               1997
                                                                           -------------      ------------
<S>                                                                        <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss
     Adjustments to reconcile net loss to net cash                          $ (4,637)         $  (8,867)
       used in operating activities-
         Depreciation and amortization
         Provision for doubtful accounts                                        6,901              4,095
         Changes in assets and liabilities-                                       706                632
           Decrease in receivables
           Decrease (increase) in inventories                                   1,033              8,187
           Increase in prepaid expenses and other current assets              (2,532)              4,557
           Increase in other assets                                           (1,995)            (3,237)
           Decrease  in bank  overdraft, accounts payable and accrued         (1,696)            (1,567)
           expenses and other
              long-term liabilities                                           (1,529)            (4,477)
                                                                           -------------      ------------

           Net cash used in operating activities                              (3,749)              (677)
                                                                           -------------      ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property, plant and equipment
     Cash paid for the acquisitions of ArtCarved and Balfour, including       (6,552)            (3,493)
     transaction costs                                                              -          (170,200)
                                                                           -------------      ------------

           Net cash used in investing activities                              (6,552)          (173,693)
                                                                           -------------      ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from debt issuance                                                    -            120,200
     Proceeds from issuance of common and preferred stock                         230             50,000
     Payments on term loan facility, net                                        (750)                  -
     Revolver  borrowings, net                                                  9,622              5,250
                                                                           -------------      ------------

           Net cash provided by financing activities                            9,102            175,450
                                                                           -------------      ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                          (1,199)              1,080

CASH AND CASH EQUIVALENTS,  beginning of period                                 2,174              1,094
                                                                           -------------      ------------

CASH AND CASH EQUIVALENTS, end of period                                    $     975         $    2,174
                                                                           =============      ============
SUPPLEMENTAL DISCLOSURE
     Cash paid during the period for -
       Interest                                                             $  14,039         $    7,568
                                                                           =============      ============
       Taxes                                                                $     186                 43
                                                                           =============      ============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
     Accrued preferred stock dividends                                      $   1,200         $      850
                                                                           =============      ============
</TABLE>

----------------------------------------


         Commemorative  Brands, Inc. completed the acquisitions of ArtCarved and
         Balfour on December 16,  1996, and prior to such date, engaged in no
         business activities other than those in connection with the
         Acquisitions and financing thereof.

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

                                       -36-
<PAGE>

                          COMMEMORATIVE BRANDS, INC.

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)      BACKGROUND AND ORGANIZATION

Commemorative Brands, Inc., a Delaware corporation (together with its 
subsidiaries, CBI or the Company), is a manufacturer and supplier of class 
rings and other graduation-related scholastic products for the high school 
and college markets and manufactures and markets recognition and affinity 
jewelry designed to commemorate significant events, achievements and 
affiliations. CBI was initially formed in March 1996 by Castle Harlan 
Partners II, L.P. (CHPII), a Delaware limited partnership and private equity 
investment fund, for the purpose of acquiring ArtCarved and Balfour (as 
defined below) and, until December 16, 1996, engaged in no business 
activities other than in connection with the Acquisitions (as defined below) 
and the financing thereof. The Company's scholastic product line consists of 
high school and college class rings (the Company's predominate product 
offering) and graduation-related fine paper products such as announcements, 
name cards and diplomas. The Company is a leading manufacturer of class rings 
in the United States with its corporate office and primary manufacturing 
facilities located in Austin, Texas.

(2)      MERGERS AND ACQUISITIONS

On December 16, 1996, the Company completed the acquisitions (the Acquisitions)
of substantially all of the scholastic and recognition and affinity product
assets and businesses of the ArtCarved Class Rings (ArtCarved) operations of CJC
Holdings, Inc. (CJC), from CJC and certain assets and liabilities of L. G.
Balfour Company, Inc. (Balfour), from Town & Country Corporation (Town &
Country).

In consideration for ArtCarved, CBI paid CJC, in cash, the sum of $115.1 million
and assumed certain related liabilities. In consideration for Balfour, CBI paid
Town & Country, in cash, the sum of $45.9 million and assumed certain related
liabilities. In addition, CBI purchased the gold on consignment to L. G. Balfour
Company, Inc. as of the closing date for a cash purchase price of approximately
$5.4 million.

The following represents the allocation of the purchase prices for ArtCarved and
Balfour to their respective assets and liabilities based on third-party
appraisals and management's estimate of fair values. The allocation of the
purchase prices (including transaction costs) for the Acquisitions is as set
forth below (in thousands):

<TABLE>
<CAPTION>

                                           ArtCarved               Balfour
                                        -----------------      ----------------
<S>                                     <C>                    <C>
Current assets                          $      23,220          $      35,497
Property, plant and equipment                  17,039                 15,042
Goodwill                                       64,127                 17,885
Trademarks                                     17,740                 13,000
Other long-term assets                          1,687                    171
Accounts payable and accrued expenses          (6,066)               (22,334)
Other long-term liabilities                         -                 (6,808)
                                        -----------------      ----------------
                                        $     117,747          $      52,453
                                        =================      ================

</TABLE>

The Company has closed and exited substantially all of the Balfour operations
and moved them from Attleboro, Massachusetts, to Austin, Texas.

                                    -37-

<PAGE>

(3)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR-END

CBI uses a 52/53-week fiscal year ending on the last Saturday of August.

CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation.

BUSINESS CONDITIONS

The results of operations of the Company for the fiscal year ended August 29,
1998 and August 30, 1997 were negatively impacted as a result of the
consolidation of the Attleboro and North Attleboro, Massachusetts operations
into the Austin, Texas facilities. The consolidation and integration of
operations required substantial time and cost due to complications arising from
the integration of the different order entry and manufacturing processes
required for the Balfour ring product line. The time to train new personnel to
implement the Balfour class ring operations was extensive and resulted in ring
manufacturing headcount levels higher than those experienced by the predecessor
companies through fiscal 1998. The consolidation of the Attleboro and North
Attleboro, Massachusetts operations in Austin, Texas facilities occurred during
the fiscal year ended August 30, 1997 and the integration of these operations
was substantially completed in the fiscal year ended August 29, 1998. There can
be no assurance that the operations formerly conducted by the each of the
Company's predecessors will be fully integrated or as to the amount of any costs
savings that may result from such integration.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include highly liquid investments with original
maturities of three months or less.

INVENTORIES

Inventories, which include raw materials, labor and manufacturing overhead, are
stated at the lower of cost or market using the first-in, first-out (FIFO)
method.

ADVERTISING

The Company incurs advertising and promotion costs that are directly related to
a product in advance of the sale occurring. These amounts are included in
prepaid expenses and other current assets and are amortized over the period in
which the sale of products occurs.

SALES REPRESENTATIVE ADVANCES AND RESERVE FOR SALES REPRESENTATIVE ADVANCES

The Company advances funds to new sales representatives in order to open up new
sales territories or makes payments to predecessor sales representatives on
behalf of successor sales representatives. Such amounts are repaid by the sales
representatives through earned commissions on product sales. The Company
provides reserves to cover those amounts which it estimates to be uncollectible.
These amounts are included in prepaid expenses and other current assets in the
accompanying balance sheets.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation is provided principally using the straight-line
method based on estimated useful lives of the assets as follows:

                                    -38-

<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------ ----------------------------

Description                                                   Useful Life
------------------------------------------------ ----------------------------
------------------------------------------------ ----------------------------
<S>                                              <C>
Land improvements                                                   15 years
------------------------------------------------ ----------------------------
------------------------------------------------ ----------------------------
Buildings and improvements                                    10 to 25 years
------------------------------------------------ ----------------------------
------------------------------------------------ ----------------------------
Tools and dies                                                10 to 20 years
------------------------------------------------ ----------------------------
------------------------------------------------ ----------------------------
Machinery and equipment                                        2 to 10 years
------------------------------------------------ ----------------------------

</TABLE>

Maintenance, repairs and minor replacements are charged against income as 
incurred; major replacements and betterments are capitalized. The cost of 
assets sold or retired and the related accumulated depreciation are removed 
from the accounts at the time of disposition, and any resulting gain or loss 
is reflected as other income or expense for the period.

TRADEMARKS

The value of trademarks was determined based on a third-party appraisal and is
being amortized on a straight-line basis over 40 years.

IMPAIRMENT OF LONG-LIVED ASSETS

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement
deals with accounting for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to assets to be held and used, and
for long-lived assets and certain identifiable intangibles to be disposed of.
This statement requires that long-lived assets (e.g., property, plant and
equipment and intangibles) be reviewed for impairment whenever events or changes
in circumstances, such as change in market value, indicate that the assets'
carrying amounts may not be recoverable. In performing the review for
recoverability, if future undiscounted cash flows (excluding interest charges)
from the use and ultimate disposition of the assets are less than their carrying
values, an impairment loss is recognized. Impairment losses are to be measured
based on the fair value of the asset. When factors indicate that long-lived
assets should be evaluated for possible impairment, the Company uses an estimate
of the related product lines' undiscounted cash flows over the remaining lives
of the assets in measuring whether the assets are recoverable.

GOODWILL

Costs in excess of fair value of net tangible and identifiable intangible 
assets acquired and related acquisition costs are included in goodwill in the 
accompanying balance sheets. Goodwill is being amortized on a straight-line 
basis over 40 years. The Company continually evaluates whether events and 
circumstances have occurred that indicate that the remaining estimated useful 
life of goodwill may warrant revision or that the remaining balance of 
goodwill may not be recoverable. When factors indicate that goodwill should 
be evaluated for possible impairment, the Company would use an estimate of 
the related product lines' undiscounted cash flows over the remaining life of 
the goodwill in measuring whether the goodwill is recoverable.

OTHER ASSETS

Other assets include deferred financing costs which are amortized over the lives
of the specific debt and ring samples to national chain stores and sales
representatives which are amortized over three years.

INCOME TAXES

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets are
recognized net of any valuation allowance. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

                                     -39

<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, bank overdraft, accounts payable and long-term
debt (including current maturities). The carrying amounts of the Company's cash
and cash equivalents, accounts receivable, bank overdraft and accounts payable
approximate fair value due to their short-term nature. The fair value of the
Company's long-term debt approximates the recorded amount based on current rates
available to the Company for debt with the same or similar terms.

REVENUE RECOGNITION

Revenues from product sales are recognized at the time the product is shipped.

CONCENTRATION OF CREDIT RISK

Credit is extended to various companies in the retail industry which may be
affected by changes in economic or other external conditions. The Company's
policy is to manage its exposure to credit risk through credit approvals and
limits.

ADVERTISING EXPENSE

Selling, general and administrative  expenses for the Company include 
advertising expenses of $3,506,000 and $2,752,000 for the fiscal years ended 
August 29, 1998 and August 30, 1997 (see Note 1).

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 these estimates.

SEASONALITY

The Company's scholastic product sales tend to be seasonal. Class ring sales 
are highest during October through December (which overlaps the Company's 
first and second fiscal quarters), when students have returned to school 
after the summer recess and orders are taken for delivery of class rings to 
students before the winter holiday season. Sales of the Company's fine paper 
products are predominantly made during February through April (which overlaps 
the Company's second and third fiscal quarters) for graduation in May and 
June. ArtCarved and Balfour historically experienced operating losses during 
the period of the Company's fourth fiscal quarter, which includes the summer 
months when school is not in session. The Company's recognition and affinity 
product line is not seasonal in any material respect, although sales 
generally are highest during the winter holiday season and in the period 
prior to Mother's Day. As a result, the effects of seasonality of the class 
ring business on the Company are tempered by the Company's relatively broad 
product mix. As a result of the foregoing, the Company's working capital 
requirements tend to exceed its operating cash flows from July through 
December.

NEW ACCOUNTING PRONOUNCEMENTS

In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 revises the standards for computing earnings
per share currently prescribed by Accounting Principles Board (APB) Opinion No.
15. SFAS No. 128 retroactively revises the presentation of earnings per share in
the financial statements. The Company adopted SFAS No. 128 for the fiscal year
ended August 29, 1998. Basic and diluted earnings (loss) per share are the same
as the Company has losses from continuing operations and the computation for
diluted earnings (loss) per share would be antidilutive. 

The Company adopted SFAS No. 129, "Disclosure of Information about Capital 
Structure", for the fiscal year ended August 29, 1998. It requires an entity 
to explain in summary form within its financial statements the pertinent 
rights and privileges of the various securities outstanding. This information 
is included primarily in Notes 9 and 13.

                                     -40-

<PAGE>

SFAS No. 130, "Reporting Comprehensive Income", is required to be adopted by the
Company for the fiscal year ending August 28, 1999, and the statement requires
the presentation of comprehensive income in an entity's financial statements.
Comprehensive income represents all changes in equity of an entity during the
reporting period, including net income and charges directly to equity which are
excluded from net income. This statement is not anticipated to have any impact
on the Company's disclosures as the Company currently does not enter into any
transactions which result in charges (or credits) directly to equity (such as
additional minimum pension liability changes, currency translation adjustments,
unrealized gains and losses on available-for-sale securities, etc.).

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is required to be adopted by the Company for the fiscal year
ending August 28, 1999. SFAS No. 131 provides revised disclosure guidelines for
segments of an enterprise based on a management approach to defining operating
segments. The Company currently operates in only one industry segment and
analyzes operations on a companywide basis; therefore, the statement is not
expected to impact the Company's disclosures.

SFAS No. 132, "Employers Disclosure about Pensions and Other Postretirement
Benefits", is required to be adopted by the Company for fiscal year 1999. It
revises employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", 
is required to be adopted by the Company in the first quarter of fiscal year 
2000 (November 1999). It establishes accounting and reporting standards for 
derivative instruments, including certain derivative instruments embedded in 
other contracts and for hedging activities. It requires that an entity 
recognize all derivatives as either assets or liabilities in the balance 
sheet and measure those instruments at fair value. Management believes that 
the adoption of this standard will not have a material effect on the 
Company's financial position or results of operations.

(4)      INVENTORIES

A summary of inventories is as follows (in thousands):

<TABLE>
<CAPTION>

                                              August 29,          August 30,
                                                 1998                1997
                                           -----------------    ----------------
   <S>                                     <C>                  <C>
   Raw materials                           $      8,754         $      8,769
   Work in process                                3,139                1,877
   Finished goods                                 2,406                1,121
                                           -----------------    ----------------
                                           $     14,299         $     11,767
                                           =================    ================
</TABLE>

Cost of sales includes depreciation and amortization of $2,188,000 and 
$1,439,000, for the fiscal years ended August 29, 1998 and August 30, 1997, 
respectively.

In accordance with purchase price accounting, at the purchase date (December 16,
1996), the inventory balance was increased by $4.7 million to record inventory
at fair market value. During the fiscal year ended August 30, 1997, this amount
was expensed to cost of sales.

                                      -41-

<PAGE>

(5)      PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following (in
thousands):

<TABLE>
<CAPTION>

                                              August 29,           August 30,
                                                 1998                 1997
                                           -----------------      --------------
   <S>                                     <C>                    <C>
   Sales representatives advances          $       4,771          $    4,491
   Reserve on sales representatives
   advances                                       (1,041)             (1,528)
   Current deferred tax asset                      3,178               2,557
   Prepaid advertising and promotion
   materials                                       2,694               1,999
   Prepaid management fees                             -                 325
   Other                                             915                 678
                                           -----------------      --------------
                                           $      10,517          $    8,522
                                           =================      ==============
</TABLE>

 (6)     PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>

                                              August 29,          August 30,
                                                 1998                1997
                                           -----------------    ----------------
   <S>                                     <C>                  <C>
   Land                                    $      2,000         $       2,000
   Buildings and improvements                     5,123                 4,614
   Tools and dies                                20,377                18,715
   Machinery and equipment                       14,320                 9,364
   Construction in progress                         307                   882
                                           -----------------    ----------------
                     Total                 $     42,127         $      35,575
   Accumulated depreciation                      (5,833)               (2,115)
                                           -----------------    ----------------
      Property, plant and equipment, net   $     36,294         $      33,460
                                           =================    ================
</TABLE>

Depreciation expense (included in cost of sales and selling, general and
administrative expenses) recorded in the accompanying statement of operations is
$3,776,000 and $2,115,000 for the fiscal years ended August 29, 1998 and August
30, 1997, respectively.

(7)      OTHER ASSETS

Other assets consist of the following (in thousands):

<TABLE>
<CAPTION>

                                              August 29,           August 30,
                                                 1998                 1997
                                           -----------------    -----------------
   <S>                                     <C>                  <C>
   Deferred financing costs                $      4,646         $      4,398
   Ring samples                                   3,155                1,221
   Other                                            215                  143
                                           -----------------    -----------------
                                                 $8,016         $      5,762
   Accumulated amortization                        (945)                (392)
                                           -----------------    -----------------
            Other assets, net              $      7,071         $      5,370
                                           =================    =================
</TABLE>

                                     -42-

<PAGE>



(8)      ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The principle components of accounts payable and accrued expenses are as follows
(in thousands):

<TABLE>
<CAPTION>

                                              August 29,           August 30,
                                                 1998                 1997
                                           -----------------     ---------------
   <S>                                     <C>                   <C>
   Accounts payable                        $      8,682          $      5,484
   Commissions and royalties                      3,362                 3,265
   Compensation and related costs                 2,283                 2,476
   Accrued interest payable                       1,872                 1,808
   Customer deposits                              1,179                 1,539
   Severance costs                                  847                 1,303
   Other                                          3,891                 5,018
                                           -----------------     ---------------
                                           $     22,116          $     20,893
                                           =================     ===============
</TABLE>

(9)      LONG-TERM DEBT

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

<TABLE>
<CAPTION>

                                              August 29,           August 30,
                                                 1998                 1997
                                           -----------------    -----------------
   <S>                                     <C>                  <C>
   11% senior subordinated notes due 2007  $     90,000         $      90,000
   Term loan facility                            24,000                24,750
   Bank revolver                                 19,589                10,700
   Short-term revolving credit                      733                     -
                                           -----------------    -----------------
            Total debt                     $    134,322         $     125,450
   Less-current portion                           1,983                   750
                                           -----------------    -----------------
            Total long-term debt           $    132,339         $     124,700
                                           =================    =================
</TABLE>

11 PERCENT SENIOR SUBORDINATED NOTES

The Company's 11 percent senior subordinated notes mature on January 15, 2007.
The notes are redeemable at the option of the Company, in whole or in part, at
any time on or after January 15, 2002, plus accrued and unpaid interest and
Liquidated Damages (as defined), if any, thereon to the date of redemption. In
the event the Company completes one or more Public Equity Offerings (as defined)
on or before January 15, 2000, the Company may, in its discretion, use the net
cash proceeds to redeem up to 33-1/3 percent of the original principal amount of
the notes at a redemption price equal to 111 percent of the principal amount
thereof, plus accrued and unpaid interest and liquidated damages, if any,
thereon to the date of redemption, with the net proceeds of one or more public
equity offerings, provided that at least 66-2/3 percent of the original
principal amount of the notes remains outstanding immediately after each such
redemption.

The 11 percent senior subordinated notes contain certain covenants that, among
other things, limit the ability of the Company (a) to incur additional
indebtedness and issue preferred stock, (b) to pay dividends or make certain
other restricted payments, (c) to enter into transactions with affiliates, (d)
to create certain liens, (e) to make certain asset dispositions and (f) to merge
or consolidate with, or transfer substantially all of its assets to, another
person. The Company was in compliance with all debt covenants as of August 29,
1998 and August 30, 1997.

REVOLVING CREDIT, TERM LOAN AND GOLD CONSIGNMENT AGREEMENT

The Company has a revolving credit, term loan and gold consignment agreement,
which was entered into as of December 16, 1996 as amended, (the Bank Agreement)
with a group of banks pursuant to which the Company initially borrowed $25
million under a term loan facility and from time-to-time may borrow up to $35
million under a revolving credit and gold facility. Loans outstanding under the
Bank Agreement bear interest at either fixed or floating rates based upon the
interest rate option selected by the Company.

                                     -43-

<PAGE>

TERM LOAN FACILITY

The term loan facility (Term Loan) matures on December 16, 2003. The Company may
prepay the Term Loan at any time. The Company must repay specified amounts of
the Term Loan in 28 consecutive quarterly installments which commenced March 31,
1997.

REVOLVING CREDIT AND GOLD FACILITIES

The revolving credit and gold facilities (Revolving Credit and Gold 
Facilities) permit borrowings of up to a maximum aggregate principal amount 
of $35 million based upon availability under a borrowing base based on 
eligible receivables and eligible inventory (each as defined), with a 
sublimit of $5 million for letters of credit and $10 million for gold 
borrowing or consignment.

The Bank Agreement contains certain financial covenants that require the Company
to maintain certain minimum levels of (a) senior funded debt to earnings before
interest, taxes, depreciation and amortization (EBITDA, as defined), (b)
consolidated EBITDA and (c) interest coverage. Furthermore, the covenants were
amended on November 27, 1998, and additional covenants were added in which the
Company must not permit its Consolidated Net Worth (as defined in the Bank
Agreement) as of March 30, 1999 to be less than $42 million, not pay the
management fee unless at the time of payment (A) no Event of Default shall have
occurred and be continuing or would result from the payment thereof; (B) the
Short Term Revolving Credit shall have been paid in full; and (C) the Company
meets the requisite Modified Funded Debt Ratio (as defined in the Bank
Agreement) and will not permit or make certain capital expenditures for computer
conversion projects in excess of $6,500,000 in the aggregate during fiscal 1998
and 1999 and the first fiscal quarter of 2000. The Bank Agreement also contains
covenants which, among other things, limit the ability of the Company and its
subsidiaries to (a) incur additional indebtedness, (b) acquire and dispose of
assets, (c) create liens, (d) make capital expenditures, (e) pay dividends on or
redeem shares of the Company's capital stock, and (f) make certain investments.
The Company was in compliance with all debt covenants under the Bank Agreement
as of August 29, 1998 and August 30, 1997. However, the Company may enter into
additional transactions which may require further amendments in the upcoming
year. Management believes the Company can maintain compliance pursuant to the
amended Bank Agreement throughout the next year.

Availability under the Revolving Credit and Gold Facilities is subject to a 
borrowing base limitation (the Borrowing Base) based on the aggregate of 
certain percentages of Eligible Receivables (as defined) and Eligible 
Inventory (as defined) of the Company. The Borrowing Base is recalculated 
each month. If the aggregate amount of loans and other extensions of credit 
under the Revolving Credit and Gold Facilities exceeds the Borrowing Base, 
the Company must immediately prepay or cash collateralize its obligations 
under the Revolving Credit and Gold Facilities to the extent of such excess. 
At August 29, 1998, the Company had no availability under the revolving 
credit facility and $6,214,00 available under the gold facility.

SHORT TERM REVOLVING CREDIT

On August 26, 1998, the Company obtained a short-term line of credit (Short 
Term Revolving Credit) pursuant to which the Company may, from time to time, 
borrow up to $8,000,000 from BankBoston, N.A. (BankBoston) until March 31, 
1999. At August 29, 1998, the Company had $7,267,000 available under the 
Short Term Revolving Credit. Amounts outstanding under the Short Term 
Revolving Credit bear interest at either fixed or floating rates based upon 
the interest rate option selected by the Company. All amounts borrowed 
pursuant to the Short Term Revolving Credit are due and payable on March 31, 
1999. Any Events of Default under the Bank Agreement will also constitute an 
Event of Default under the Short Term Revolving Credit. Pursuant to the terms 
of the Company's Bank Agreement, the Company is prohibited from repaying the 
outstanding principal of the Short Term Revolving Credit unless at the time 
of repayment both before and after giving effect to such repayment, no 
Default or Event of Default (as defined in the Bank Agreement) exists under 
the Bank Agreement and the Borrowing Base exceeds all outstanding amounts 
under the Bank Agreement by at least $2 million. The Short Term Revolving 
Credit is unsecured. All of the Company's obligations under the Short Term 
Revolving Credit are guaranteed by CHPII. The Company has agreed to indemnify 
CHPII and pay CHPII upon demand any amounts that CHPII must pay pursuant to 
the guaranty. The Short Term Revolving Credit constitutes Designated Senior 
Indebtedness for purposes of the Indenture.

                                     -44-

<PAGE>

The long-term debt outstanding as of August 29, 1998, matures as follows (in
thousands):

<TABLE>
<CAPTION>

   Fiscal Year Ending                      Amount Maturing
                                           -----------------
   <S>                                     <C>
   1999                                    $       1,983
   2000                                            1,750
   2001                                            2,500
   2002                                           25,089
   2003                                            8,500
   Thereafter                                     94,500
                                           -----------------
                                           $     134,322
                                           =================
</TABLE>

The weighted average interest rate of debt outstanding as of August 29, 1998 
and August 30, 1997 was 10.3 percent and 10.5 percent respectively.

CONSIGNED GOLD

Under the Company's gold consignment/loan arrangements, the Company has the
ability to have on consignment up to 26,000 ounces of gold approximating $10
million or alternatively to borrow up to $10 million for the purchase of gold.
Under these arrangements, the Company is limited to a maximum value of $10
million in consigned inventory and/or gold loan funds. For the fiscal years
ended August 29, 1998 and August 30, 1997 (see Note 1), the Company expensed
approximately $230,000 and $203,000 respectively, in connection with consignment
fees. Under the terms of the consignment arrangement, the Company does not own
the consigned gold until it is shipped in the form of a ring to a customer.
Accordingly, the Company does not include the value of consigned gold in
inventory or the corresponding liability for financial statement purposes. As of
August 29, 1998 and August 30, 1997 the Company held approximately 13,846 ounces
and 16,265 ounces, respectively, valued at $3.8 million and $5.3 million,
respectively, of gold on consignment from one of its lenders.

The Company's management believes the carrying amount of long-term debt,
including the current maturities, approximates fair value as of August 29, 1998
and August 30, 1997, based upon current rates offered for debt with the same or
similar debt terms.

 (10)    COMMITMENTS AND CONTINGENCIES

Certain Company facilities and equipment are leased under agreements expiring at
various dates through 2005. The Company's commitments under the noncancelable
portion of all operating leases for the next five years and thereafter as of
August 29, 1998, are approximately as follows (in thousands):

<TABLE>
<CAPTION>

    Fiscal Year Ending                        Commitment
                                           -----------------
    <S>                                    <C>
    1999                                   $       1,268
    2000                                           1,028
    2001                                             693
    2002                                             164
    2003                                             101
    Thereafter                                        67
                                           -----------------
                                           $       3,321
                                           =================
</TABLE>

Lease and rental expense included in selling, general and administrative 
expenses in the accompanying statement of operations amounts to approximately 
$773,000 and $1,056,000 for the fiscal years ended August 29, 1998 and August 
30, 1997, respectively (see Note 1).

The Company is a party to certain contracts with some of its sales 
representatives whereby the representatives have purchased from their 
predecessor the right to sell the Company's products in a territory. The 
contracts generally provide that 

                                      -45-

<PAGE>

the value of these rights is primarily determined by the amount of business 
achieved by a successor sales representative and is therefore not 
determinable in advance of performance by the successor sales representative.

The Company is not party to any pending legal proceedings other than ordinary 
routine litigation incidental to the business. In management's opinion, 
adverse decisions on those legal proceedings, in the aggregate, would not 
have a materially adverse impact on the Company's results of operations or 
financial position.

(11)     EMPLOYEE COMPENSATION AND BENEFITS

POSTRETIREMENT MEDICAL BENEFITS

In December 1990, the Financial Accounting Standards Board issued SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," which
requires that the accrual method of accounting for certain postretirement
benefits be adopted. The Company provides certain health care and life insurance
benefits for employees who retired prior to December 31, 1990. L. G. Balfour
Company, Inc., adopted this statement in fiscal 1994 and recognized the
actuarial present value of the accumulated postretirement benefit obligation
(APBO) of approximately $6.2 million at February 29, 1993, using the delayed
recognition method over a period of 20 years. Prior to adopting SFAS No. 106,
the cost of providing these benefits was expensed as incurred.

At the purchase date (December 16, 1996), CBI assumed this pre-existing
liability and recorded the APBO of $5.5 million in purchase accounting.

The following table sets forth the plan status (in thousands):

<TABLE>
<CAPTION>

                                           August 29,           August 30,
                                              1998                 1997
                                        -----------------    -----------------
<S>                                     <C>                  <C>
Accumulated postretirement benefit
obligation
         Retired employees              $     (1,456)        $     (5,559)
         Active employees                          -                    -
                                        -----------------    -----------------
         Total                          $     (1,456)        $     (5,559)
Plan assets at fair value                          -                    -
                                        -----------------    -----------------
         Unfunded  accumulated benefit
         obligation in excess of plan
         assets                         $     (1,456)        $     (5,559)
         Unrecognized net gain                  (187)                 125
         Unrecognized prior service
         costs                                (1,739)                   -
                                        -----------------    -----------------
Accumulated post retirement medical
benefit cost, current and long-term     $     (3,382)        $     (5,434)
                                        =================    =================
</TABLE>

The net periodic  postretirement  benefit cost for the fiscal years ended 
August 29, 1998 and August 30, 1997 (see Note 1),  includes the following  
components (in thousands):

<TABLE>
<CAPTION>

                                                    August 29,           August 30, 
                                                       1998                 1997
                                                  ----------------     ----------------
<S>                                               <C>                  <C>
Service costs, benefits attributed to service
during the period                                 $          -         $          -
Interest cost                                              100                  302
Actual return on assets                                      -                    -
Recognition of transition obligation                         -                    -
Net amortization and deferral                             (619)                   -
                                                  ----------------     ----------------
         Net periodic postretirement benefit
         cost (income)                            $       (519)        $        302
                                                  ================     ================
</TABLE>

For measurement purposes, a 5.0% annual rate of increase in the per-capital 
cost of covered health care benefits was assumed. The health care cost trend 
rate assumption has a significant effect on the amounts reported.

The weighted average discount rate used in determining the accumulated 
postretirement benefit obligation was 7.25 percent and 8.0 percent compounded 
annually for fiscal 1998 and 1997, respectively. As the plan is unfunded, no 
assumption was needed as to the long-term rate of return on assets. 

                                     -46-

<PAGE>

DEFERRED COMPENSATION

The Company has deferred compensation agreements with certain sales 
representatives and executives, which provide for payments upon retirement or 
death based on the value of life insurance policies or mutual fund shares at 
the retirement date.

(12)     INCOME TAXES

For the fiscal years ended August 29, 1998 and August 30, 1997, the net 
current and deferred provision and/or benefit is $0 as a valuation allowance 
exists due to the net operating losses incurred by the Company.

The Company's effective tax rate differs from the federal statutory rate of 
34 percent for the fiscal years ended August 29, 1998 and August 30, 1997, 
due to the following (in percentages):

<TABLE>
<CAPTION>

                                  August 29, 1998      August 30, 1997
                                 -----------------    -----------------
   <S>                           <C>                  <C>
   Computed tax benefit at
   statutory rate                        (34.0)%              (34.0)%
   State taxes                            (5.0)                (5.0)
   Change in assets and
   liabilities, net                        4.6                 14.4
   Increase in valuation
   allowance                              34.4                 24.6
                                 -----------------    -----------------
   Total effective tax rate                0.0%                 0.0%
                                 =================    =================
</TABLE>

Deferred tax assets and liabilities as of August 29, 1998 and August 30, 1997,
consist of the following (in thousands):

Deferred tax assets -

<TABLE>
<CAPTION>

                                   August 29, 1998      August 30, 1997
                                   -----------------    -----------------
   <S>                             <C>                  <C>
   Allowances and reserves         $         1,947      $         1,557
   Net operating loss
   carryforwards                            10,995                6,445
   Other                                     1,248                1,000
                                   -----------------    -----------------
   Total gross deferred tax
   assets                          $        14,190      $         9,002
   Less - Valuation allowance               (3,776)              (2,180)
                                   -----------------    -----------------
   Net deferred tax assets         $        10,414      $         6,822
                                   -----------------    -----------------
</TABLE>

Deferred tax liabilities -

<TABLE>

   <S>                             <C>                   <C>
   Property, plant and equipment, 
   principally due to differences
   in depreciation                 $        3,536        $           829
   Goodwill basis difference                6,878                  5,993
                                   -----------------     -----------------
   Total deferred tax liabilities  $       10,414        $         6,822
                                   -----------------     -----------------
   Net  deferred tax assets
   (liabilities)                   $            -        $             -
                                   =================     =================
</TABLE>

The valuation allowance has been established due to uncertainty surrounding 
the realizability of the deferred tax assets, principally the net operating 
loss carryforwards.

For tax reporting purposes, the Company has U.S. net operating loss 
carryforwards of approximately $28.2 million and $16.5 million as of August 
29, 1998 and August 30, 1997, respectively. Utilization of the net operating 
loss carryforwards is contingent on the Company's ability to generate income 
in the future. The net operating loss carryforwards will expire in years 2017 
and 2018 if not utilized.

                                     -47-

<PAGE>

(13)      STOCKHOLDERS' EQUITY

The Company is authorized to issue 750,000 shares of preferred stock, par value
$.01 per share, and 750,000 shares of Common Stock, par value $.01 per share.
The Company currently has issued and outstanding 100,000 shares of Series A
Preferred, 377,156 shares of Series B Preferred and 377,156 shares of Common
Stock.

SERIES A PREFERRED STOCK (SERIES A PREFERRED)

The holders of shares of Series A Preferred are not entitled to voting rights.
Dividends on the Series A Preferred are payable in cash, when, as and if
declared by the board of directors of the Company, out of funds legally
available therefor, on a quarterly basis, commencing on January 31, 1997.
Dividends on the Series A Preferred accrue at a rate of 12 percent per annum,
whether or not such dividends have been declared and whether or not there shall
be funds legally available for the payment thereof. Any dividends which are
declared shall be paid pro rata to the holders. No dividends or interest shall
accrue on any accrued and unpaid dividends. The Company's 11 percent senior
subordinated notes and bank debt restrict the Company's ability to pay dividends
on the Series A Preferred.

The Series A Preferred is not subject to mandatory redemption. The Series A
Preferred is redeemable at any time at the option of the Company; however, the
Company's 11 percent senior subordinated notes and bank debt restrict the
Company's ability to redeem the Series A Preferred. In the event of any
liquidation, dissolution or winding up of the Company, the holders of the Series
A Preferred shall receive payment of the liquidation value of $100 per share
plus all accrued and unpaid dividends prior to the payment of any distributions
to the holders of the Series B Preferred or the holders of the common stock of
the Company (Common Stock). So long as shares of the Series A Preferred remain
outstanding, the Company may not declare, pay or set aside for payment dividends
on, or redeem or otherwise repurchase any shares of, the Series B Preferred or
Common Stock.

SERIES B PREFERRED STOCK (SERIES B PREFERRED)

The holders of shares of Series B Preferred are entitled to one vote per share,
voting together with the holders of the Common Stock as one class on all matters
presented to the shareholders generally. No dividends accrue on the Series B
Preferred.

Dividends may be paid on the Series B Preferred if and when declared by the
board of directors of the Company out of funds legally available therefor. The
Series B Preferred is nonredeemable. In the event of any liquidation,
dissolution or winding up of the Company, the holders of the Series B Preferred
shall receive payment of the liquidation value of $100 per share plus any
accrued and unpaid dividends prior to the payment of any distributions to the
holders of the Common Stock of the Company. So long as shares of the Series B
Preferred remain outstanding, the Company may not declare, pay or set aside for
payment any dividends on the Common Stock.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders, including the
election of directors, and vote together as one class with the holders of the
Series B Preferred.

Dividends may be paid on the Common Stock if and when declared by the board of
directors of the Company out of funds legally available therefor. The Company
does not expect to pay dividends on the Common Stock in the foreseeable future.

COMMON STOCK PURCHASE WARRANTS

The Company has issued warrants, exercisable to purchase an aggregate of 21,405
shares of Common Stock (or an aggregate of approximately 5.4 percent of the
outstanding shares of Common Stock on a fully diluted basis), at an initial
exercise price of $6.67 per share, at any time on or after December 16, 1997,
and on or before January 31, 2008.

In accordance with a subscription agreement entered into by the Company and
CHPII and certain of its affiliates (the Castle Harlan Group), the Company
granted the Castle Harlan Group certain registration rights with respect to the
shares of capital 

                                     -48-

<PAGE>

stock owned by them pursuant to which the Company agreed, among other things, 
to effect the registration of such shares under the Securities Act of 1933 at 
any time at the request of the Castle Harlan Group. The Company also granted 
to the Castle Harlan Group unlimited piggyback registration rights on certain 
registrations of shares of capital stock by the Company.

STOCK-BASED COMPENSATION PLAN

The Company has a stock option plan (the 1997 Stock Option Plan), effective as
of July 29, 1997, for which a total of 69,954 shares of Common Stock have been
reserved for issuance; 36,109 of those shares were available for grant to
directors and employees of the Company as of August 29, 1998. The 1997 Stock
Option Plan provides for the granting of both incentive and nonqualified stock
options. Options granted under the 1997 Stock Option Plan have a maximum term of
10 years and are exercisable under the terms of the respective option agreements
at fair market value of the Common Stock at the date of grant. Payment of the
exercise price must be made in cash or in whole or in part by delivery of shares
of the Company's Common Stock. All Common Stock issued upon exercise of options
granted pursuant to the 1997 Stock Option Plan will be subject to a voting trust
agreement.

The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for the 1997 Stock Option
Plan. Accordingly, no compensation cost has been recognized for its 1997 Stock
Option Plan. Had compensation cost for the Company's stock-based compensation
plan been determined based on the fair value at the grant date for awards under
the plan consistent with the method of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and net loss per share for the year ended
August 30, 1997 and August 29, 1998 would have been increased to the pro forma
amounts indicated below (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                     August 29, 1998       August 30, 1997
                                                  -------------------     -----------------
<S>                               <C>             <C>                     <C>
Net loss to common stockholders   As reported          $(5,837)                $(9,717)
                                  Pro forma             (5,862)                 (9,719)
Basic and diluted loss per share  As reported           (15.55)                 (25.91)
                                  Pro forma             (15.62)                 (25.92)
</TABLE>

Compensation expense for options is reflected over the vesting period; 
therefore, future compensation expense may be greater as additional options 
are granted.

Incentive stock options for 31,971 shares and 34,470 shares and nonqualified 
stock options for 1,874 shares and -0- shares of the Company's Common Stock 
were outstanding as of August 29, 1998 and August 30, 1997, respectively. A 
summary of the status of the Company's 1997 Stock Option Plan as of August 
29, 1998 and August 30, 1997, and changes during the fiscal years then ended 
are presented below:

<TABLE>
<CAPTION>
                                            August 29, 1998                        August 30, 1997
                                    ---------------------------------     ----------------------------------
                                                         Weighted                              Weighted
                                                         Average                                Average
                                                         Exercise                              Exercise
Fixed Options                          Shares             Price             Shares               Price
--------------------------------    -------------     ---------------     --------------    ----------------
<S>                                <C>               <C>                 <C>               <C>
Outstanding at beginning of
fiscal year                              34,470       $        6.67                 -       $          -
Granted                                   1,874                6.67            34,470               6.67
Exercised                                     -                   -                 -                  -
Canceled                                 (2,499)               6.67                 -                  -
                                    -------------     ---------------     --------------    ----------------
Outstanding at end of fiscal year        33,845       $        6.67            34,470       $       6.67
                                    =============     ===============     ==============    ================

Options exercisable at year-end               -                                     -
Weighted average fair value of
options granted during the
fiscal year ended                                     $        3.60                         $       3.71
</TABLE>
                                     -49-

<PAGE>

The fair value of each grant was estimated on the date of the grant using the 
Black-Scholes option pricing model with the following weighted average 
assumptions used for grants in 1998 and 1997 respectively: dividend yield of 
nil in both fiscal years; expected volatility of 27.36 percent and 29.30 
percent, respectively; risk-free interest rate of 6.01 percent and 6.14 
percent respectively; and expected life of 10 years in both fiscal years. The 
Black-Scholes option pricing model was developed for use in estimating the 
fair value of traded options, which have no vesting restrictions and are 
fully transferable. In addition, option pricing models require the input of 
highly subjective assumptions, including expected stock price volatility. 
Because the Company's stock options have characteristics significantly 
different from those of traded options and because changes in the subjective 
input assumptions can materially affect the fair value estimate, in 
management's opinion, the existing models do not necessarily provide a 
reliable single measure of the fair value of its stock options.

INCENTIVE STOCK PURCHASE PLAN

On July 7, 1998 the stockholders of the Company unanimously approved and adopted
the Commemorative Brands, Inc. Incentive Stock Purchase Plan (the Plan).
Pursuant to the terms of the Plan, the Company may from time to time offer
shares of the Company's Class B Preferred Stock and Common Stock to employees,
consultants and independent sales representatives who are determined to be
eligible to purchase shares pursuant to the Plan by the Plan Administrator (as
defined in the Plan) upon such terms and at such prices as are set forth in the
Plan and as are determined by the Plan Administrator.

On July 20, 1998, the Company commenced an offering of up to an aggregate of
18,750 shares of each of the Company's Common Stock and Series B Preferred Stock
to eligible employees, consultants and independent sales representatives. The
offering is currently scheduled to terminate on December 22, 1998.

(14)     RELATED - PARTY TRANSACTIONS

The Company has agreed to indemnify CHPII pursuant to an indemnification 
agreement, dated August 26, 1998 for any amounts that may be incurred by 
CHPII under CHPII's guaranty of the Company's obligations under the Short 
Term Revolving Credit.

On June 30, 1998, the Company sold shares of Common Stock and Series B 
Preferred Stock to certain executive officers of the Company including 
Jeffrey H. Brennan, President and Chief Executive Officer of the Company. In 
conjunction therewith, the Company lent Mr. Brennan $75,000 to purchase 
shares of the Company's stock pursuant to a promissory note in the original 
principal amount of $75,000, which is due and payable in full on June 16, 
2003, and which bears interest at the rate of 5.77% per annum, payable 
annually on the 15th of June. Mr. Brennan has granted to the Company a 
security interest in the shares acquired by him and his interest in the 
voting trust into which the shares have been deposited as collateral security 
for the repayment in full of the promissory note. The Company also lent 
another officer of the Company the sum of $25,000 to purchase shares of the 
Company's stock on substantially identical terms as the promissory note 
issued by Mr. Brennan. The balance of $100,000 is included in prepaid 
expenses and other current assets on the accompanying balance sheet as of 
August 29,1998.

The Company entered into a management agreement dated December 16, 1996 (the 
Management Agreement), with Castle Harlan, Inc. (the Manager), pursuant to 
which the Manager agreed to provide business and organizational strategy, 
financial and investment management and merchant and investment banking 
services to the Company upon the terms and conditions set forth therein. As 
compensation for such services, the Company agreed to pay the Manager $1.5 
million per year, which amount has been paid in advance for the first year 
and is payable quarterly in arrears thereafter. The agreement is for a term 
of 10 years, renewable automatically from year to year thereafter unless the 
Castle Harlan Group then owns less than 5 percent of the then outstanding 
capital stock of the Company. The Company has agreed to indemnify the Manager 
against liabilities, costs, charges and expenses relating to the Manager's 
performance of its duties, other than such of the foregoing resulting from 
the Manager's gross negligence or willful misconduct. The Indenture prohibits 
payment of the management fee in the Event of a Default by the Company in the 
payment of principal, Redemption Price, Purchase Price, (both as defined in 
the Indenture), Interest, or Liquidated Damages (if any) on the Notes. The 
Bank Agreement prohibits payment of the management fee unless at the time 
of payment (i) no Event of Default (as defined in the Bank Agreement) shall 
have occurred and is continuing or would result from the payment of the 
management fee; (ii) the Short Term Revolving Credit shall have 

                                     -50-

<PAGE>

been paid in full; and (iii) the Company meets the requisite Modified Funded 
Debt Ratio (as defined in the Bank Agreement).

(15)     QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial data for the Company for the fiscal year ended
August 29, 1998, is as follows:

<TABLE>
<CAPTION>
                                                                                       Third Quarter
                                             First Quarter       Second quarter            Ended           Fourth Quarter
                                            Ended November       Ended February           May 30,               Ended
                                               30, 1997             28, 1998               1998            August 29, 1998
                                            ----------------     ----------------     ----------------     ----------------
   <S>                                     <C>                  <C>                  <C>                  <C>
                                                                 (In thousands, except share data)
    Net sales                               $     38,364         $     44,168         $     43,085         $     25,484
                                            ----------------     ----------------     ----------------     ----------------
    Gross profit                            $     21,138         $     24,401         $     22,954         $      9,993
                                            ----------------     ----------------     ----------------     ----------------
    Net income (loss)                       $        978         $      2,067         $        308         $     (7,990)
                                            ----------------     ----------------     ----------------     ----------------
    Net income (loss) to common
    stockholders                            $        678         $      1,767         $          8         $     (8,290)
                                            ----------------     ----------------     ----------------     ----------------
    Basic and diluted earnings (loss) per
    share                                   $       1.81         $       4.71         $       0.02         $     (22.03)
                                            ----------------     ----------------     ----------------     ----------------
    Weighted average common shares
    outstanding and common and common
    equivalent shares outstanding                375,000              375,000              375,000              376,294
                                            ----------------     ----------------     ----------------     ----------------
</TABLE>

Summarized quarterly financial data for the Company for the fiscal year ended 
August 30, 1997, is as follows:

<TABLE>
<CAPTION>
                                         Second Quarter        Third Quarter
                                             Ended                 Ended           Fourth Quarter
                                            March 1,              May 31,               Ended
                                              1997                 1997            August 30, 1997
                                        -----------------     ----------------     ----------------
                                                    (In thousands, except share data)
<S>                                    <C>                   <C>                  <C>
Net sales                               $     24,751          $     36,927         $      25,922
                                        -----------------     ----------------     ----------------
Gross profit                            $     10,509          $     18,423         $      13,479
                                        -----------------     ----------------     ----------------
Net income (loss)                       $     (3,861)         $       (874)        $      (4,132)
                                        -----------------     ----------------     ----------------
Net income (loss) to common
stockholders                            $     (4,111)         $     (1,174)        $      (4,432)
                                        -----------------     ----------------     ----------------
Basic and diluted earnings (loss) per
share                                   $     (10.96)         $      (3.13)        $      (11.82)
                                        -----------------     ----------------     ----------------
Weighted average common shares
outstanding and common and common
equivalent shares outstanding                375,000               375,000               375,000
                                        =================     ================     ================
</TABLE>

Commemorative Brands, Inc., completed the Acquisitions of ArtCarved and Balfour
on December 16, 1996, and prior to such date, engaged in no business activities
other than those in connection with the Acquisitions and financing thereof.

The Company's scholastic product sales tend to be seasonal. Class ring sales 
are highest during October through December (which overlaps the Company's 
first and second fiscal quarters), when students have returned to school 
after the summer recess and orders are taken for delivery of class rings to 
students before the winter holiday season. Sales of the Company's fine paper 
products are predominantly made during February through April (which overlaps 
the Company's second and third fiscal quarters) for graduation in May and 
June. ArtCarved and Balfour historically experienced operating losses during 
the period of the Company's fourth fiscal quarter, which includes the summer 
months when school is not in session. The Company's recognition and affinity 
product line is not seasonal in any material respect, although sales 
generally are highest during the winter holiday season and in the period 
prior to Mother's Day. As a result, the effects of seasonality of the class 
ring business on the Company are tempered by the Company's relatively broad 
product mix. As a result of the foregoing, the Company's working capital 
requirements tend to exceed its operating cash flows from July through 
December.

                                      -51-

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Stockholders of
Commemorative Brands, Inc.:

We have audited the accompanying statements of income (loss), changes in
advances and equity (deficit) and cash flows of the class rings business
(ArtCarved) of CJC Holdings, Inc. (a Texas corporation), for the fiscal year
ended August 31, 1996, and for the period from September 1, 1996, through
December 16, 1996. These financial statements are the responsibility of
Artcarved's management. Our responsibility is to express an opinion on these
financial statements 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, the financial statements referred to above present fairly, in
all material respects, the results of ArtCarved's (as defined above) operations
and its cash flows for the fiscal year ended August 31, 1996, and for the period
from September 1, 1996, through December 16, 1996, in conformity with generally
accepted accounting principles.




Houston, Texas
October 24, 1997


                                    -52-

<PAGE>

            CJC HOLDINGS, INC., CLASS RINGS BUSINESS (ARTCARVED)

                          STATEMENTS OF INCOME (LOSS)

                                (In Thousands)

<TABLE>
<CAPTION>
                                                                                    For the Period
                                                                                         From
                                                                                     September 1,
                                                                Fiscal Year             1996,
                                                                   Ended               Through
                                                                 August 31,          December 16,
                                                                    1996                 1996
                                                              -----------------    ------------------
<S>                                                           <C>                  <C>
NET SALES                                                     $      70,671        $      27,897

COST OF SALES                                                        32,655               11,988
                                                              -----------------    ------------------
          Gross profit                                               38,016               15,909

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                        (27,940)              (9,862)
                                                              -----------------    ------------------
          Operating income                                           10,076                6,047

INTEREST INCOME                                                         651                   94

INTEREST EXPENSE                                                    (12,558)              (2,970)
                                                              -----------------    ------------------
          Income (loss) before income tax provision                  (1,831)               3,171

INCOME TAX PROVISION                                                      -                    -
                                                              -----------------    ------------------
          Net income (loss)                                   $      (1,831)       $       3,171
                                                              -----------------    ------------------
                                                              -----------------    ------------------
</TABLE>

     The accompanying notes are an integral part of these financial statements.

                                     -53-

<PAGE>

             CJC HOLDINGS, INC., CLASS RINGS BUSINESS (ARTCARVED)


            STATEMENTS OF CHANGES IN ADVANCES AND EQUITY (DEFICIT)

                                (In Thousands)

<TABLE>

<S>                                                                                      <C>
BALANCE AT AUGUST 26, 1995                                                               $ (53,186)
     Net increase in advances from parent                                                   26,493
     Net loss for the fiscal year ended August 31, 1996                                     (1,831)
                                                                                         ------------
BALANCE AT AUGUST 31, 1996                                                                 (28,524)
     Net increase in advances from parent                                                   18,889
     Net income for the period from September 1, 1996, through December 16, 1996             3,171
                                                                                         ------------
BALANCE AT DECEMBER 16, 1996                                                             $  (6,464)
                                                                                         ------------
                                                                                         ------------
</TABLE>

     The accompanying notes are an integral part of these financial statements.


                                     -54-

<PAGE>

             CJC HOLDINGS, INC., CLASS RINGS BUSINESS (ARTCARVED)

                            STATEMENTS OF CASH FLOWS

                                (In Thousands)

<TABLE>
<CAPTION>
                                                                                             For the Period
                                                                     For the Fiscal          from September
                                                                       Year Ended            1, 1996 through
                                                                     August 31, 1996        December 16, 1996
                                                                    -----------------       -------------------
<S>                                                                 <C>                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                              $      (1,831)          $          3,171
     Adjustments to reconcile net income (loss) to net cash
         provided by (used in) operating activities-
             Depreciation                                                   1,843                        649
             Amortization                                                   3,172                      1,343
             Provisions for doubtful accounts                                 596                        144
             Discount accretion                                                 -                          -
             Restructuring charges                                              -                          -
             Change in assets and liabilities-
                    Increase in receivables                                  (121)                    (6,951)
                    (Increase) decrease in inventories                     (1,500)                       124
                    (Increase) decrease in prepaid expenses and
                            other current assets                            1,880                      1,378
                    Increase in other assets                               (2,113)                    (3,270)
                    Increase (decrease) in accounts payable                  (391)                     1,424
                    Increase (decrease) in accrued expenses                   128                      3,486
                                                                    -----------------       -------------------
     Net cash provided by operating activities                              1,663                      1,498
                                                                    -----------------       -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property, plant and equipment                              (844)                      (195)
                                                                    -----------------       -------------------
     Net cash used in investing activities                                   (844)                      (195)
                                                                    -----------------       -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net change in advances from parent                                    15,620                     18,889

     Note payments                                                        (16,439)                   (14,628)
                                                                    -----------------       -------------------
     Net cash provided by (used in) financing activities                     (819)                     4,261
                                                                    -----------------       -------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                       -                      5,564

CASH AND CASH EQUIVALENTS, beginning of period                                  -                          -
                                                                    -----------------       -------------------
CASH AND CASH EQUIVALENTS, end of period                            $           -           $          5,564
                                                                    -----------------       -------------------
                                                                    -----------------       -------------------
</TABLE>

     The accompanying notes are an integral part of these financial statements.

                                    -55-

<PAGE>

            CJC HOLDINGS, INC., CLASS RINGS BUSINESS (ARTCARVED)


                        NOTES TO FINANCIAL STATEMENTS


(1)      DESCRIPTION OF BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying financial statements represent the class rings business
(ArtCarved or the Company) of CJC Holdings, Inc. (CJC). Since ArtCarved is not
operated nor accounted for as a separate entity for the periods presented in the
accompanying financial statements, it was necessary for management to make
allocations (carve-outs) for certain accounts to reflect the financial
statements of ArtCarved. Management considers the allocations to be reasonable
and believes the accompanying financial statements materially represent the
operations of ArtCarved on a stand-alone basis. Selling, general and
administrative expenses from the operations of ArtCarved as shown in the
accompanying statements of income (loss) represent all the expenses incurred by
CJC excluding only the expenses directly related to the non-ArtCarved operations
of CJC. CJC sold the assets of ArtCarved and CJC used the sale proceeds to repay
its outstanding debt obligations. Accordingly, the debt obligations of CJC
repaid with the sale proceeds have been recorded on the accompanying balance
sheet with the offsetting charge included in the advances and equity (deficit)
account, and the accompanying statements of income (loss) of ArtCarved presented
herein include all of CJC's debt-related interest expense on such debt
obligations. Interest income of CJC is included in the statements of income
(loss) since all excess cash balances are used to pay principal and interest on
debt obligations.

All cash balances remained with CJC after sale of the assets. No cash balances
have been included in cash and cash equivalents in the accompanying statements
of cash flows. All amounts due to/from CJC for ArtCarved's operations have been
included in advances and equity (deficit). Also, included in advances and equity
(deficit) are all intercompany accounts.

Although management considers the above allocation (carve-out) methods to be
reasonable, due to the relationship between ArtCarved and other operations and
activities of CJC, the terms of some or all of the transactions and allocations
discussed above may not necessarily be indicative of that which would have
resulted had ArtCarved been a stand-alone entity.

On December 16, 1996, Commemorative Brands, Inc. (CBI), completed the
acquisitions (the Acquisitions) of substantially all of the scholastic and
recognition and affinity product assets and businesses of ArtCarved of CJC from
CJC and certain assets and liabilities of L. G. Balfour Company, Inc. (Balfour),
from Town & Country Corporation (Town & Country). In consideration for
ArtCarved, CBI paid CJC in cash the sum of $115.1 million and assumed certain
related liabilities.

RESULTS OF OPERATIONS

The results of operations for the period from September 1, 1996, through
December 16, 1996, are not comparable to the results of operations for the
fiscal year ended August 31, 1996, and are not necessarily indicative of the
results that could be expected for a full fiscal year. Due to the highly
seasonal nature of the class ring business, a significant amount of revenues and
income occurred in the three and one-half month period ended December 16, 1996,
related to the back-to-school and pre-holiday season.

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR-END

ArtCarved uses a 52/53-week fiscal year ending on the last Saturday of August.

INVENTORIES

ArtCarved's inventories, which include raw materials, labor and overhead and 
other manufacturing and production costs, are stated at the lower of cost or 
market using the dollar-value last-in, first-out (LIFO) link-chain method. 

                                    -56-

<PAGE>

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation is provided principally using the straight-line
method based on estimated useful lives of the assets as follows:

<TABLE>
<CAPTION>

      Description                                       Useful Life
      -----------                                       -----------
      <S>                                              <C>
      Land improvements                                      15 years
      Buildings and improvements                       10 to 25 years
      Tools and dies                                    5 to 10 years
      Machinery and equipment                           3 to 10 years
</TABLE>

Maintenance, repairs and minor replacements are charged against income as
incurred; major replacements and betterments are capitalized. The cost of assets
sold or retired and the related accumulated depreciation are removed from the
accounts at the time of disposition, and any resulting gain or loss is reflected
as other income or expense for the period.

GOODWILL AND INTANGIBLE ASSETS

Costs in excess of fair value of net tangible assets acquired and related
acquisition costs are included in goodwill and identifiable intangible assets in
the accompanying balance sheets. Intangible assets are being amortized on a
straight-line basis over their estimated lives, not exceeding 40 years.

OTHER ASSETS

Other assets include debt costs, software and software development costs, and
engineering and design costs. Debt costs are amortized over the lives of the
specific debt instruments of one to six years. Software and software development
costs have a useful life of three to five years, and engineering and design
costs are amortized over six years.

FAIR VALUE OF FINANCIAL INSTRUMENTS

ArtCarved's financial instruments consist primarily of cash and cash 
equivalents, accounts receivable, accounts payable and long-term debt 
(including current maturities). The carrying amounts of ArtCarved's cash and 
cash equivalents, accounts receivable and accounts payable approximate fair 
value due to their short-term nature. The fair value of ArtCarved's long-term 
debt is estimated based on current rates offered to ArtCarved for debt with 
the same or similar terms.

CASH FLOWS

Total cash interest paid during the fiscal year 1996 and for the period from 
September 1, 1996, to December 16, 1996, was approximately $12,464,000 and 
$4,405,000, respectively. Total cash paid for income taxes during the fiscal 
year 1996 and for the period from September 1, 1996, to December 16, 1996, 
was approximately $83,000 and $-, respectively. Noncash financing activities 
during the year ended August 31, 1996, include $7,021,000 of accrued 
interest, which was converted to new subordinated notes, and $7,500,000 of 
original subordinated notes and $1,873,000 of related accrued interest that 
were both converted to Series 2 common stock.

ACCOUNTING FOR INCOME TAXES

Effective September 1, 1992, CJC (and ArtCarved) adopted Statement of 
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," 
which requires the asset and liability method of accounting for income taxes. 
Under the asset and liability method, deferred income taxes are recorded for 
the tax consequences of applying currently enacted statutory tax rates 
applicable to differences between the financial reporting and income tax 
bases of assets and liabilities.

                                     -57-
<PAGE>

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 these estimates.

SEASONALITY

ArtCarved's sales are highly seasonal. Historically, ArtCarved has achieved 
its highest sales and income levels in its first fiscal quarter (September 
through November), followed in descending order by the third, second and 
fourth fiscal quarters. This is primarily due to the fall "back-to-school" 
selling season for class rings. The third fiscal quarter includes the spring 
semester school activities including graduation events, while the fourth 
fiscal quarter (and the second fiscal quarter to a lesser extent) includes 
the periods when most schools are not in session.

REVENUE RECOGNITION

Revenues from product sales are recognized at the time the product is shipped.

ADVERTISING EXPENSE

Selling, general and administrative expenses for ArtCarved include 
advertising expense in the following amounts for the statements of income 
(loss) presented (in thousands):

<TABLE>

     <S>                                                          <C>
     Period from September 1, 1996, to December 16, 1996          $1,222
     Fiscal year ended August 31, 1996                            $2,989
</TABLE>

(4)      RECEIVABLES

Credit is extended to various companies in the retail industry which may be
affected by changes in economic or other external conditions. ArtCarved's policy
is to manage its exposure to credit risk through credit approvals and limits.

(5)      INVENTORIES

Cost of sales includes depreciation and amortization of the following amounts in
the accompanying statements of income (loss) (in thousands):

<TABLE>

     <S>                                                          <C>
     Period from September 1, 1996, to December 16, 1996          $  691
     Fiscal year ended August 31, 1996                            $1,709
</TABLE>

Inventories are priced using the dollar-value LIFO link-chain method.

(6)      PROPERTY, PLANT AND EQUIPMENT

Depreciation expense (included in cost of sales and selling, general and
administrative expenses) recorded in the accompanying statements of income
(loss) is as follows (in thousands):

<TABLE>

    <S>                                                           <C>
    Period from September 1, 1996 to December 16, 1996            $  770
    Fiscal year ended August 31, 1996                             $2,026
</TABLE>

(7)      GOLD LOAN

As a means of hedging against gold market price fluctuations and financing its
needs for gold in the manufacturing process, 

                                    -58-

<PAGE>

CJC had historically entered into a fee-bearing gold consignment agreement 
with a bank (the Consignor). During the term of the consignment agreement, 
title to the gold covered by the consignment agreement remained with the 
Consignor. CJC had a credit facility with a bank which provided for a 
$25,000,000 letter-of-credit facility which could be utilized to request 
letters of credit pursuant to the gold consignment agreement. The consignment 
agreement expired in June 1994 and was not renewed. In connection with the 
expiration of the gold consignment agreement, the Consignor presented to the 
bank a draft for payment under the letter of credit in the amount of 
$14,614,255, and such draft was honored by the bank in that amount. The 
amount invoiced CJC was for 38,053 ounces of gold at a price of $384.05 per 
ounce. Although a substantial amount of gold is held by other operations of 
CJC and serves as collateral for the loan, the entire gold loan was paid with 
the proceeds from the asset sale and, therefore, the full amount of the loan 
is included in ArtCarved's balance sheet.

(8)       LONG-TERM DEBT

In November 1995, CJC's board of directors, shareholders and principal 
creditors approved its restructuring plan and the plan and agreement of 
merger (as defined) whereby CJC's common and preferred shareholders agreed to 
a recapitalization and holders of senior secured, senior subordinated notes 
and the gold loan agreed to restructure their debt obligations. On March 12, 
1996, the restructuring agreement was consummated. The debt obligations 
discussed below were paid with the proceeds of the asset sale of ArtCarved 
and, therefore, are included in ArtCarved's financial statements.

The significant components of the restructuring and recapitalization are as
follows:

a.       New capital stock consisting of 30,000,000  authorized shares of common
         stock designated as either Series 1,  Series 2 or Series 3, as defined,
         of CJC Newco, Inc. (Newco), was authorized and issued in the following
         order:

         (i)      The holder of CJC's Series A preferred stock received an
                  aggregate of 100 percent or 8,750,000 shares of the Series 1
                  common stock, such number to be reduced by that number of
                  shares of Series 1 common stock to be issued to the
                  subordinated noteholders.

         (ii)     A holder of CJC's senior subordinated notes due 1998 and 1999
                  (the Original Subordinated Notes), pursuant to the
                  restructuring, received 4,410,000 shares of the Series 1
                  common stock in lieu of debt of CJC. Holders of CJC's Original
                  Subordinated Notes also received 94,000 shares of the Series 1
                  common stock as compensation for a payment-in-kind (PIK),
                  nondefault rate interest option, as defined, contained in
                  CJC's new senior subordinated notes due 2002 (the New
                  Subordinated Notes). In addition, 974,000 shares of the Series
                  1 common stock authorized to be issued to the holders of CJC's
                  New Subordinated Notes were not issued as of the restructuring
                  date but were reserved for issuance in accordance with the
                  terms of the New Subordinated Note agreement and the new
                  shareholders' agreement.

         (iii)    The holders of CJC's Series B preferred stock received an
                  aggregate of 1,249,020 shares of Series 2 common stock. Each
                  such holder received 11.67 shares of Series 2 common stock for
                  each previously held share of Series B preferred stock.

         (iv)     Previous holders of CJC's common stock received an aggregate
                  of 9,992,317 shares of Series 3 common stock. Each such holder
                  received 4.20 shares of Series 3 common stock for each
                  previously held share of common stock. Effective June 30,
                  1996, the Series 3 shares were redeemed at $0.001 per share.

         (v)      Holders of CJC's warrants issued in 1990 received new warrants
                  to purchase 3,023,623 shares of Series 3 common stock. These
                  warrants expired on June 30, 1996. All other existing
                  warrants, rights or options outstanding immediately prior to
                  the merger were canceled and extinguished.

b.       Holders of CJC's floating rate senior secured notes, Series A due 1996
         (the Series A  Notes), and holders of CJC's 12.12 percent senior 
         secured notes, Series B-2 due 1998 (the Series B Notes) (collectively,
         the Original Senior Notes), received all accrued interest on the unpaid
         principal amount of such notes. Pursuant to the terms of a senior note
         purchase agreement, the holders of the Series A  Notes received New 
         Series A Notes and the holders of Series B Notes received New Series B
         Notes.

                                      -59-

<PAGE>

         The New Series A Notes were issued in the aggregate principal amount of
         $14,677,000, the outstanding principal balance on the restructuring 
         date. The New Series A Notes are mandatorily redeemable under certain 
         circumstances.  The maturity date of the New Series A Notes shall be 
         July 15, 1999, and such notes bear interest at the Eurodollar Rate, as
         defined, plus 2.25 percent. In addition, the principal of the New 
         Series A Notes will be repaid in installments of $2.0 million on each
         semiannual period currently anticipated to commence no later than July
         15,  1997.  Interest on the New Series A Notes is due on the fifteenth
         day of each quarter, beginning April 15, 1996.

         The New Series B Notes were issued in the aggregate principal amount of
         $42,023,000, the outstanding principal balance on the restructuring
         date. The New Series B Notes are mandatorily redeemable under certain
         circumstances. The maturity date of the New Series B Notes shall be
         July 15, 2000, and such notes bear interest at the rate of 12.12
         percent. The New Series B Notes shall be payable in full at maturity.
         After the New Series A Notes have been repaid in full, the $2.0 million
         semiannual principal repayments shall be applied to the New Series B
         Notes. Interest on the New Series B Notes shall be due on the fifteenth
         day of each quarter beginning April 15, 1996. Finally, the holders of
         the New Series B Notes may be entitled to certain "make-whole" payments
         on the original amount issued once the New Series A Notes have been
         repaid in full or replaced. The New Series A Notes and New Series B
         Notes shall be secured by substantially all of CJC's assets.

         Under the terms of the New Series A Notes and New Series B Notes, CJC,
         among other restrictions, will be required to maintain a current ratio,
         as defined (excluding current maturities of funded debt), of 3.2 to 1.0
         for the period March 12, 1996, to February 28, 1998, and 2.5 to 1.0 for
         the period March 1, 1998, to maturity, minimum shareholders' equity
         (deficit), as defined, of $(8,000,000) for the period March 12, 1996,
         to June 30, 1996, $(9,000,000) for the period July 1, 1996, to May 31,
         1997, $(10,000,000) for the period June 1, 1997, to November 30, 1997,
         and beginning to increase to $(5,000,000) until maturity, and an
         interest coverage ratio, as defined, of 1.25 to 1.0 for the period
         March 12, 1996, to February 28, 1998, 1.50 to 1.0 for the period March
         1, 1998, to August 31, 1999, and 1.75 to 1.0 for the period September
         1, 1999, to maturity. CJC will also have certain limitations relating
         to additional debt, liens, mergers, asset sales transactions,
         restricted investments and payments of dividends and is obligated to
         make certain reports periodically to the lenders. As of August 31,
         1996, CJC was in compliance with these covenants.

c.       Holders of CJC's Original Subordinated Notes in the amount of
         $35,000,000 were issued either (i) New Subordinated Notes having an
         aggregate principal amount equal to the unpaid principal under the
         Original Subordinated Notes plus accrued interest through June 30,
         1995, as well as shares of Series 1 common stock as described in a(ii)
         above, or (ii) New Subordinated Notes having an aggregate principal
         amount equal to 50 percent of the unpaid principal under the Original
         Subordinated Notes plus accrued interest through June 30, 1995, as well
         as shares of Series 1 common stock as described in a.(ii) above. One
         holder elected to convert 50 percent of its Original Subordinated Notes
         (principal amount of $7,500,000 plus accrued interest through June 30,
         1995, of approximately $1,873,000) into Series 1 common stock.

         The New Subordinated Notes have a maturity of July 15, 2002, with
         certain mandatory prepayments, as defined, based upon net cash
         proceeds, as defined. The New Subordinated Notes are subordinate to the
         New Senior Notes and the New Gold Notes. The New Subordinated Notes
         have loan covenants that are substantially identical to the New Senior
         Notes. Finally, the holders of the New Subordinated Notes may be
         entitled to certain "make-whole" payments on the original amount issued
         if both the New Senior Notes and New Subordinated Notes are repaid in
         full prior to March 1997.

d.       Each gold loan holder shall receive a new promissory note evidencing
         the existing obligation having a maturity date of February 28, 1997
         (the New Gold Notes). The New Gold Notes shall be issued in an
         aggregate principal amount of $8,641,125, the outstanding principal
         balance on the restructuring date. The New Gold Notes shall bear
         interest at the lesser of (i) the alternate base rate, as defined,
         plus 1.5 percent or (ii) the highest lawful rate, as defined.
         Principal payments under the New Gold Notes are $2,267,000 and
         $6,374,125 for fiscal years 1996 and 1997, respectively. CJC shall
         prepay the New Gold Notes using available net cash proceeds, as
         defined. The New Gold Notes shall be secured by substantially all of
         CJC's assets.

                                     -60-

<PAGE>

         In connection with the New Gold Notes, CJC purchased options for
         24,053 ounces of gold, exercisable at $384.05 per ounce. The total
         premiums for fiscal 1996 relating to these options were approximately
         $238,000. As of August 31, 1996, CJC has options on 17,800 ounces of
         gold outstanding which expire March 28, 1997. CJC is required to
         purchase the options under the New Gold Notes to hedge the collateral
         against changing gold prices. CJC does not engage in gold option
         speculation. CJC has not recorded any significant gains or losses
         related to such options as the price of gold has not fluctuated
         significantly.

         Under the terms of the New Gold Notes, CJC, among other restrictions,
         will be required to maintain a current ratio, as defined (excluding
         current maturities of funded debt), of 3.2 to 1.0, minimum
         shareholders' equity (deficit), as defined, of $(8,000,000) for the
         period March 12, 1996, to June 30, 1996, and $(9,000,000) for the
         period July 1, 1996, to maturity, and an interest coverage ratio, as
         defined, of 1.25 to 1.0. CJC will also have certain limitations
         relating to additional debt, liens, mergers, asset sales transactions,
         restricted investments and payments of dividends and is obligated to
         make certain reports periodically to the lenders. As of August 31,
         1996, CJC was in compliance with these covenants.

Management believes the carrying amount of long-term debt, including the current
maturities, approximates fair value as of August 31, 1996, based upon current
rates offered for debt with the same or similar debt terms.

Subsequent to year-end, CJC was not in compliance with certain financial
covenants and, accordingly, applied for and has been granted a necessary waiver
through October 31, 1996, and an amendment with respect to such covenants from
its lenders. As discussed in Note 1, all outstanding debt obligations of CJC
were repaid with the sale proceeds from CBI shortly after the Acquisitions
occurred.

(9)      COMMITMENTS AND CONTINGENCIES

ArtCarved leased certain of its manufacturing and office facilities and
equipment under various noncancelable operating leases. Expenses under all
operating leases for the fiscal year ended August 31, 1996, and for the period
from September 1, 1996, to December 16, 1996, are approximately $577,000 and
$208,000, respectively.

ArtCarved is not party to any pending legal proceedings other than ordinary
routine litigation incidental to the business. In management's opinion, adverse
decisions on those legal proceedings, in the aggregate, would not have a
materially adverse impact on ArtCarved's results of operations or financial
position.

(10)     INCOME TAXES

For the fiscal year ended August 31, 1996, and for the period from September 1,
1996, to December 16, 1996, no current or deferred provision or benefit exists
for ArtCarved due to the available operating tax losses and other credit
carryforwards of CJC.

The following represents a reconciliation between tax computed by applying the
35 percent statutory income tax rate to income (loss) before income taxes and
reported income tax expense for the fiscal year ended August 31, 1996 and the
period from September 1, 1996, to December 16, 1996:

<TABLE>
<CAPTION>
                                                                     Period From
                                         Fiscal Year Ended        September 1, 1996,
                                            August 31,              to December 16,
                                               1996                      1996
                                         -----------------       --------------------
<S>                                      <C>                     <C>
Pretax book income (loss)                      (35.0)%                     35.0%
Permanent differences                            3.2                          -
Addition to (utilization of)
  operating loss carryforwards                  31.8                      (35.0)
                                         -----------------       --------------------
                                                   -%                         -%
                                         -----------------       --------------------
                                         -----------------       --------------------
</TABLE>
                                      -61-

<PAGE>

Since ArtCarved's financial results have been included in CJC's consolidated 
federal income tax return, ArtCarved federal net operating tax losses and 
other credits have been included in CJC's income tax return. As a result, any 
carryovers of such losses or credits which might have existed had ArtCarved 
reported on a stand-alone basis are not available to ArtCarved as ArtCarved 
was purchased in a business combination by CBI.

(11)     EMPLOYEE BENEFIT PLANS

DEFINED BENEFIT PLAN

CJC adopted an employee benefit plan for substantially all hourly class ring
employees. The benefits were based on the employee's years of service. CJC's
funding policy was to make contributions equal to or greater than the
requirements prescribed by the Employee Retirement Income Security Act of 1974.

The plan was frozen in 1989 and, effective September 5, 1995, the plan was
terminated. Upon receiving a favorable determination on termination, dated
December 1, 1995, all assets of the plan were distributed.

CJC has a defined contribution plan that is available to all employees.
Employees are eligible to make contributions to the plan after one year of
employment. CJC does not make contributions to the plan but pays substantially
all administrative fees related to the plan.

The following components of net periodic pension income are presented for the
hourly class ring employees plan for the fiscal year ended August 31, 1996:

<TABLE>
<CAPTION>

                                                                    Fiscal Year
                                                                        Ended
                                                                     August 31,
                                                                        1996
                                                                 ------------------
      <S>                                                        <C>
      Service cost, benefits earned during the year                  $       -
      Interest cost of projected benefit obligation                          -
      Actual return on plan assets                                           -
      Net amortization and deferral                                          -
                                                                    -------------
             Net  periodic  pension income                           $       -
                                                                    -------------
</TABLE>

Assumptions used in accounting for the pension plan for the fiscal year ended
August 31, 1996, are as follows:

<TABLE>

<S>                                                             <C>
Discount rate                                                   7.30%
Rate of increase in compensation levels                          N/A
Expected long-term rate of return on assets                     7.30%
</TABLE>

CJC has a defined contribution plan that is available to all employees.
Employees are eligible to make contributions to the plan after one year of
employment. CJC does not make contributions to the plan but pays substantially
all administrative fees related to the plan.

                                     -62-

<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To L.G. Balfour Company, Inc.:

We have audited the accompanying statements of operations, stockholder's 
equity and cash flows of L.G. Balfour Company, Inc. (the Company) (a Delaware 
corporation), a wholly owned subsidiary of Town & Country Corporation (the 
Parent) (a Massachusetts corporation), for the year ended February 25, 1996, 
and for the period from February 26, 1996 to December 16, 1996. These 
financial statements are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements based 
on our audits.

We conducted our audits 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, the financial statements referred to above present fairly, in 
all material respects, the results of L. G. Balfour Company, Inc.'s 
operations and its cash flows for the year ended February 25, 1996, and for 
the period from February 26, 1996 to December 16, 1996, in conformity with 
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the 
Company will continue as a going concern. The Company relies on funding from 
its Parent to support operations. The Parent is in violation under its 
various debt agreements and has filed a voluntary petition for relief under 
Chapter 11 Title 11 of the United States Bankruptcy Code on November 18, 
1997; thus, there is no assurance that the Parent will be able to continue to 
provide financial support to the Company. Therefore, there is substantial 
doubt about the Company's ability to continue as a going concern. The 
Parent's plans with regard to these matters, which primarily relate to the 
sale of the Company, are discussed in Notes 1 and 8. The financial statements 
do not include any adjustments that might result from the outcome of this 
uncertainty.




Boston, Massachusetts
November 19, 1997


                                      -63-

<PAGE>

                            L.G. BALFOUR COMPANY, INC.
                             Statements of Operations
                                   (In Thousands)

<TABLE>
<CAPTION>

                                                                                            For the Period
                                                                        For the              From February
                                                                      Year Ended              26, 1996 to
                                                                     February 25,             December 16,
                                                                         1996                   1996(a)
                                                                   -----------------        --------------
    <S>                                                            <C>                      <C>
    Net Sales                                                         $  71,300              $  60,233

    Cost of Sales                                                        35,598                 29,350
                                                                   -----------------        --------------
        Gross profit                                                     35,702                 30,883
                                                                   -----------------        --------------
    Expenses:

        Selling                                                          27,788                 25,203
        General and administrative (Note 3)                               5,708                  5,817
                                                                   -----------------        --------------
    Total expenses                                                       33,496                 31,020
                                                                   -----------------        --------------
    Other (Income) Expense:
        Gain on sale of facility (Note 1)                                  (418)                     -
        Interest expense (Note 6)                                           583                    454
        Interest on Due to Parent, net (Note 7)                           1,986                  1,499
                                                                   -----------------        --------------
            Net other expense                                             2,151                  1,953
                                                                   -----------------        --------------
            Income (loss) before provision for income taxes                  55                 (2,090)

    Provision for Income Taxes (Notes 1 and 2)                              191                     63
                                                                   -----------------        --------------
    Net Loss                                                          $    (136)              $ (2,153)
                                                                   -----------------        --------------
                                                                   -----------------        --------------
</TABLE>

(a) EXCLUDES THE FINANCIAL IMPACT OF THE SALE OF CERTAIN ASSETS AND LIABILITIES
    OF THE COMPANY DISCUSSED IN NOTE 8.

     THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                      -64-

<PAGE>

                            L.G. BALFOUR COMPANY, INC.

                        Statements of Stockholder's Equity

                                  (In Thousands)

<TABLE>
<CAPTION>

                                                                                                     TOTAL
                                                        ADDITIONAL            ACCUMULATED        STOCKHOLDER'S
                                CAPITAL STOCK         PAID-IN CAPITAL           DEFICIT              EQUITY
                              ------------------     ------------------     ----------------    -----------------
<S>                           <C>                    <C>                    <C>                 <C>
Balance, February 26, 1995    $            4         $       75,970         $    (61,950)       $       14,024
    Net loss                               -                      -                 (136)                 (136)
                              ------------------     ------------------     ----------------    -----------------
Balance, February 25, 1996                 4                 75,970              (62,086)               13,888
    Net Loss                               -                      -               (2,153)               (2,153)
                              ------------------     ------------------     ----------------    -----------------
Balance, December 16, 1996    $            4         $       75,970         $    (64,239)       $       11,735
                              ==================     ==================     ================    =================
</TABLE>

     THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                     -65-

<PAGE>

                                             L.G. BALFOUR COMPANY, INC.
                                              Statements of Cash Flows
                                                   (In Thousands)

<TABLE>
<CAPTION>

                                                                                          FOR THE PERIOD
                                                                     FOR THE YEAR        FROM FEBRUARY 26,
                                                                         ENDED                1996 TO
                                                                     FEBRUARY 25,          DECEMBER 16,
                                                                         1996                  1996
                                                                    --------------      ------------------
<S>                                                                 <C>                 <C>
Cash Flows from Operating Activities:
    Net loss                                                        $        (136)          $    (2,153)
    Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities-
       Depreciation and amortization                                        2,026                 1,533
       Gain on sale of property, plant and equipment                         (417)                    -
       Changes in assets and liabilities-
       Increase in accounts receivable                                       (991)               (6,049)
       Decrease in inventories                                                894                 1,774
       Decrease in prepaid expenses and other current assets                  666                   189
       Decrease in other assets                                               129                   160
       Decrease in bank overdraft and accounts payable, net                  (359)                 (234)
       Increase (decrease) in accrued expenses                                133                (2,442)
       Decrease in deferred compensation                                     (341)                  (42)
                                                                    --------------         ---------------
    Net cash provided by (used in) operating activities                     1,604                (7,264)
                                                                    --------------         ---------------
Cash Flows from Investing Activities:
    Proceeds from sale of fixed assets                                        951                   571
    Capital expenditures                                                     (530)                 (345)
                                                                    --------------         ---------------
    Net cash provided by investing activities                                 421                   226
                                                                    --------------         ---------------
Cash Flows from Financing Activities:
       Proceeds from (payments on) borrowings from Parent, net             (1,749)                7,177
       Payments on capital leases                                            (221)                 (200)
                                                                    --------------         ---------------
    Net cash provided by (used in) financing activities                    (1,970)                6,977
                                                                    --------------         ---------------
Net Increase (Decrease) in Cash and Cash Equivalents                           55                   (61)

Cash and Cash Equivalents, beginning of period                                 25                    80

Cash and Cash Equivalents, end of period                            $          80           $        19
                                                                    --------------         ---------------
Supplemental Cash Flow Data:
    Cash paid during the period for-
    Interest                                                        $          52           $        23
                                                                    --------------         ---------------
    Taxes                                                           $         191           $        42
                                                                    --------------         ---------------

Supplemental Disclosures of Noncash Investing and Financing
Activities (Note 1)
</TABLE>

     THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                    -66-
<PAGE>

                          L.G. BALFOUR COMPANY, INC.

                         Notes to Financial Statements

(1)      Summary of Significant Accounting Policies

         GENERAL

         The accompanying financial statements are for L.G. Balfour Company,
         Inc. (the Company), a wholly owned subsidiary of Town & Country
         Corporation (the Parent), for the year ended February 25, 1996 and for
         the period from February 26, 1996 to December 16, 1996. The
         accompanying statement of operations for the period from February 26,
         1996 to December 16, 1996, does not include the financial impact of the
         sale of certain assets and liabilities of the Company discussed at Note
         8. Subsequent to December 16, 1996, substantially all of the normal
         operations of the Company ceased. This subsidiary is engaged in the
         production and distribution of high school and college class rings on a
         made-to-order basis. The Company markets directly to students on campus
         and at campus book stores and offers a variety of graphics products,
         including graduation announcements, diplomas and memory books, and
         novelty items, such as T-shirts, key chains and pendants. In addition,
         the Company sells licensed sports products through retail distribution
         channels.

         The Company relies on funding from the Parent to support operations.
         The Parent is in violation under its various debt agreements and has
         filed a voluntary petition for relief under Chapter 11 Title 11 of the
         Untied States Bankruptcy Code on November 18, 1997; thus, there is no
         assurance that the Parent will be able to continue to provide financial
         support to the Company. Therefore, there is substantial doubt about the
         Company's ability to continue as a going concern. The financial
         statements do not include any adjustments that might result from the
         outcome of this uncertainty.

         In addition, substantially all of the Company's assets have been
         pledged as collateral against the Parent's debt obligations.

         CASH AND CASH EQUIVALENTS

         Cash and cash equivalents include highly liquid investments with
         original maturities of three months or less; the carrying amount
         approximates fair market value because of the short-term maturities of
         these investments.

         REVENUE RECOGNITION

         Revenues from product sales are recognized at the time the product is
         shipped.

         IMPAIRMENT OF LONG-LIVED ASSETS

         In March 1995, the Financial Accounting Standards Board issued
         Statement of Financial Accounting Standards (SFAS) No. 121, ACCOUNTING
         FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
         DISPOSED OF. This statement deals with accounting for the impairment of
         long-lived assets, certain identifiable intangibles and goodwill
         related to assets to be held and used, and for long-lived assets and
         certain identifiable intangibles to be disposed of.

         SFAS No. 121 requires that long-lived assets (e.g., property and
         equipment and intangibles) be reviewed for impairment whenever events
         or changes in circumstances, such as change in market value, indicate
         that the assets' carrying amounts may not be recoverable. In performing
         the review for recoverability, if future undiscounted cash flows
         (excluding interest charges) from the use and ultimate disposition of
         the assets are less than their carrying values, an impairment loss is
         recognized. Impairment losses are to be measured based on the fair
         value of the asset.

         On February 26, 1996, the Company adopted SFAS No. 121, which did not
         have a material impact on the 

                                       -67-

<PAGE>

         Company's financial position or results of operations.

         INVENTORIES

         Inventories, which include materials, labor and manufacturing overhead,
         are stated at the lower of cost or market using the first-in, first-out
         (FIFO) method.

         The effects of gold price fluctuations are mitigated by the use of a
         consignment program with bullion dealers. As the gold selling price for
         orders is confirmed, the Company's Parent purchases the gold
         requirements at the then current market prices; any additional
         requirements for gold are held as consignee. This technique enables the
         Company to match the price it pays for gold with the price it charges
         its customers. The Company pays a fee, which is subject to periodic
         change, for the value of the gold it holds on consignment during the
         period prior to sale. For the year ended February 25, 1996, these fees
         totaled approximately $200,000, and for the period from February 26,
         1996 to December 16, 1996, these fees totaled $233,000.

         ADVERTISING

         The Company expenses the costs of advertising as incurred.  For the 
         year ended February 25, 1996 and for the period from February 26, 1996
         to December 16, 1996, advertising expense was approximately $2,465,000
         and $2,795,000, respectively.

         PROPERTY, PLANT AND EQUIPMENT

         The Company provides for depreciation, principally using the
         straight-line method, at rates adequate to depreciate the applicable
         assets (recorded at cost) over their estimated useful lives, which
         range from 3 to 20 years. Maintenance and repair items are charged to
         expense when incurred; renewals and betterments are capitalized. When
         property, plant and equipment are retired or sold, their costs and
         related accumulated depreciation are removed from the accounts, and any
         resulting gain or loss is included in income. Included in other income
         in the accompanying statement of operations for fiscal 1996 is a
         $418,000 gain associated with the sale of one of the Company's
         manufacturing facilities.

         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 periods. Actual results could differ
         from those estimates.

         INCOME TAXES

         The Company and its Parent have a tax-allocation agreement. The
         Company's results of operations are included in the consolidated
         federal tax return of the Parent. The agreement calls for the
         provisions (benefits) and payments (refunds) to be made as if the
         Company were to file its own separate company tax returns.

         AMORTIZATION OF LONG-TERM INTANGIBLE ASSETS

         The excess $5,612,000 of purchase price over the values assigned to the
         net assets acquired is being amortized using the straight-line method
         over approximately 40 years. The Company continually evaluates whether
         events and circumstances have occurred that indicate that the remaining
         estimated useful life of goodwill may warrant revision or that the
         remaining balance of goodwill may not be recoverable. When factors
         indicate that goodwill should be evaluated for possible impairment, the
         Company uses an estimate of the related business units' undiscounted
         operating income over the remaining life of the goodwill, as well as
         the sale of the Company (see Note 8), in measuring whether the goodwill
         is recoverable.

                                      -68-

<PAGE>

         SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

         During the period from February 26, 1996 to December 16, 1996, the 
         Company had fixed asset additions of approximately $58,000, funded 
         by increases in capital lease obligations.

(2)      Income Taxes

         The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>

                                                FOR THE YEAR         FOR THE PERIOD
                                                   ENDED              FROM FEBRUARY
                                                FEBRUARY 25,           26, 1996 TO
                                                    1996               DECEMBER 16,
                                                                          1996
                                              -----------------    -------------------
           <S>                                <C>                  <C>
           Current-
                    Federal                   $           -        $          -
                    State                           191,000              63,000
                                              -----------------    -------------------
                        Total Provision       $     191,000        $     63,000
                                              =================    ===================
</TABLE>

The Company's effective tax rate differs from the federal statutory rate 
of 34% for the year ended  February 25, 1996, and for the period from 
February 26, 1996 to December 16, 1996, due to the following (in thousands):

<TABLE>
<CAPTION>

                                                                                 FOR THE PERIOD
                                                          FOR THE YEAR            FROM FEBRUARY
                                                             ENDED                 26, 1996 TO
                                                          FEBRUARY 25,            DECEMBER 16,
                                                              1996                    1996
                                                       -------------------      ------------------
        <S>                                            <C>                      <C>
        Computed tax  provision (benefit)
        at statutory rate                                 $           19           $         (711)
        Increases resulting from state taxes                         191                       63
        Items not deductible for income tax purposes                  65                       32
        (Utilization) deferral of net operating losses               (84)                     679
                                                       -------------------      ------------------
                                                          $          191           $           63
                                                       ===================      ==================
</TABLE>

         For tax reporting purposes, the Company has U.S. net operating loss
         carryforwards of approximately $38.3 million as of December 16, 1996,
         subject to Internal Revenue Service (IRS) review and approval and
         certain IRS limitations on net operating loss utilization. Utilization
         of the net operating loss carryforwards is contingent on the Company's
         ability to generate income in the future. The net operating loss
         carryforwards will expire from 2006 to 2012 if not utilized.

(3)      Loss on Assets Held for Sale or Disposal

         In fiscal 1993, the Company's management decided to make changes with
         respect to certain of its operations. As a result of this decision, the
         Company recognized a pretax charge of $14.5 million in the fourth
         quarter of fiscal 1993 to reserve for the losses associated with the
         disposal of certain inventory and fixed assets, including property,
         plant and equipment of approximately $12.9 million and intangible
         assets of approximately $1.6 million no longer considered necessary to
         its future business plans. In fiscal 1996, due to a change in estimates
         for demolishing the facility, the Company reduced the recorded reserve
         by approximately $400,000, which is included as a reduction of general
         and administrative expenses in the accompanying statement of
         operations. During the period from February 26, 1996 to December 16,
         1996, the Company completed the demolition and sale of the
         manufacturing facility and reduced the recorded reserve by
         approximately $150,000, which is included as a reduction of general and
         administrative expenses in the accompanying statement of operations.

                                       -69-

<PAGE>

(4)      Commitments and Contingencies

         Certain Company facilities and equipment are leased under agreements
         expiring at various dates through 2009 (see Note 8). Lease and rental
         expense included in the accompanying statements of operations amounted
         to approximately $920,000 for the year ended February 25, 1996, and
         approximately $866,000 for the period from February 26, 1996 to
         December 16, 1996.

(5)      Reserve on Sales Representative Advances

         The Company advances funds to new sales representatives in order to
         open up new sales territories or makes payments to predecessor sales
         representatives on behalf of successor sales representatives. Such
         amounts are repaid by the sales representatives through earned
         commissions on product sales. The Company provides reserves to cover
         those amounts that it estimates to be uncollectible. The following
         represents the activity associated with the reserve on sales
         representative advances:

<TABLE>
<CAPTION>

           Valuation and Qualifying Accounts
         -----------------------------------------------------------------------------------------
                                                                            Column C
                                              Column A          Column B    Additions    Column D     Column E
                                              --------          --------    ---------    --------     --------
                                                               Balance at   Charged to               Balance at
                                                                Beginning   Costs and   Deductions--   End of
              For the Period Ended           Description        of Period    Expenses    Describe*     Period
              ---------------------          -----------      ------------  ----------  -----------  ----------
           <S>                          <C>                   <C>           <C>         <C>          <C>
                                        Reserve on Sales
           Twelve Months Ended          Representative
                February 25, 1996       Advances               $2,305,000    $ 659,900   $ 467,900   $2,497,000


           Period from February 26,     Reserve on Sales
                1996  to December 16,   Representative
                1996                    Advances               $2,497,000    $ 502,800  $ 2,255,800  $  744,000

           *REPRESENTS WRITE-OFF OF TERMINATED SALES REPRESENTATIVES AMOUNT AND FORGIVENESS OF AMOUNTS BY THE COMPANY.
</TABLE>

(6)      Employee Benefit Plans

         POSTEMPLOYMENT MEDICAL BENEFITS

         In December 1990, the Financial Accounting Standards Board issued SFAS
         No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN
         PENSIONS, which requires that the accrual method of accounting for
         certain postretirement benefits be adopted. The Company provides
         certain health care and life insurance benefits for employees who
         retired prior to December 31, 1990. The Company adopted this statement
         in fiscal 1994 and is recognizing the actuarial present value of the
         accumulated postretirement benefit obligation (APBO) of approximately
         $6.2 million at February 27, 1994 using the delayed recognition method
         over a period of 20 years (see Note 8).

                                      -70-

<PAGE>

         The net periodic  postretirement benefit costs for the year ending 
         February 25, 1996, and for the period from February 26, 1996 to 
         December 16, 1996, included the following components (in thousands):

<TABLE>
<CAPTION>

                                                                                            FOR THE PERIOD
                                                                      FOR THE YEAR          FROM FEBRUARY
                                                                         ENDED               26, 1996 TO
                                                                      FEBRUARY 25,           DECEMBER 16,
                                                                         1996                    1996
                                                                   ------------------      ----------------
        <S>                                                        <C>                     <C>
        Service costs--benefits attributed to service
                 during the period                                   $          -           $          -
        Interest cost                                                         444                    344
        Actuarial assumptions                                                   -                      -
        Amortization of unrecognized transition obligation                    323                    255
                                                                   ------------------      ----------------
                     Net periodic postretirement benefit cost        $        767           $        599
                                                                   ==================      ================
</TABLE>

         For measurement purposes, a 9% annual rate of increase in the per
         capita cost of covered health care benefits is assumed for fiscal 1996;
         the rate was assumed to decrease gradually to 6% for fiscal 2000 and
         remain at that level thereafter. The health care cost trend rate
         assumption has a significant effect on the amounts reported. To
         illustrate, increasing the assumed health care cost trend rate one
         percentage point each year would increase the APBO as of February 25,
         1996 by $380,000 or 7%, and the aggregate of the service and interest
         cost components of the net periodic postretirement benefit cost for
         fiscal 1996 by $30,000 or 4%.

         The weighted average discount rate used in determining APBO was 8.0% in
         fiscal 1996.

         Interest cost associated with the accumulated postretirement benefit
         obligation is included as a component of interest expense in the
         statements of operations.

         DEFERRED COMPENSATION

         The Company has deferred compensation agreements with certain sales
         representatives and executives, which provide for payments upon
         retirement or death based on the value of life insurance policies or
         mutual fund shares at the retirement date. The deferred compensation
         expense for the year ended February 25, 1996 was approximately $50,000,
         and for the period from February 26, 1996 to December 16, 1996 was
         approximately $79,000.

(7)      Related Party Transactions

         The Parent administers certain programs (health insurance, workmen's
         compensation, gold consignment, etc.) and charges all directly
         identifiable costs to the Company. The Parent does not charge or
         allocate any indirect costs; however, management believes these amounts
         are not significant in fiscal 1996 and for the period from February 26,
         1996 to December 16, 1996.

         The Parent charged or credited the Company interest on its advances on
         a monthly basis at a rate of 11.5% in fiscal 1996 and for the period
         from February 26, 1996 to December 16, 1996. Included in the
         accompanying statements of operations are net interest charges of
         $1,986,000 in fiscal 1996, and $1,499,000 for the period from February
         26, 1996 to December 16, 1996.

                                      -71-

<PAGE>

(8)      Sale

         The Parent, having reviewed the Company's performance, concluded that
         it would be in the best interest of the Parent's investors and
         creditors to consider opportunities to sell the Company.

         On May 20, 1996 (the Original Agreement), the Parent entered into an
         agreement to sell certain assets and liabilities of the Company (the
         Balfour Acquisition) and Gold Lance, Inc. (the Gold Lance Acquisition),
         another class ring manufacturing subsidiary of the Parent, constituting
         substantially all of the operations of the Company and Gold Lance, Inc.
         to Commemorative Brands, Inc. (CBI and formerly Class Rings, Inc. and
         Scholastic Brands, Inc.), a new company formed by Castle Harlan
         Partners II, L.P. (CHPII). The Original Agreement was amended on
         November 21, 1996 (the Modified Agreement), to exclude the Gold Lance
         Acquisition, among other things. Separately, CBI entered into an
         agreement with CJC Holdings, Inc. (CJC) to acquire its class ring and
         recognition and affinity businesses.

         On September 6, 1996, CBI, CHPII and the Parent entered into an
         Agreement Containing Consent Order (the Consent Agreement) with the
         Federal Trade Commission (the FTC). Pursuant to the Consent Agreement,
         CBI has agreed, among other things, not to acquire any assets of or
         interests in Gold Lance, Inc., which CBI had originally contracted to
         buy together with the Company. Also, pursuant to the Consent Agreement,
         the Parent and Gold Lance, Inc. agreed, among other things, not to sell
         any assets to CBI, other than pursuant to the Balfour Acquisition, or
         acquire any interest in CBI. In October 1996, the FTC, which had been
         reviewing the transaction since May 1996, gave preliminary approval to
         the Modified Agreement. Final FTC approval was received on December 26,
         1996.

         On December 16, 1996, the Parent completed the sale of certain assets
         and liabilities of the Company (the Closing). At the Closing, the
         Parent received cash equal to the purchase price of $44 million, plus
         $3.0 million in working capital adjustment from January 28, 1996 to the
         date of closing, less $14 million, which was placed in escrow pending
         final FTC approval. CBI also assumed a liability of $4.9 million
         representing the value of gold on hand as of the Closing. All of the
         $4.9 million in gold value acquired by CBI was on consignment at the
         closing date and was neither reflected as an asset or a liability on
         the Company's balance sheet. The Closing also included the assumption
         by CBI of a liability related to unamortized postretirement medical
         benefit obligations, consisting of approximately $5.2 million. This
         liability did not appear on the Company's balance sheet in the past, as
         the Company had been recognizing it on the delayed recognition method
         allowed by SFAS No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT
         BENEFITS OTHER THAN PENSIONS (see Note 6). Additionally, CBI assumed an
         operating lease obligation for a facility in Louisville, Kentucky which
         runs through August 2, 2005 at an average yearly rental cost of
         approximately $419,000 (see Note 4). On December 31, 1996, the Parent
         received the $14 million in escrowed funds. On April 25, 1997, a
         settlement was reached in which the Parent paid CBI $1.1 million to
         finalize the purchase price and resolve certain other items.

         The Closing did not include the assumption by CBI of a leased facility
         in North Attleboro, Massachusetts. On April 24, 1997 (the Lease
         Amendment Date), the lease was amended, reducing the amount of space
         and the period of time for which the Company is obligated. The
         Company's future lease obligation for this facility from the Lease
         Amendment Date is $16,806 per month from May 17, 1997 through July 31,
         1999. The previous lease required yearly payments ranging from $605,000
         to $699,000 through May 31, 2009 (see Note 4).

                                     -72-

<PAGE>

                                  EXHIBIT INDEX

The following exhibits are filed as a part of the report:

<TABLE>
<CAPTION>

Exhibit No.         Designation
-----------         -----------
<C>                 <S>
2.1(a)              Asset purchase Agreement dated as of May 20, 1996 ("ArtCarved Purchase Agreement"),
                    among the Company, CJC and CJC North America, Inc. ("CJCNA").
2.2(a)              First Amendment to the ArtCarved  Purchase  Agreement dated as of November 21, 1996,
                    among the Company, CJC and CJCNA.
2.3(a)              Letter Agreement amending the ArtCarved Purchase Agreement dated December 16, 1996,
                    among the Company, CJC and CJCNA.
2.4(a)              Amended and Restated Asset Purchase Agreement dated as of November 21, 1996
                    ("Balfour Purchase Agreement"), among the Company, Town & Country, L. G. Balfour
                    Company, Inc., and Gold Lance, Inc.
2.5(a)              Letter Agreement amending the Balfour Purchase Agreement dated December 16, 1996,
                    by and among the Company, Town & Country, L. G. Balfour Company, Inc. and Gold
                    Lance.
3.1(a)              Certificate of Incorporation of the Company, as amended.
3.2(a)              Certificate of Designations, Preferences and Rights of Series A Preferred Stock of 
                    the Company, effective December 13, 1996, together with a Certificate of Correction
                    thereof.
3.3(a)              Certificate of Designations, Preferences and Rights of Series B Preferred Stock of
                    the Company effective December 13, 1996.
3.4(a)              Restated by-laws of the Company, as amended.
3.5                 Certificate of Increase of Series B Preferred Stock dated June 10, 1998. Filed
                    herewith.
4.1(a)              Indenture dated as of December 16, 1996, between the Company and Marine Midland
                    Bank, as trustee (including the form of Note).
4.2(a)              Form of Note (Included as part of Indenture).
4.3(a)              Registration  Rights Agreement dated as of December 16, 1996, among the Company,
                    Lehman Brothers Inc. and BT Securities Corporation.
4.4                 Amended and Restated Stockholders' and Subscription Agreement, dated as of 
                    April 29, 1998, by and among the Company, CHPII, Dresdner Bank AG, Grand Cayman 
                    Branch, Offshore, John K. Castle, as Voting Trustee, and the individuals party 
                    thereto.  Filed herewith.
4.5(b)              Amended and restated 1997 Stock Option Plan of the Company.  Incorporated by 
                    reference to the corresponding Exhibit of the Company's Annual Report - Form 10K
                    (File No. 333-20759) dated August 30, 1997.
9.1                 Voting Trust Agreement, as amended and restated as of April 29, 1998, among the 
                    Company, certain stockholders of the Company party thereto and John K. Castle, as
                    Voting Trustee.  Filed herewith.
10.1(a)             Revolving Credit, Term Loan and Gold Consignment Agreement dated as of 
                    December 16, 1996, among the Company, the lending institutions listed therein and 
                    The First National Bank of Boston and Rhode Island Hospital Trust National Bank, as 
                    Agents for the Banks.
10.2(a)             Purchase Agreement dated December 10, 1996, among the Company and the Initial
                    Purchasers.
10.3(a)(b)          Employment Agreement dated as of December 16, 1996, between the Company and Jeffrey
                    H. Brennan.
10.4(a)(b)          Employment Agreement dated as of December 16, 1996, between the Company and Richard
                    H. Fritsche.
10.5(a)(b)          Employment arrangements between the Company and Balfour with respect to George Agle.
10.6(a)(b)          Form of Indemnification Agreement between the Company and (i) each director and
                    (ii) certain officers.

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<PAGE>

10.7                Management Agreement dated as of December 17, 1996, between the Company and Castle
                    Harlan, Inc. Incorporated by reference to the corresponding Exhibit of the
                    Company's Annual Report on Form 10-K (File No. 333-20759) dated August 30, 1997.
10.8                First Amendment to Revolving  Credit, Term Loan and Gold Consignment Agreement,
                    dated March 16, 1998 - incorporated  by reference to Exhibit 10.1 to the Company's
                    Quarterly Report on Form 10-Q (File No. 333-20759) dated February 28, 1998.
10.9                Second Amendment to Revolving Credit, Term Loan and Gold Consignment Agreement,
                    dated July 10, 1998 - incorporated by reference to Exhibit 10.1 to the Company's
10.10               Quarterly Report on Form 10-Q (File No. 333-20759) dated May 30, 1998.
                    Incentive Stock Purchase Plan, effective as of July 7, 1998.  Filed herewith.
10.11               Third  Amendment to Revolving Credit, Term Loan and Gold Consignment Agreement,
                    dated August 26, 1998. Filed herewith.
10.12               Revolving Credit Note, dated as of August 26, 1998, issued by the Company and
                    payable to the order of BankBoston, N.A.  Filed herewith.
10.13               Indemnity Agreement, dated August 26, 1998, by and between the Company and CHPII.
                    Filed herewith.
10.14               Fourth Amendment to Revolving Credit, Term Loan and Gold Consignment Agreement,
                    dated November 27, 1998.  Filed herewith.
11.1                Statement re: Computation of per share earnings.  Filed herewith.
27.1                Financial Data Schedule.  Filed herewith.
</TABLE>


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(a)      Incorporated by reference to the corresponding Exhibit number of the
         Company's Registration Statement on Form S-4 (Registration No.
         333-20759), dated April 11, 1997.
(b)      Management contract or compensatory plan or arrangement.

                                     -74-