-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B4bRr5J8LbCbcY4fYBD2ONG/cCr0r3In49e43TOUb6zU2YEPihxeuBVlcH4vpTjr pKd9I+yhYIZ9D/YPHQQ4cQ== 0000950152-98-009534.txt : 19981214 0000950152-98-009534.hdr.sgml : 19981214 ACCESSION NUMBER: 0000950152-98-009534 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICHAEL ANTHONY JEWELERS INC CENTRAL INDEX KEY: 0000799515 STANDARD INDUSTRIAL CLASSIFICATION: JEWELRY, PRECIOUS METAL [3911] IRS NUMBER: 132910285 STATE OF INCORPORATION: DE FISCAL YEAR END: 0128 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10645 FILM NUMBER: 98768446 BUSINESS ADDRESS: STREET 1: 115 SO MACQUESTEN PKWY CITY: MOUNT VERNON STATE: NY ZIP: 10550 BUSINESS PHONE: 9146990000 MAIL ADDRESS: STREET 1: 115 SOUTH MACQUESTEN PKWY STREET 2: 115 SOUTH MACQUESTEN PKWY CITY: MOUNT VERNON STATE: NY ZIP: 10550 10-Q 1 MICHAEL ANTHONY JEWELERS FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter ended October 31, 1998 Commission file number: 015230 MICHAEL ANTHONY JEWELERS, INC. (Exact name of registrant as specified in its charter) Delaware No. 132910285 (State of Incorporation) (I.R.S. Employer Identification No.) 115 South MacQuesten Parkway Mount Vernon, New York 10550-1724 (Address of principal executive offices) Registrant's telephone number, including area code: (914) 699-0000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- CLASS ----- Number of Shares Common Stock, Par Value $.001 Outstanding as of December 4, 1998 ---------------- 7,193,493 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES INDEX -----
PAGE ---- PART I FINANCIAL INFORMATION: ITEM 1. FINANCIAL STATEMENTS Consolidated Condensed Balance Sheets, October 31, 1998 (Unaudited) and January 31, 1998................................................................................ 3 Consolidated Condensed Statements of Operations Nine-Month Period Ended October 31, 1998 and November 1, 1997 (Unaudited) .............................................. 4 Consolidated Condensed Statement of Changes in Stockholders' Equity, Nine-Month Period Ended October 31, 1998 (Unaudited).................................................................... 5 Consolidated Condensed Statements of Cash Flows, Nine-Month Period Ended October 31, 1998 and November 1, 1997 (Unaudited)............................................... 6 Notes to Consolidated Condensed Financial Statements........................................................................................ 7-9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................................................... 10-16 PART II OTHER INFORMATION: Item 1 Through Item 6 .............................................................................. 17 Signature Page..................................................................................... 18
3 MICHAEL ANTHONY JEWELERS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
October 31, January 31, 1998 1998 ----------- ----------- (Unaudited) ASSETS - ------ CURRENT ASSETS: Cash and equivalents $ 249 $ 6,747 Accounts receivable: Trade (less allowances of $862 and $1,196, respectively) 38,263 22,234 Other 237 40 Inventories 15,735 12,913 Income tax refundable 742 1,667 Prepaid expenses and other current assets 1,433 1,640 Deferred taxes 720 720 -------- -------- Total current assets 57,379 45,961 PROPERTY, PLANT AND EQUIPMENT - net 17,129 18,045 INTANGIBLES - net 434 584 OTHER ASSETS 654 1,054 -------- -------- $ 75,596 $ 65,644 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Accounts payable - trade $ 4,612 $ 2,870 Notes payable 8,500 - Current portion of long-term debt and lease liability 2,382 1,446 Accrued expenses 6,228 4,385 -------- -------- Total current liabilities 21,722 8,701 -------- -------- LONG-TERM DEBT 10,417 12,617 -------- -------- CAPITAL LEASE LIABILITY 19 119 -------- -------- DEFERRED TAXES 818 818 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock - par value $1.00 per share; 1,000,000 shares authorized; none issued - - Common stock - par value $.001 per share; 20,000,000 shares authorized; 8,282,000 shares issued and outstanding 8 8 Additional paid-in capital 31,747 31,747 Retained earnings 14,675 13,484 Treasury stock, 1,342,000 and 578,000 shares as of October 31, 1998 and January 31, 1998, respectively (3,810) (1,850) -------- -------- Total stockholders' equity 42,620 43,389 -------- -------- $ 75,596 $ 65,644 ======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements. -3- 4 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Three Months Ended Nine Months Ended ----------------------------- ----------------------------- October 31, November 1, October 31, November 1, 1998 1997 1998 1997 ----------- ----------- ----------- ----------- NET SALES $ 43,758 $ 41,753 $ 101,102 $ 91,977 COST OF GOODS SOLD 34,373 33,193 79,461 74,704 --------- --------- --------- --------- GROSS PROFIT ON SALES 9,385 8,560 21,641 17,273 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,949 6,233 18,323 17,330 --------- --------- --------- --------- OPERATING INCOME/(LOSS) 2,436 2,327 3,318 (57) OTHER INCOME/(EXPENSES): Gold consignment fee (344) (378) (846) (985) Interest expense (283) (363) (826) (1,048) Interest income 52 31 211 269 Other income 31 19 64 686 --------- --------- --------- --------- Total Other (Expense)/Income (544) (691) (1,397) (1,078) --------- --------- --------- --------- INCOME/(LOSS) BEFORE INCOME TAXES 1,892 1,636 1,921 (1,135) INCOME TAX PROVISION/(BENEFIT) 719 650 730 (431) --------- --------- --------- --------- NET INCOME/(LOSS) $ 1,173 $ 986 $ 1,191 $ (704) ========= ========= ========= ========= EARNINGS/(LOSS) PER SHARE - BASIC AND DILUTED $ 0.17 $ 0.13 $ 0.17 $ (.09) ========= ========= ========= ========= WEIGHTED AVERAGE NUMBER OF SHARES 6,984 7,706 7,190 7,758 ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated condensed financial statements. -4- 5 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS)
Common Stock Additional Treasury Stock ---------------------- Paid-In Retained ----------------------- Shares Dollars Capital Earnings Shares Dollars Total -------- -------- -------- -------- -------- -------- -------- Balance - January 31, 1998 8,282 $ 8 $ 31,747 $ 13,484 (578) $ (1,850) $ 43,389 Purchase of treasury stock - - - - (764) (1,960) (1,960) Net income - - - 1,191 - - 1,191 -------- -------- -------- -------- -------- -------- -------- Balance - October 31, 1998 8,282 $ 8 $ 31,747 $ 14,675 (1,342) $ (3,810) $ 42,620 ======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements. -5- 6 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Nine Months Ended ---------------------------- October 31, November 1, 1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income/(loss) $ 1,191 $ (704) Adjustments to reconcile net income/(loss) to net cash used in operating activities: Depreciation and amortization 2,674 2,896 Provision for accounts receivable 111 132 Provision for sales returns - (268) Asset write-off - 259 (Increase)/decrease in operating assets: Accounts receivable (16,337) (15,236) Inventories (2,822) (972) Prepaid expenses and other current assets 1,132 (330) Other assets 400 19 Increase in operating liabilities: Accounts payable 1,742 15 Accrued expenses 1,843 1,250 -------- -------- Net cash used in operating activities (10,066) (12,939) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment - net (1,608) (3,669) -------- -------- Net cash used in investing activities (1,608) (3,669) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt and capital lease liabilities (1,364) (1,666) Purchase of treasury stock (1,960) (1,056) Proceeds from line of credit 8,500 8,900 -------- -------- Net cash provided by financing activities 5,176 6,178 -------- -------- DECREASE IN CASH AND EQUIVALENTS (6,498) (10,430) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 6,747 10,430 -------- -------- CASH AND EQUIVALENTS AT END OF PERIOD $ 249 $ 0 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest and gold consignment fees $ 1,758 $ 1,956 Taxes $ 185 $ 67
The accompanying notes are an integral part of these consolidated condensed financial statements. -6- 7 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES FORM 10-Q FOR QUARTER ENDED OCTOBER 31, 1998 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (INFORMATION SUBSEQUENT TO JANUARY 31, 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ The unaudited interim consolidated condensed balance sheet as of October 31, 1998 and the unaudited consolidated condensed statements of operations for the nine months ended October 31, 1998 and November 1, 1997, the unaudited consolidated statement of changes in stockholders' equity for the nine months ended October 31, 1998, and the unaudited consolidated condensed statements of cash flows for the nine months ended October 31, 1998 and November 1, 1997, and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying unaudited interim consolidated condensed financial statements and related notes should be read in conjunction with the financial statements and related notes included in the 1998 Annual Report to Stockholders of Michael Anthony Jewelers, Inc. (the "Company"). The information furnished reflects, in the opinion of the management of the Company, all adjustments, consisting of normal recurring accruals, which are necessary to present a fair statement of the results for the interim periods presented. The interim figures are not necessarily indicative of the results to be expected for the fiscal year due to the seasonal nature of the business. Earnings Per Share ------------------ During fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share", ("SFAS 128"), which requires presentation of basic and diluted earnings per share ("EPS") on the face of the consolidated statements of operations and requires a reconciliation of the numerators and denominators of the basic and diluted EPS calculations. Basic EPS is computed by dividing net income by the weighted average shares outstanding for the period. Earnings per share for all periods presented were computed on a basic basis using the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if options to issue common stock were exercised and converted to common stock. Options and warrants outstanding were not materially dilutive. Earnings per share for prior periods have been computed in accordance with SFAS 128. -7- 8 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES FORM 10-Q FOR QUARTER ENDED OCTOBER 31, 1998 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (INFORMATION SUBSEQUENT TO JANUARY 31, 1998 IS UNAUDITED) 2. PRODUCT PRICING --------------- The Company's products, the principal component of which is gold, are generally sold at prices which are based on the market price of gold on the date merchandise is shipped to the customer. Therefore, the Company's sales volume is significantly influenced by the market price of gold. The selling prices for certain customers may be fixed for a specific period of time. In such cases, the Company is able to shift a substantial portion of the risks of gold price fluctuation by hedging against changes in the price of gold by entering into forward contracts or purchasing futures or options on futures. The Company's consigned gold inventory is hedged against the effects of price fluctuations. The Company has entered into arrangements with certain gold lenders (the "Gold Lenders") pursuant to which the Company does not purchase gold from the Gold Lenders until receipt of a purchase order from, or shipment of jewelry to, its customers. These arrangements permit the Company to match the sales price of the product with the price the Company pays for the gold. The average price of gold in the current quarter was $299 per ounce as compared to $327 per ounce for the quarter ended November 1, 1997. 3. INVENTORIES ----------- Inventories consist of:
October 31, January 31, 1998 1998 ------- ------- (Unaudited) (In thousands) Finished goods $35,650 $27,691 Work in process 20,648 13,335 Raw materials 6,459 5,095 ------- ------- 62,757 46,121 Less: Consigned gold 47,022 33,208 ------- ------- $15,735 $12,913 ======= =======
Inventories as of October 31, 1998 and January 31, 1998 excluded approximately 159,800 and 108,900 ounces of gold on consignment, respectively. -8- 9 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES FORM 10-Q FOR QUARTER ENDED OCTOBER 31, 1998 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (INFORMATION SUBSEQUENT TO JANUARY 31, 1998 IS UNAUDITED) 4. STOCK REPURCHASE PROGRAM ------------------------ In December 1995, the Company announced a Common Stock repurchase program pursuant to which the Company may repurchase up to 750,000 shares of Common Stock. On April 4, 1997, the Board of Directors authorized an increase of an additional 500,000 shares of Common Stock that the Company may repurchase under the Stock Repurchase Plan. On May 26, 1998, the Board of Directors authorized an increase of up to an additional 1,000,000 shares of common stock that the Company may repurchase under the Stock Repurchase Plan. As of December 4, 1998, the Company had purchased a total of 1,392,000 shares on the open market for an aggregate of approximately $3,960,000. -9- 10 ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (INFORMATION SUBSEQUENT TO JANUARY 31, 1998 IS UNAUDITED) RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED - ------------------------------------------------ OCTOBER 31, 1998 AND NOVEMBER 1, 1997 - ------------------------------------- Net sales for the three months ended October 31, 1998 were approximately $43,758,000, an increase of 5% from net sales of approximately $41,753,000 for the comparable period last year. Had it not been for the decrease in the average gold price, $299 versus last year's $327 an ounce, net sales would have increased $5,878,000 or 14%. Gross profit margin increased to approximately 21.5% of net sales for the third quarter ended October 31, 1998, compared to approximately 20.5% for the comparable period last year. The increase in the gross profit margin as compared to the prior year was primarily due to the change in the lower average gold price as well as a change in the customer and product mix. Selling, general and administrative expenses for the three months ended October 31, 1998 were approximately $6,949,000, an increase of $716,000 or 11% from approximately $6,233,000 for the comparable period last year. The increase is primarily attributable to increases in (i) advertising related expenses, (ii) payroll and payroll related expenses and (iii) product and packaging supplies. These increases were primarily due to the Company's increased sales volume. These increases were partially offset by a decrease in royalty and licensing fees. As a percentage of net sales, adjusted for the gold price difference, selling and shipping expenses decreased to 14.6% for the three months ended October 31, 1998 from 14.9% for the comparable period of the prior year. Other expenses for the three months ended October 31, 1998 were approximately $544,000 a decrease of $147,000, compared to approximately $691,000 for the comparable period last year. Interest expense decreased $80,000 due to the Company's principal payments on its long term debt. Gold consignment fees decreased $34,000 primarily due to both a lower average gold price and lower inventory consignment levels. As a result of the above factors the Company had net income for the three months ended October 31, 1998 of approximately $1,173,000 or $.17 per share on 6,984,000 weighted average shares outstanding, compared to $986,000 or $.13 per share on 7,706,000 weighted average shares outstanding for the comparable period last year. -10- 11 ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (INFORMATION SUBSEQUENT TO JANUARY 31, 1998 IS UNAUDITED) RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED - ----------------------------------------------- OCTOBER 31, 1998 AND NOVEMBER 1, 1997 - ------------------------------------- Net sales for the nine months ended October 31, 1998 were approximately $101,102,000, an increase of 10% from net sales of approximately $91,977,000 for the comparable period last year. Had it not been for the decrease in the average gold price, $301 versus last year's $341 an ounce, net sales would have increased $17,044,000 or 19%. Gross profit margin increased to approximately 21.4% of net sales for the nine months ended October 31, 1998, compared to approximately 18.8% for the comparable period last year. The increase in the gross profit margin as compared to the prior year was primarily due to the change in the lower average gold price as well as a change in the customer and product mix. Selling, general and administrative expenses for the nine months ended October 31, 1998 were approximately $18,323,000, an increase of $993,000 or 6% from approximately $17,330,000 for the comparable period last year. The increase is primarily attributable to increases in (i) advertising related expenses, (ii) payroll and payroll related expenses and (iii) product and packaging supplies. These increases were primarily due to the Company's increased sales volume. The increases were partially offset by decreases in (i) royalty and licensing fees, (ii) costs related to a terminated merger negotiation in the nine months ended November 1, 1997 and (iii) software development costs. As a percentage of net sales, adjusted for the gold price difference, general and administrative expenses decreased to 16.8% for the nine months ended October 31, 1998 from, 18.8% for the comparable period of the prior year. Other income and interest income for the nine months ended October 31, 1998 was approximately $275,000, a decrease of $680,000 compared to approximately $955,000 for the comparable period last year. The decrease was primarily due to a gain of $625,000 on the Company's sale of certain assets in May 1997. Other expenses for the nine months ended October 31, 1998 were approximately $1,672,000, a decrease of $361,000 or 18% compared to approximately $2,033,000 for the comparable period last year. Interest expense decreased $222,000 due to the Company's principal payments on its long term debt. Gold consignment fees decreased $139,000 primarily due both a lower average gold price and lower inventory consignment levels. As a result of the above factors the Company had net income for the nine months ended October 31, 1998 of approximately $1,191,000 or $.17 per share on 7,190,000 weighted average shares outstanding, compared to a net loss of $704,000 or $.09 per share on 7,758,000 weighted average shares outstanding for the comparable period last year. -11- 12 ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (INFORMATION SUBSEQUENT TO JANUARY 31, 1998 IS UNAUDITED) Liquidity and Capital Resources - ------------------------------- The Company relies on a gold consignment program, short-term and long-term borrowings and internally generated funds to finance its operations. The Company fills most of its gold supply needs through gold consignment arrangements with the Gold Lenders. Under the terms of those arrangements, the Company is entitled to lease the lesser of (i) an aggregate of 166,000 ounces of fine gold or (ii) consigned gold with an aggregate value equal to $64,750,000. On October 23, 1998, the Company added a new gold lender which increased the aggregate ounces of fine gold available to 191,000 ounces with an aggregate value of $73,500,000. The consigned gold is secured by certain property of the Company including inventory and machinery and equipment. The Company pays the Gold Lenders a consignment fee based on the dollar value of ounces of gold outstanding under their respective agreements, which value is based on the daily Second London Gold Fix. The Company believes that its financing rate under the consignment arrangements is substantially similar to the financing rates charged to gold consignees similarly situated to the Company. As of October 31, 1998, the Company held 159,800 ounces of gold on consignment with a market value of $47,022,000. The consignment agreements contain certain restrictive covenants relating to net worth, working capital and other financial ratios and each of the agreements requires the Company to own a specific amount of gold at all times. At October 31, 1998, the Company was in compliance with the covenants in its consignment agreements and the Company's owned gold inventory was valued at approximately $5,373,000. Management believes that the supply of gold available through the Company's gold consignment arrangements, in conjunction with the Company's owned gold, is sufficient to meet the Company's requirements. The consignment agreements are terminable by the Company or the respective Gold Lenders upon 30 days notice. If any Gold Lender were to terminate its existing gold consignment arrangement, the Company does not believe it would experience an interruption of its gold supply that would materially adversely affect its business. The Company believes that other consignors would be willing to enter into similar arrangements if any Gold Lender terminates its relationship with the Company. Consigned gold is not included in the Company's inventory, and there is no related liability recorded. As a result of these consignment arrangements, the Company is able to shift a substantial portion of the risk of market fluctuations in the price of gold to the Gold Lenders, since the Company does not purchase gold from the Gold Lenders until receipt of a purchase order from, or shipment of jewelry to, its customers. The Company then either locks in the selling price of the jewelry to its customers concurrently with the required purchase of gold from the Gold Lenders or hedges against changes in the price of gold by entering into forward contracts or purchasing futures or options on futures that are listed on the COMEX. -12- 13 ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (INFORMATION SUBSEQUENT TO JANUARY 31, 1998 IS UNAUDITED) Liquidity and Capital Resources (Continued) - ------------------------------- While the Company believes its supply of gold is relatively secure, significant increases or rapid fluctuations in the cost of gold may result in reduced demand for the Company's products. From January 31, 1998 until October 31, 1998, the closing price of gold according to the Second London Gold Fix ranged from a low of $274 per ounce to a high of nearly $313 per ounce. There can be no assurances that fluctuations in the precious metals and credit markets would not result in an interruption of the Company's gold supply or the credit arrangements necessary to allow the Company to support its accounts receivable and continue the use of consigned gold. In 1992, the Company issued $10,000,000 principal amount of senior secured notes with various insurance companies, which accrue interest at 8.61% per annum. In February 1995, the Company issued an additional $6,000,000 principal amount of senior secured notes with various insurance companies, which currently accrue interest at 8.19% per annum. The various insurance company lenders are collectively referred to as the "Senior Note Holders". These notes are secured by the Company's accounts receivable, machinery and equipment, inventory (secondary lien to the Gold Lenders) and proceeds. In addition, the note purchase agreements contain certain restrictive financial covenants and restrict the payment of dividends. At October 31, 1998, the Company was in compliance with the covenants and $10,444,000 of principal remained outstanding under the notes issued in 1992 and 1995. In October 1995, the Company obtained a loan from a bank in the amount of $2,500,000. As collateral for the loan, the Company granted the bank a first mortgage on the Company's corporate headquarters. The mortgage has a ten-year term and interest on the mortgage accrues at 8% per annum. In addition, the mortgage contains certain restrictive financial covenants. At October 31, 1998, the Company was in compliance with the covenants and $2,201,000 of principal remained outstanding under the mortgage. The Company has a line of credit arrangement with a commercial bank (the "Line of Credit"), under which the Company may borrow up to $15,000,000. The Line of Credit is secured by certain assets of the Company, including accounts receivable and inventory. As of October 31, 1998, there was a total of $13,500,000 outstanding under the Line of Credit, comprised of $8,500,000 outstanding under the Line of Credit and $5,000,000 outstanding under a Letter of Credit, due to seasonal borrowings. The Line of Credit currently expires on July 31, 1999, subject to annual renewal. As of December 4, 1998, there was $9,000,000 outstanding under the Line of Credit and no amount outstanding under the Letter of Credit. During the nine months ended October 31, 1998, the Company used $10,066,000 of cash from operations. The decrease is primarily due to the decreased levels of accounts receivable and inventory which were partially offset by an increase in accounts payable and accrued expenses. During the comparable period of the prior year, the Company used $12,939,000 of cash from operations, primarily due to higher inventory levels and increased prepaid expenses. -13- 14 ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (INFORMATION SUBSEQUENT TO JANUARY 31, 1998 IS UNAUDITED) Liquidity and Capital Resources (Continued) - ------------------------------- Cash of $1,608,000 was used for investing activities as compared to $3,669,000 used during the comparable nine-month period last year. The decrease is primarily due to the Company's decreased purchases of machinery and equipment. Cash of $5,176,000 was provided by financing activities during the nine-month period, compared to $6,178,000 used for the comparable period of the prior year. For the balance of fiscal 1999, the Company projects capital expenditures of approximately $400,000. The Company believes that its long-term debt and existing lines of credit provide sufficient funding for the Company's operations. In the event that the Company requires additional financing during fiscal 1999, it will be necessary to fund this requirement through expanded credit facilities with its existing or other lenders. The Company believes that such additional financing can be arranged. The Company currently is in discussion with a new lender to refinance its long term debt on terms more favorable to the Company than those with the Senior Note Holders. It is expected that such refinancing would close in January 1999. Year 2000 Compliance - -------------------- In 1997 the Company developed, as a strategic corporate goal, a project plan to address the Year 2000 issue and is making progress against that plan as reported monthly to the Company's Executive Management Committee. The project is staffed primarily with members of the Information Systems (IS) Department for coding, and outside consultants are used on an as-needed basis. Most Year 2000 efforts are being made through the use of internal resources or routine software upgrades provided by the Company's software vendors. The Company anticipates maintaining its business application system hardware platform (primarily IBM AS/400's) but replacing or upgrading all affected software. Management expects that the Company will be fully Year 2000 compliant no later than August 1999. Total expenditures related to remediation, testing, conversion and updating system applications are expected to be approximately $310,000 of which approximately $145,000 has been expensed through October 31, 1998. The cost of the Year 2000 project is being expensed as incurred and is not expected to have a material adverse affect on the Company's results of operations, liquidity or capital resources. -14- 15 ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (INFORMATION SUBSEQUENT TO JANUARY 31, 1998 IS UNAUDITED) Year 2000 Compliance (Continued) - -------------------- The costs of the project and the date on which the Company plans to complete the Year 2000 compliance program are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from these estimates. 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. Should the Company have a significant business application systems failure or not complete its Year 2000 project, computer related failures in a number of areas including, but not limited to, the failure of the Company's telecommunications, financial, manufacturing or distribution systems could result. The Company believes that the most significant impact would be a short delay in receiving gold shipments or shipping customer orders. The Company does not expect any material impact to operations or financial result from any minor delay. The Company has recently begun examining its relationship with certain key customers and suppliers with whom it has significant business relationships to determine, to the extent practical, the degree that such parties' principal business application systems are Year 2000 compliant or their plans to attain Year 2000 readiness. To the extent the Company's key customers are not Year 2000 compliant before the end of 1999, such customers may lose EDI capabilities in January 2000. If EDI communications are no longer possible, the Company expects to use voice, facsimile, e-mail, or traditional mail communications in order to receive customer orders and process customer invoices. In addition, the Company has implemented a program to determine the Year 2000 compliance status of its material vendors, suppliers, service providers and customers, and based on currently available information does not anticipate any material impact to the Company based on the failure of such third parties to be Year 2000 compliant. However, the process of evaluating the Year 2000 compliance status of material third parties is continually ongoing and, therefore, no guaranty or warranty can be made as to such third parties' future compliance status and its potential effect on the Company. There can be no assurances that the systems of other companies on which the Company's systems rely will also be converted in a timely fashion, or that any such failure would not have an adverse effect on the Company's operations. The predictions are based on Management's reasonable expectations, however, there can be no assurance that these estimates will be achieved. External Year 2000 readiness estimates are subject to greater uncertainty, as the results are outside the direct control of Management. -15- 16 ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (INFORMATION SUBSEQUENT TO JANUARY 31, 1998 IS UNAUDITED) Forward Looking Statements - -------------------------- This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include the words "believe," "expect," "plans" or similar words and are based in part on the Company's reasonable expectations and are subject to a number of factors and risks, many of which are beyond the Company's control. Actual results could differ materially from those discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Year 2000 Compliance" as a result of any of the following factors: i) general economic conditions and their impact on the retail sales environment; ii) fluctuations in the price of gold and other metals used to manufacture the Company's jewelry; iii) risks related to the concentration of the Company's customers, particularly the operations of any of its top customers; iv) increased competition from outside the United States where labor costs are substantially lower; v) variability of customer requirements and the nature of customers' commitments on projections and orders; and vi) the extent to which the Company is able to retain and attract key personnel. In light of these uncertainties and risks, there can be no assurance that the forward-looking statements in this Quarterly Report on Form 10-Q will occur or continue in the future. Except for its required, periodic filings under the Securities Exchange Act of 1934, the Company undertakes no obligations to release publicly any revisions to these forward looking statements that may reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. New Accounting Standards - ------------------------ In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, which will be effective for fiscal years beginning after December 15, 1997. SFAS No. 131 redefines how operating segments are determined and requires expanded quantitative and qualitative disclosures relating to a company's operating segments. The Company anticipates that the adoption of SFAS No. 131 will not have a material impact on current disclosures. -16- 17 ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (INFORMATION SUBSEQUENT TO JANUARY 31, 1998 IS UNAUDITED) New Accounting Standards (Continued) - ------------------------ The Financial Accounting Standards Board issued SFAS No. 132, "Employer's Disclosure about Pensions and Other Post Retirement Benefits" which will be effective for the 1999 financial statements. SFAS No. 132 will require new disclosures related to any changes in the defined contribution plan, including a description of the nature and effect of any significant changes during the year affecting comparability, such as a change in the rate of employer contributions, a business combination, or divestiture. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which will be effective for fiscal years beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging periods. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company has not analyzed the effect of adopting the statement. -17- 18 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1 through Item 4 Not applicable. Item 6. (a) Exhibits -------- 10.1 Consignment Agreement dated as of October 23, 1998 between Registrant and Paribas 10.2 Fifth Amendment to Amended and Restated Security Agreement dated as of October 23, 1998 between Registrant, the Gold Lenders and BankBoston 10.3 Sixth Amendment to Amended and Restated Intercreditor Agreement dated as of October 23, 1998 among the Registrant, its Gold Lenders, the Insurance Companies and Chase Bank 27 Financial Data Schedule (b) Reports on Form 8-K ------------------- Not applicable. -18- 19 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MICHAEL ANTHONY JEWELERS, INC. Dated: December 4, 1998 By: /s/ Allan Corn ----------------------------------- Allan Corn Senior Vice President and Chief Financial Officer -19- 20 EXHIBIT INDEX TO FORM 10-Q FOR QUARTER ENDED OCTOBER 31, 1998
Exhibit No. Page No. ----------- -------- 10.1 Consignment Agreement dated as of October 23, 1998 between 21 Registrant and Paribas 10.2 Fifth Amendment to Amended and Restated Security Agreement 45 dated as of October 23, 1998 between Registrant, the Gold Lenders and BankBoston 10.3 Sixth Amendment to Amended and Restated Intercreditor 50 Agreement dated as of Octber 23, 1998 among the Registrant, its Gold Lenders, the Insurance Lenders and Chase Bank 27 Financial Data Schedule 58
-20- EX-10.1 2 EXHIBIT 10.1 1 Exhibit 10.1 EXECUTION COPY -------------- CONSIGNMENT AGREEMENT CONSIGNMENT AGREEMENT ("AGREEMENT") made as of October 23, 1998, by and between PARIBAS, with its principal office at 787 Seventh Avenue, New York, New York 10019 ("CONSIGNOR"), and MICHAEL ANTHONY JEWELERS, INC., a Delaware corporation with its principal off ice at 115 South MacQuesten Parkway, Mount Vernon, New York 10550 ("CONSIGNEE"). Consignee has requested Consignor to deliver Precious Metal (as defined herein) on consignment for sale to Consignee. To effectuate this arrangement, Consignor and Consignee agree that the Consignment Agreement governing this arrangement is stated as follows: 1. DEFINITIONS. ------------ For the purposes of this Agreement: "ABN" shall mean ABN AMRO Bank, N.V., New York Branch and any legal successor in interest thereto. "BASE RATE" shall mean the higher of (i) the prime commercial lending rate announced from time to time by The Chase Manhattan Bank, or (ii) the rate quoted by The Chase Manhattan Bank at approximately 11:00 am, New York City time, to dealers in the New York Federal Funds Market for the overnight offering of dollars by The Chase Manhattan Bank for deposit, plus one-half of one percent (0.50%). "CONSIGNEE'S COUNSEL" shall mean M. Frances Durden, Esq., General Counsel and Senior Vice President of the Consignee. "CONSIGNED PRECIOUS METAL" shall mean Precious Metal which Consignor has consigned to Consignee pursuant to the terms of this Agreement for which payment has not been received or which has not been Redelivered to Consignor. "CONSIGNMENT FEES" shall mean the outstanding total of fees agreed to (based on specified quantities and time periods) by Duly Authorized Officers of both parties at the time of each Delivery of consigned Precious Metal. "CONSIGNMENT LIMIT" shall mean the lesser of (a) 25,000 troy ounces of fine gold, or (b) Consigned Precious Metal with a Fair Market Value (or unpaid Purchase Price in the case of Consigned Precious Metal for which the Purchase Price has been agreed but payment has not been received by Consignor) equal to $8,750,000. 1 2 "CS" shall mean Credit Suisse, New York Branch, and any legal successor in interest thereto. "CURRENT LIABILITIES" shall mean, at any date as of which the amount thereof shall be determined, all amounts that should, in accordance with generally accepted accounting principles, be included as current liabilities on the balance sheet of Consignee as at such date, plus, to the extent not already included therein, all Indebtedness that is payable upon demand or within one (1) year from the date of determination thereof unless such Indebtedness is renewable or extendable at the option of Consignee to a date more than one (1) year from the date of determination. "DELIVER" or "DELIVERY" shall mean either actual shipment, creating the right in Consignee to demand actual shipment through a writing, instrument or a statement of account, or consignor's crediting Precious Metal to the account of Consignee with one or more third parties when no physical movement thereof is contemplated by the parties. "DULY AUTHORIZED OFFICER" shall mean, with respect to the Consignee, the President of Consignee, or other officer or employee who is authorized by the Board of Directors or an executive committee of such Board of Directors and with respect to the Consignor, any vice president or other officer or employee who is authorized to act in such capacity. "ENVIRONMENTAL REQUIREMENT(S)" shall mean any present or future law, statute, ordinance, rule, regulation, order, code, license, permit, decree, judgment, directive or the equivalent of or by any Governmental Authority and relating to or addressing the protection of human health or the environment. "EQUITY PRECIOUS METAL" shall Precious Metal (a) owned outright by the Consignee subject only to security interests permitted hereunder, and (b) not delivered to the Consignee pursuant to a "consignment", "lease", "loan", "conditional sale" or other similar arrangement. "EVENT OF DEFAULT" shall mean an Event of Default under Section 13 of this Agreement. "FAIR MARKET VALUE" on any day shall mean the Second London Gold Fixing for that day. If no such price is available for a particular day, the Fair Market Value for such day shall be the price for the immediately preceding day for which such price is available. "FINANCIAL STATEMENTS" shall mean the balance sheet, income statement, statement of cash flows and stockholder's equity statement of Consignee for the year or other period then ended, together with supporting schedules, certified (without qualification) by Deloitte & Touche or other independent public accountants approved by Consignor and prepared in accordance with generally accepted accounting principles consistently applied. "FPM" shall mean Fleet Precious Metals, Inc. and any legal successor in interest thereto. 2 3 "GOVERNMENTAL AUTHORITY" shall mean the United States government, any state or other political subdivision thereof, any agency, court or body of the United States government, any state or other political subdivision thereof, or any quasi-governmental agency or authority exercising executive, legislative, judicial, regulatory or administrative functions. "GUARANTEES" shall mean, as applied to Consignee, all guarantees, endorsements or other contingent or surety obligations with respect to obligations of others whether or not reflected on the balance sheet of Consignee, including any obligation to furnish funds, directly or indirectly (whether by virtue of Partnership arrangements, by agreement to keep-well or otherwise), through the purchase of goods, supplies or services, or by way of stock purchase, capital contribution, advance or loan, or to enter into a contract for any of the foregoing, for the purpose of payment of obligations of any other person or entity. "HAZARDOUS MATERIAL" shall mean any material or substance (i) which, whether by its nature or use, is now or hereafter defined as a hazardous waste, hazardous substance, pollutant or contaminant under any Environmental Requirement, (ii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous to human health or the environment, (iii) which is or contains petroleum or any fraction thereof, including crude oil, heating oil, gasoline or diesel fuel, or (iv) the presence of which requires investigation or remediation under any Environmental Requirement. "INDEBTEDNESS" shall mean, as applied to Consignee, (i) all obligations for borrowed money or other extensions of credit whether or not secured or unsecured, absolute or contingent, including, without limitation, unmatured reimbursement obligations with respect to letters of credit or guarantees issued for the account of or on behalf of Consignee and all obligations representing the deferred purchase price of property, other than accounts payable arising in the ordinary course of business, (ii) all obligations evidenced by bonds, notes, debentures or other similar instruments, (iii) all obligations secured by any mortgage, pledge, security interest or other lien on property owned or acquired by Consignee whether or not the obligations secured thereby shall have been assumed, including but not limited to obligations to the Second Insurance Companies and the Third Insurance Companies, (iv) that portion of all obligations arising under capital leases that is required to be capitalized on the balance sheet of Consignee, (y) all Guarantees, (vi) all obligations with respect to Precious Metal leased or consigned to Consignee, including but not limited to obligations pursuant to this Agreement, and (vii) all obligations that are immediately due and payable out of the proceeds of or production from property now or hereafter owned or acquired by Consignee. "NOTICE" or "NOTICEs" shall mean all requests, demands and other communications, in writing (including telegraphic and telecopy communications), sent by registered or certified mail, return receipt requested, overnight delivery service, telegraph, facsimile transmission or hand-delivery to the other party at that party's Principal Office. 3 4 "PRECIOUS METAL" shall mean gold having a fineness of not less than .9995 without regard to whether such gold is alloyed or unalloyed, in billion form, or is contained in or processed into other materials which contain elements other than gold. "PRINCIPAL OFFICE" shall mean: For Consignor: Paribas 787 Seventh Avenue New York, New York 10019 Attention: Amy N. Kirschner, Vice President Fax Number: 212-841-2146 For Consignee: Michael Anthony Jewelers, Inc. 115 South MacQuesten Parkway Mount Vernon, New York 10550 Attention: Michael A. Paolercio, Senior Vice President and Treasurer Fax Number: 914-699-2335 "PURCHASE PRICE" shall mean a price to which both parties' Duly Authorized Officers agree and shall be stated in dollars per troy ounce of Precious Metal content. "REDELIVER" or "REDELIVERY" shall mean that Consignee deliver to Consignor's Principal office or as otherwise directed by Consignor, at Consignee's sole risk and expense, Precious Metal of a fineness equal to the fineness specified for that Precious Metal and of a type and quality and in a form acceptable to Consignor. "SECOND INSURANCE COMPANIES" shall mean the companies defined as such in Subsection 13(m). "SECURITY AGREEMENT" shall mean that certain Amended and Restated Security Agreement dated as of August 20, 1993, as amended by amendments thereto dated as of May 16, 1994, September 1, 1994, January 15, 1995, October 20, 1995 and October 23, 1998 among Consignee, as debtor, FPM as agent and secured party and ABN, CS and the Consignor, as secured parties. 4 5 "TANGIBLE NET WORTH" shall mean, at any date as of which the amount thereof shall be determined, the total assets of Consignee MINUS (i) the sum of any amounts attributable to (a) goodwill, (b) intangible items such as unamortized debt discount and expense, patents, trade and service marks and names, customer lists, copyrights and research and development expenses except prepaid expenses, (c) all reserves not already deducted from assets,(d) the value of any minority interests in any subsidiaries and (e) amounts and loans due from affiliates and/or officers of Consignee, and (ii) Total Liabilities. "THIRD INSURANCE COMPANIES" shall mean the companies defined as such in Subsection 13(m). "TOTAL LIABILITIES" shall mean, at any date as of which the amount thereof shall be determined, all obligations that should, in accordance with generally accepted accounting principles consistently applied, be classified as liabilities on the balance sheet of Consignee, including in any event all Indebtedness as shown on the balance sheet of Consignee. "WORKING CAPITAL" shall mean the excess of Consignee's current assets, computed in accordance with generally accepted accounting principles consistently applied, over the sum of Current Liabilities PLUS long-term Indebtedness secured by current assets (including, but not limited to, obligations of Consignee to the Second Insurance Companies and the Third Insurance Companies). 2. AMOUNT OF CONSIGNMENT. ---------------------- Provided (i) no Notice of election to terminate this Agreement (as provided in Section 14 hereof) has been given by either party and (ii) no Event of Default nor any event which with notice or lapse of time, or both, would constitute an Event of Default has occurred hereunder, Consignor will Deliver from time to time to Consignee upon its request Precious Metal under the terms and conditions of this Agreement. In no event will Consignor be obligated to deliver Precious Metal if the aggregate amount of troy ounces or Fair Market Value of Precious Metal requested when added to Consigned Precious Metal exceeds Consignee's Consignment Limit. Consignee acknowledges and confirms that, notwithstanding any other provision of this Agreement, upon its receipt of thirty (30) days' prior written Notice from the Consignor to the Consignee, which may be delivered at any time in the Consignor's sole discretion, THEN: (a) Consignor shall have no further obligation to deliver Precious Metal to Consignee; (b) any request made by Consignee thereafter for a Delivery of Precious Metal shall be reviewed by Consignor on a case-by-case basis; (c) the decision to make any subsequent Delivery shall be made by the Consignor thereafter in its sole and absolute discretion and irrespective of whether Consignee is in compliance with the requirements of this Agreement; and (d) thereafter Consignor shall have no commitment to Consignee to make any Delivery of Precious Metal to Consignee. The foregoing Notice requirement shall be a right of the Consignor in addition to, and shall not be deemed to otherwise modify or limit, the rights of the Consignor to terminate this Agreement pursuant to the terms of Section 14 hereof. 5 6 If for any reason the number of troy ounces or Fair Market value (or unpaid Purchase Price in the case of Consigned Precious Metal for which the Purchase Price has been agreed but payment has not been received by Consignor) of all Consigned Precious Metal at any time exceeds Consignee's Consignment Limit, Consignee shall immediately Redeliver to Consignor, or purchase and pay for, Precious Metal of a quantity, or with a Fair Market Value, sufficient to eliminate such excess. Consignor shall provide Consignee with a monthly statement of the quantity of Consigned Precious Metal (in whatever form) held by Consignee. If Consignee does not agree with the information reported in the statement, Consignee shall give Notice of such disagreement to Consignor within fifteen (15) days of the date of receipt of such statement. If Consignee fails to give Notice to Consignor within the fifteen (15) day period, Consignee shall be deemed to have affirmed the accuracy of the information reported in the statement and to have waived any claim Consignee may have by reason of a dispute as to such statement. on or about March 30 of each year, Consignee shall provide Consignor with a written confirmation, signed by a Duly Authorized Officer of Consignee, of the quantity of Consigned Precious Metal as of the date of such confirmation. Upon and after the occurrence of an Event of Default, Consignee shall provide to Consignor on a daily basis written confirmation, in form acceptable to Consignor, of the quantity and location of all Consigned Precious Metal. Consignee shall give Consignor at least two (2) full New York business days' Notice of its requirements for Precious Metal. Consignor shall not be liable to Consignee if Consignor fails to Deliver the Precious Metal by reason of an Act of God or other catastrophe, force majeure, lack of supply, delay in transportation, war or other hostilities, strike, lockout, epidemic, acts of government or other public authority, requirements of any regulatory board, agency or authority, unavoidable casualties or any other causes beyond Consignor's control. CONSIGNOR MAKES NO WARRANTY OF MERCHANTABILITY IN RESPECT TO PRECIOUS METAL CONSIGNED OR SOLD UNDER THIS AGREEMENT NOR OF FITNESS FOR ANY PARTICULAR PURPOSE NOR ANY OTHER WARRANTIES, EXPRESS OR IMPLIED, except that Consignor does warrant to Consignee that all Precious Metal will be of the fineness stated in Section 1 for that Precious Metal. 3. DELIVERY OF PRECIOUS METAL. --------------------------- All Deliveries of Precious Metal by Consignor will be made to Consignee by Consignor crediting an account of Consignee at a third party supplier of Precious Metal or by delivery at Consignee's Principal Office or other such location approved by Consignor, such Deliveries to be on terms and conditions satisfactory to Consignor. At the time of Delivery or crediting, Consignor shall provide Consignee with particulars of the total quantity of the Precious Metal being Delivered or credited to Consignee. A Duly Authorized officer of Consignee receiving any Delivery shall give a receipt to Consignor for the same in a form satisfactory to Consignor. All shipping expenses (including insurance) shall be borne by Consignee, and any such expenses paid or incurred by Consignor shall be reimbursed by Consignee immediately in the same manner as payments under Section 5 hereof. 6 7 4. TITLE. ------ Title to Consigned Precious Metal shall remain with Consignor and shall not vest in Consignee until Consignor has received payment for the Consigned Precious Metal as required by Section 5 of this Agreement. Upon each Precious Metal Delivery, Consignee shall bear the entire risk of loss, theft, damage or destruction of the Consigned Precious Metal from any cause whatsoever, whether or not insured, irrespective of where the Consigned Precious Metal is located, and including any loss resulting from the bankruptcy or similar circumstances of any entity holding Consigned Precious Metal for any purpose, including fabrication or reconsignment, and Consignee agrees to hold the Consigned Precious Metal in trust for Consignor and to indemnify and hold harmless Consignor against any and all liabilities, damages, losses, costs, expenses, suits, claims, demands or judgments of any nature (including, without limitation, attorneys' fees and expenses) arising from or connected with any loss, theft, damage or destruction of the Consigned Precious Metal. Consignee shall execute such financing statements, security agreements and other documents as Consignor shall request to protect Consignor's interest under the Uniform Commercial Code. 5. CONFIRMATION AND PAYMENTS. -------------------------- During the term of this Agreement, Consignee shall have the right to purchase any Consigned Precious Metal. To exercise the right, a Duly Authorized Officer of Consignee shall give Notice to a Duly Authorized Officer of Consignor that Consignee wishes to purchase specified quantities of Consigned Precious Metal. Promptly after Consignee requests and Consignor agrees to, through their respective Duly Authorized Officers, delivery and payment terms for a specified quantity of Consigned Precious Metal, Consignor shall send Consignee a telecopy (with signature) confirmation (in the form of EXHIBIT A attached hereto) which shall set forth (among other things) the following items: (i) the type and fineness of Precious Metal, (ii) the quantity of such Precious Metal and applicable Consignment Fees, (iii) the date on which or the period within which Delivery and settlement are to be made, and (iv) the manner of delivery. Absent manifest error, the provisions of each such confirmation shall be binding and shall supersede any terms hereof not consistent with such provisions. Consignee agrees to examine each such confirmation and, in the event of error therein, to notify Consignor of such error by telecopy (with signature) within one (1) New York business day after Consignee's receipt thereof (Consignee being conclusively deemed to have waived any such error in the absence of such notification). Unless otherwise agreed not later than two (2) New York business days prior to an agreed settlement date, Consignee shall be obligated to Redeliver or (if a Purchase Price has been agreed upon) purchase and pay for the specified quantity of Consigned Precious Metal plus all Consignment Fees related thereto. Payment of any Purchase Price and all other amounts due by Consignee to Consignor under this Agreement (including any applicable sales or use tax) shall be made in the following manner: (i) by bank wire to Bankers Trust Company of New York, ABA Number 0210011033 for further credit to Paribas New York, account number 04202195, (ii) by Consignee authorizing 7 8 Consignor to charge its account with Consignor, or (iii) by other means which Consignor approves in writing. If Consignor in its discretion grants payment terms different from the foregoing for particular purchases, then the Purchase Price shall not be deemed to be paid in full for the purposes of this Agreement until all payments under such terms have been made. Any amount not paid when due under this Agreement shall bear interest at four percent (4%) in excess of the Base Rate until paid in full (whether or not this Agreement has been terminated), such rate to be a floating rate to be redetermined daily in accordance with changes in the Base Rate. Such interest shall be paid on demand in the manner provided above. 6. COMMINGLING; REDELIVERY OF PRECIOUS METAL. ------------------------------------------ Consignee may use the Consigned Precious Metal only in the ordinary course of its business as now conducted. No Consigned Precious Metal shall be removed from Consignee's Principal office (except as provided in this Section or Section 12(i) hereof or as may be agreed upon by the parties hereto) or sold to any third party prior to the fixing of the Purchase Price for such Consigned Precious Metal. Notwithstanding a contrary provision in this Section, Consignee shall have the right, on terms and conditions approved in writing by Consignor, to remove scrap from its Principal Office for refining in the ordinary course of its business, it being agreed that all such scrap Consigned Precious Metal shall be and remain the property of Consignor until purchased and paid for pursuant to Section 5 hereof. At any time prior to termination of this Agreement, any or all of the amount of the Consigned Precious Metal (excluding any Consigned Precious Metal as to which a Purchase Price has been agreed to under Section 5) may be Redelivered by Consignee to Consignor and shall be Redelivered by Consignee to Consignor upon demand of Consignor, subject to and pursuant to the provisions of Section 14 of this Agreement, regardless of whether Consignee is in compliance with the terms of this Agreement. 7. INSURANCE. ---------- Consignee, at its sole cost and expense shall procure and maintain property insurance to cover all locations where Consigned Precious Metal will be located on an all risk form, including flood and earthquake and such other insurance (including but not limited to, fidelity insurance for all employees, including officers) with respect to the Consigned Precious Metal as may from time to time be reasonably required by Consignor. All insurance provided for in this Section shall be effected under valid and enforceable policies, in such forms and in such amounts as may from time to time be reasonably required by Consignor, issued by financially sound and responsible insurance companies which are admitted in the jurisdiction in which the Consigned Precious Metal is located, or are approved under the applicable states' surplus lines insurance laws. At least ten (10) days prior to Consignor's first Delivery of Precious Metal to Consignee and thereafter not less than fifteen (15) days prior to the expiration dates of insurance policies theretofore furnished pursuant to this Agreement, Consignee shall deliver to Consignor copies of all insurance policies 8 9 (together with Accord Form 27 (2/84) or other similar forms satisfactory to Consignor) evidencing the insurance coverage required by Consignor. All policies of insurance shall provide for thirty (30) days notification in advance of any cancellation, non-renewal or material change in policy conditions, including cancellation for non-payment of premium. All policies of insurance provided for or contemplated by this Agreement shall name Consignor as a loss payee or an additional insured, as its interests may appear. All policies of insurance provided for in this Agreement shall, to the extent obtainable, contain clauses or endorsements to the effect that: (a) No act or negligence of consignee, or anyone acting for Consignee, which might otherwise result in a forfeiture of such insurance or any part thereof shall in any way affect the validity or enforceability of such insurance insofar as Consignor is concerned; and (b) Consignor shall not be liable for any premiums or subject to any assessments on the policies. Losses under each policy of insurance provided for or contemplated by this Section shall be adjusted with the insurers and/or underwriters and paid directly to Consignor and Consignee as their interests may appear. Written Notice of all losses shall promptly be given by Consignee to the Consignor. Consignee shall pay all costs and expenses of collecting or recovering any insurance proceeds under such policies, including, but not limited to, any and all fees of attorneys, appraisers and adjusters. In the event of any loss described above, except for a loss during transit of Precious Metal sent by Consignor to Consignee's Principal Office by registered United States mail, Consignor shall have the right to demand that Consignee, and upon such demand Consignee shall, compensate Consignor, upon terms acceptable to Consignor, for the full amount of such loss, whether or not recovery has been made under any applicable policy. In the event Consignor requires such compensation, Consignee shall be entitled to manage the relevant claims and to retain any recovery under the applicable policy. 8. TAXES, ETC.; CERTAIN RIGHTS OF CONSIGNOR. ----------------------------------------- Consignee will promptly pay any and all taxes, assessments and governmental charges upon the Consigned Precious Metal prior to the date of any penalties and prior to the date any liens would attach thereto. Consignee will not use the Consigned Precious Metal in violation of any statute or ordinance. Consignor may examine and inspect the Consigned Precious Metal at any time, wherever located, and Consignee agrees to keep all records relating to the Consigned Precious Metal at its Principal office. Consignee further agrees to promptly give Notice to Consignor of the assertion of any lien or other encumbrance against the Consigned Precious Metal and Consignee's response to such assertion. 9 10 At its option, Consignor may discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Consigned Precious Metal (which are not being contested in good faith), may pay for insurance on the Consigned Precious Metal and may pay for the maintenance and preservation of the Consigned Precious Metal. Consignee agrees to reimburse Consignor on demand for any payment made, or any expense incurred, by Consignor in connection with the foregoing, together with interest thereon at the Base Rate plus four percent (4.0%), computed from the date of such payment or expense until paid. 9. REPRESENTATIONS AND WARRANTIES. ------------------------------- The following representations and warranties shall survive the delivery of this Agreement and the Delivery of Precious Metal by Consignor to Consignee. Consignee represents and warrants to Consignor that: (a) Consignee has heretofore furnished to Consignor Consignee's Financial Statements for the period ending January 31, 1998, together with interim Financial Statements for the period ending August 1,1998, each of which fairly present the financial condition of Consignee as of their date, and the results of its operations for the year or other period then ended in conformity with generally accepted accounting principles consistently applied. To the best of Consignee's knowledge and belief, Consignee does not have any contingent obligations, liabilities for taxes or unusual forward or long-term commitments except as specifically mentioned in the Financial Statements. Since January 31, 1998, there has been no material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Consignee; (b) Consignee (i) is duly organized, validly existing and in good standing under the laws of the state of its incorporation as of the date hereof, (ii) has full power and authority to own its properties and to carry on business as now being conducted and is qualified to do business in every jurisdiction (including the State of New York) where such qualification is necessary except where the failure to so qualify would not have a material adverse effect on the business or financial condition of Consignee or the security granted to Consignor under the Security Agreement or any other security documents, (iii) has full power to execute, deliver and perform this Agreement, the Security Agreement and any other documents securing the obligations of Consignee under this Agreement and (iv) when this Agreement and any other document contemplated hereby have been duly authorized, executed and delivered by Consignee, such Agreement and documents will constitute the legal, valid and binding obligations of Consignee enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by applicable bankruptcy. insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, whether enforcement is sought in equity or at law; (c) The execution, delivery and performance by Consignee of the terms and provisions of this Agreement, the Security Agreement and any other security documents (i) have been duly authorized by all requisite corporate action, (ii) will not violate any provision of law, any order of 10 11 any court or other agency of government, or the corporate charter or by-laws of Consignee, (iii) will not violate any indenture, agreement or other instrument to which it is a party, or by which it is bound, or be in conflict with, result in breach of, or constitute (with notice or lapse of time or both) a default under such indenture, agreement or instrument, and (iv) except as this Agreement and any security or other document contemplated hereby may provide, will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of Consignee pursuant to any such indenture, agreement or instrument; (d) There is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending or, to the best knowledge of Consignee, threatened against or affecting Consignee, except as listed on SCHEDULE A attached hereto; (e) Consignee is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party where such default, with or without the passage of time or the giving of notice, would have a material adverse effect on the business or financial condition of Consignee; (f) No financing statement or agreement is on file in any public office pertaining to or affecting any property of Consignee, now owned or hereafter acquired, except as listed on SCHEDULE B attached hereto; (g) Consignee has obtained all necessary approvals, permits, licenses, authorizations and other consents required by, is not in material violation of, and has performed all of its obligations under, all Environmental Requirements; (h) Except as described on SCHEDULE C attached hereto, Consignee has not received any notice, citation, summons, directive, order or other communication, written or oral, from, and Consignee has no knowledge, after reasonable inquiry, of any notice, citation, summons, directive, order or other communication by, any Governmental Authority or any other person concerning the presence, generation, treatment, storage, transportation, transfer, disposal, release or other handling of any hazardous Material within on, from, related to, or affecting any real property owned or occupied by Consignee; (i) To the best of Consignee's knowledge (after reasonable inquiry) and except as described in SCHEDULE C attached hereto, no real property owned or occupied by Consignee has ever been used, either by Consignee, any tenant or any predecessor in interest, to generate, treat, store, transport, transfer, dispose of, release or otherwise handle any Hazardous Material, except in compliance with all Environmental Requirements; and (j) No Hazardous Material is currently located within, on, under or about any real property owned or occupied by Consignee in a manner which violates any Environmental Requirement, or which requires cleanup or corrective action of any kind under any Environmental Requirement. 11 12 10. CONDITIONS OF CONSIGNMENT. -------------------------- Without limiting the uncommitted nature of Consignor's obligations under this Agreement, Delivery by Consignor of any Precious Metal under this Agreement is further subject to the following conditions precedent: (a) The representations and warranties set forth in Section 9 of this Agreement shall be true and correct on and as of the date of this Agreement and the date the Delivery is made. (b) Consignee shall have executed and delivered to Consignor, upon the execution of this Agreement, the following: (i) All required security documents, including but not limited to any and all UCC-1 financing statements executed by a Duly Authorized Officer of Consignee as may be required by Consignor; (ii) A certificate of the Secretary or Assistant Secretary of Consignee certifying to the votes of Consignee's Board of Directors authorizing the execution, delivery and performance of this Agreement and any security documents or other documents contemplated hereby; (iii) A certificate of the Secretary or Assistant Secretary of Consignee certifying the names of the officers of Consignee authorized to sign this Agreement, any security documents and any other documents or certificates (or any amendments thereto) to be delivered pursuant to this Agreement (or any amendments thereto) by Consignee or any of its officers, together with the true signatures of such officers, on which certificates Consignor may conclusively rely until it shall receive a further certificate canceling or amending the prior certificate and submitting the signatures of the officers named in such further certificate; (iv) A certificate of the Secretary of State of the state of incorporation of Consignee, dated reasonably near the date of this Agreement, stating that Consignee is duly incorporated and in good standing in such state and has filed all annual reports and has paid all franchise taxes required to be filed or paid to the date of such certificate; (v) A favorable written opinion of Consignee's Counsel, dated the date of this Agreement, satisfactory to Consignor and its counsel in scope and substance, with respect to the matters set forth in subsections 9 (b), (c), (d) and (e);and further to the effect that this Agreement and all required security documents have been duly authorized, executed and delivered by Consignee and constitute the legal, valid, binding obligations of Consignee enforceable in accordance with their terms; (vi) A certificate signed by Consignee's chief executive or chief financial officer to the effect stated in (c) below; and 12 13 (vii) Such other supporting documents and legal opinions as Consignor may reasonably request. (c) No Event of Default nor any event which with notice or the lapse of time, or both, would constitute an Event of Default shall have occurred. 11. AFFIRMATIVE COVENANTS. ---------------------- Consignee covenants and agrees that, from the date of this Agreement and until payment and performance in full by Consignee of its indebtedness, obligations and liabilities to Consignor under this Agreement or any other agreement or instrument, whether now existing or arising hereafter, Consignee shall: (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its corporate existence, rights, licenses, permits and franchises and comply with all laws and regulations applicable to it; at all times maintain, preserve and protect all franchises and trade names and preserve all the remainder of its property used or useful in the conduct of its business and keep the same in good repair, working order and condition, and from time to time, make, or cause to be made, all needful and proper repairs, renewals, replacements, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times; (b) Comply with all applicable laws and regulations, whether now in effect or hereafter enacted or promulgated by any Governmental Authority having jurisdiction in the premises; (c) Pay and discharge or cause to be paid and discharged all taxes, assessments and governmental charges or levies imposed upon it or upon its respective income and profits or upon any of its property, real, personal or mixed, or upon any part thereof, before the same shall become in default, as well as all lawful claims for labor, materials and supplies or otherwise, which, if unpaid, might become a lien or charge upon such properties or any part thereof; provided that Consignee shall not be required to pay and discharge or cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and it shall have set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested, and provided, further, that payment with respect to any such tax, assessment, charge, levy or claim shall be made before any of its property shall be seized and sold in satisfaction thereof; (d) Give prompt written notice to Consignor of any proceedings instituted against it by or in any Federal or state court or bef ore any commission or other regulatory body, Federal, state or local, which, if adversely determined, would have a materially adverse effect upon its business, operations, properties, assets, or condition, financial or otherwise or could result in the forfeiture of assets of Consignee; 13 14 (e) Furnish to Consignor: (i) within ninety (90) days after the end of each fiscal year, Financial Statements showing its financial condition at the close of such fiscal year, the results of operations during such year and containing a statement to the effect that its independent public accountants have examined the provisions of this Agreement and that no Event of Default nor any event which with notice or lapse of time, or both, would constitute an Event of Default has occurred; (ii) within forty-five (45) days after the end of the first and third quarter in each such fiscal year, Financial Statements for such period and the fiscal year to that date, subject to changes resulting from routine year-end audit adjustments, in form satisfactory to Consignor. Notwithstanding provisions in the definition of "Financial Statements" requiring certification by independent public accountants, Financial Statements for this subsection (ii) may be prepared and certified by the chief financial officer of Consignee to the best of his or her information and belief; (iii) within thirty-five (35) days after the end of each month in such fiscal year, Financial Statements for such monthly period and the fiscal year to that date, subject to changes resulting from year-end adjustments, together with a statement of the aging of total accounts receivable as at the end of such period, both in form satisfactory to Consignor, prepared and certified by the Chief Financial Officer of Consignee to the best of his or her information and belief, (iv) within ninety (90) days after the end of the six month period ending December 31, Financial Statements for such period and the fiscal year to date, subject to changes resulting from routine year-end audit adjustments in form satisfactory to Consignor, provided that Financial Statements for this subsection (iii) shall be reviewed by Deloitte & Touche as opposed to certified; (v) Simultaneously with the furnishing of each of the Financial Statements to be delivered pursuant to subsections (i),(ii) and (iii) above, a narrative statement of the President or chief financial officer of Consignee which shall comment upon and explain any material changes, both positive and negative, reflected in such statements from prior periods, and which shall also contain a declaration to the effect that such officer has reviewed the terms of this Agreement and has no knowledge of any event or condition 14 15 which constitutes an Event of Default or which with notice or lapse of time, or both, would constitute an Event of Default or, if he or she has such knowledge, specifying the nature and period of existence of such event or condition; (v) within twenty (20) days after the end of each month, a consignment base certificate of Consignee as of the last New York business day of the preceding month(such certificate to be in the form of EXHIBIT B attached hereto and certified by Consignee's Chief Financial officer or Treasurer); and (vi) within forty-five (45) days after the end of each quarter in each fiscal yearly a certificate of Consignee as to the status of Consignee's compliance with its agreements with Consignor (such certificate to be in the form of EXHIBIT C attached hereto and certified by Consignee's Chief Financial Officer or Treasurer); (f) Promptly, from time to time, furnish such other information regarding its operations, assets, business affairs and financial condition as Consignor may reasonably request; (g) Permit agents or representatives of Consignor, at Consignee's expense (including without limitation, the fees and expenses of such agents or representatives), (i) to inspect, at any time during normal business hours and without notice, the Consigned Precious Metal and Consignee's books and records and to make abstracts or reproductions of such books and records, (ii) to conduct field examinations of the Consigned Precious Metal in the possession and control of Consignee (which examinations shall include the observance thereof by Deloitte & Touche as to two of such examinations per year including an annual audit review of Consignee's control system), such examinations to be done at reasonable times and at any time in the case of an emergency (provided, however, that Consignee only shall be required to pay for two (2) field examinations per year unless an Event of Default has occurred and is continuing, in which case Consignor may conduct such field examinations as frequently as it may desire and all such field examinations shall be at Consignee's expense), (iii) to observe the taking of any physical inventory of Consigned Precious Metal in Consignee's possession (Consignee shall give Consignor not less than ten (10) days' prior Notice of the taking of each such inventory), and (iv) at reasonable times and at any time in case of emergency or at any time after the occurrence and continuing of an Event of Default, to take a physical inventory of the Consigned Precious Metal in Consignee's possession; (h) Promptly advise Consignor of any material adverse change in its condition, financial or otherwise, business, prospects, operations, results of operations, assets or liabilities and of any condition or event which constitutes, or with notice of lapse of time or both would constitute, an Event of Default; 15 16 (i) Promptly join with Consignor from time to time in executing one or more financing statements pursuant to the Uniform Commercial Code in form satisfactory to Consignor, and execute such other instruments in form suitable for recording or filing as Consignor may reasonably require and Consignee does hereby (a) make, constitute and appoint Consignor or its agent its true and lawful attorney-in-fact, for, in its name and on its behalf to execute and deliver for filing any financing statement, including any continuation statement, which Consignor or its agent deems necessary to be executed, delivered or filed by Consignor in connection with this Agreement, and (b) ratify and confirm all that said attorney-in-fact shall do or cause to be done by virtue of this Section; (j) Defend the Consigned Precious Metal against the claims and demands of any persons (other than Consignor and those persons listed as secured parties on SCHEDULE B attached hereto) at any time claiming the same or any interest therein; (k) Consent, and Consignee does hereby consent to the delivery by Consignor to any lender, lessor or consignor to Consignee of all information and reports prepared or received by Consignor with respect to Consignee; (1) Expect as to past violations being cured by Consignee as described on SCHEDULE C attached hereto, comply, and cause all tenants or other occupants of any real property which Consignee owns or occupies to comply, in all respects with all Environmental Requirements, and not generate, treat, store, handle, process, transfer, transport, dispose of, release or otherwise use, and not permit any tenant or other occupant of such property to generate, treat, store, handle, process, transfer, transport, dispose of, release or otherwise use, Hazardous Materials within, on, under or about such property, in a manner that could lead to the imposition on Consignee, Consignor or any such real property of any liability or lien of any nature whatsoever under any Environmental Requirement; (m) Except as to matters described on SCHEDULE C attached hereto, notify consignor promptly in the event of any spill or other release of any Hazardous Material within, on, under or about any real property owned or occupied by Consignee which is required to be reported to a Governmental Authority under any Environmental Requirement, promptly forward to Consignor copies of any notices received by Consignee relating to alleged violation of any Environmental Requirement and (as to all matters including, without limitation, those disclosed on SCHEDULE C attached hereto) promptly pay when due any fine or assessment against Consignee, Consignor or any such real property relating to any Environmental Requirement; (n) Upon receipt of Notice by Consignee from a third party to whom Consignee has reconsigned consigned Precious Metal that such reconsigned consigned Precious Metal has been sold, reconsigned or otherwise transferred or disposed of by such third party, and within one (1) New York business day after receipt of such notice, purchase such Consigned Precious Metal from Consignor pursuant to terms of this Agreement; 16 17 (o) Own Equity Precious Metal in an amount at least equal to the sum of (i) five percent (5%) of Consignee's entire inventory of Precious Metal consigned or leased to Consignee (including, without limitation, Consigned Precious Metal) plus (ii) twenty percent (20%) of the amount of Precious Metal physically located other than at Consignee's Principal office; (p) Maintain at all times a Tangible Net Worth in an amount at least equal to $40,000,000. (q) Maintain at all times Working Capital in an amount at least equal to $22,000,000. (r) Maintain at all times a ratio of Total Liabilities (including, without limitation, all obligations under this Agreement, any other precious metal facility or similar agreements and any loan agreements) to Tangible Net Worth of not more than 3.00:1.00, determined in accordance with generally accepted accounting principles consistently applied; (s) Maintain at all times a ratio of Current Liabilities PLUS long-term Indebtedness secured by current assets (including, but not limited to, obligations of Consignee to the Second Insurance Companies and the Third Insurance Companies) to Working Capital of not more than 6.30:1.00; (t) Maintain at all times a ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) to current maturities of long-term debt plus interest expense plus consignment fees plus non-financed capital expenditures for any four fiscal quarter period of not less than 1:00:1.00 (excluding from all applicable calculations the special year-end charge of $4,500,000 taken at the end of fiscal 1998), determined in accordance with generally accepted accounting principles consistently applied; and (u) Maintain key-man life insurance with insurance companies satisfactory to Consignor on the lives of Michael Paolercio and Anthony Paolercio, Jr. in the amount of not less than $5,000,000 provided, however, that in the event that either of such individuals shall terminate his employment with Consignee during his life, the insurance on the terminated individual's life may be cancelled. 12. NEGATIVE COVENANTS. ------------------- Consignee covenants and agrees that, until Consignee makes payment and performs in full its indebtedness, obligations, and liabilities under this Agreement or under any other agreement or instrument, whether now existing or arising hereafter, unless Consignor consents in writing, Consignee will not, directly or indirectly: (a) Create, incur, assume or suffer to exist any mortgage, pledge, lien, attachment, charge or other encumbrance of any nature whatsoever on any of the Consigned Precious Metal or any products or property now or hereafter owned by Consignee or in which Consignee presently has or hereafter acquires an interest which does or will include the Consigned Precious Metal other than (i) security interests in favor of Consignor or as listed on Schedule B attached hereto and (ii) mortgages on Consignee's Mount Vernon, New York real property; 17 18 (b) Sell, lease, transfer or otherwise dispose of its properties, assets, rights, licenses and franchises to any person, except in the ordinary course of its business, or turn over the management of, or enter into a management contract with respect to, such properties, assets, rights, licenses and franchises; (c) Dissolve, liquidate, consolidate with or merge with, or acquire all or substantially all of the assets or properties of, any other corporation or entity, or make any substantial change in its executive management; (d) Sell, assign, encumber, pledge, discount or otherwise dispose of in any way any accounts receivable, promissory notes or trade acceptances held by Consignee, with or without recourse, except for (i) security interest as listed on SCHEDULE B attached hereto, (ii) collection (including endorsements) in the ordinary course of business, and (iii) liens in favor of Consignor; (e) Grant any security interest or ownership rights to any customer of Consignee with respect to any of the Consigned Precious Metal while at Consignee's premises whether or not such customers have prepaid orders for the Consigned Precious Metal or any products or property which does or will include the Consigned Precious Metal; (f) Guarantee, endorse or otherwise in any way become or be responsible for obligations of any other person, except endorsements of negotiable instruments for collection in the ordinary course of business; (g) Obtain Precious Metal on consignment or loan from any source other than Consignor or those persons listed as secured parties on SCHEDULE B attached hereto; (h) Permit the aggregate amount of Consigned Precious Metal PLUS Precious Metal consigned to Consignee by other consignors to exceed 275,000 troy ounces of fine gold; or (i) Permit the amount of Consignee's Precious Metal Inventory physically located other than at Consignee's Principal Office to exceed at any time (i) in the aggregate, Consignee's Equity Precious Metal plus ten percent (10%) of Precious Metal consigned from the Consignor, FPM, ABN and CS to the Consignee, (ii) 7,500 troy ounces at, or in transit to or from, any one location, or (iii) 4,000 troy ounces outside the United States. 13. EVENTS OF DEFAULT; RIGHTS AND REMEDIES OF CONSIGNOR UPON DEFAULT. ----------------------------------------------------------------- In each case of happening of any of the following events (each of which is herein sometimes called an "Event of Default"): (a) Any representation or warranty made herein, or in any report, certificate, financial statement or other instrument furnished in connection with this Agreement, or the Delivery of Precious Metal by Consignor hereunder, shall prove to be false or misleading in any material respect; 18 19 (b) Consignee fails to make punctual payment or perform any obligation required by the provisions of Section 2, 5, 6 or 14 of this Agreement; (c) Consignee fails to pay any amount due hereunder or any other indebtedness, obligation or liability of Consignee to Consignor when the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment or by acceleration or otherwise; (d) Consignee fails to observe or perform any covenant, condition or agreement required by the terms of Sections 7, 8, 11(g), 11(n), 11(o), 11(p), 11(q), 11(r), 11(s), 11(t), 12(a), 12(c), 12(e), 12(f), 12(g), 12(h) or 12(i) of this Agreement; (e) Consignee fails to observe or perform any other covenant, condition or agreement required by the terms of this Agreement and such failure shall continue unremedied for ten (10) days; (f) Default with respect to any evidence of indebtedness, obligations or liabilities of Consignee (including, but not limited to, consignment agreements and any other agreements between Consignee and any parent, affiliate or subsidiary of Consignor), if the effect of such default is to accelerate the maturity of such indebtedness, obligation or liability or to permit the holder thereof (or any material portion thereof) to cause such indebtedness to become due prior to the stated maturity thereof, or if any indebtedness of Consignee is not paid, when due and payable, whether at the due date thereof or by acceleration or otherwise; (g) Consignee shall (i) apply for, consent to, or suffer the appointment of a custodian, receiver, trustee or liquidator of it or any of its property, (ii) admit in writing its inability to pay its debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) file, or have filed against it, a petition for relief under Title 11 of the United States Code, or (v) file, or have filed against it, a petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute in any jurisdiction within or outside of the United States, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or corporate action shall be taken for the purpose of effecting any of the foregoing, and which, in the case of any involuntary proceeding under (i), (iii), (iv) or (v) is not dismissed or discharged within sixty (60) days of its commencement. (h) An order, judgment or decree shall be entered, without the application, approval or consent of Consignee by any court of competent jurisdiction, approving a petition seeking reorganization of Consignee or appointing a custodian, receiver, trustee or liquidator of Consignee or of all or a substantial part of the assets of Consignee; (i) occurrence of any loss, theft, or destruction of or damage to the Consigned Precious Metal or any products or property which includes Consigned Precious Metal; 19 20 (j) Discontinuance of the operation of Consignee's business for any reason; (k) For any reason the present chief financial officer shall cease to be or function as the chief financial officer of Consignee and a successor is not appointed within sixty (60) days of such cessation; (1) For any reason the present President shall cease to be or function as President and chief executive officer of Consignee and a successor is not appointed within sixty (60) days of such cessation; (m) Occurrence of an event of default under any credit, loan or consignment agreement or any promissory note to which Consignee is a party, as amended or modified from time to time, including, without limitation,(i) that certain Note Purchase Agreement dated May 1, 1992 between Consignee and Northern Life Insurance Company, Royal Maccabees Life Insurance Company, The North Atlantic Life Insurance Company of America, Farm Bureau Life Insurance Company of Michigan, FB Annuity Company and Farm Bureau Mutual Insurance Company of Michigan (collectively, the "Second Insurance Companies"), (ii) that certain Note Purchase Agreement dated as of February 15,1995 between Consignee and Northwestern National Life Insurance Company and Northern Life Insurance Company (collectively, the "Third Insurance Companies"), (iii) those certain Consignment Agreements or Amended and Restated Consignment Agreements dated as of August 20, 1993 between Consignee and each of ABN, and FPM, respectively, as the same have been amended from time to time (iv) that certain Consignment Agreement dated as of January 31, 1994 between CS and Consignee, as the same has been amended from time to time and (v) any promissory note (including, without limitation, that certain promissory note of Debtor in favor of The Chase Manhattan Bank dated July 31, 1998) and/or agreements in favor of The Chase Manhattan Bank as successor in interest by merger to Chemical Bank. (n) Occurrence of any Event of Default as defined in the Security Agreement; (o) occurrence of any attachment on any Precious Metal owned by consignee or on any Consigned Precious Metal; or (p) Determination by Consignor in good faith that Consignee has suffered a material adverse change in its business or financial condition. Upon the occurrence of any such Event of Default and at any time thereafter during the continuance of such Event of Default, Consignor may, by Notice to Consignee, terminate this Agreement as provided in Section 14 and declare all liabilities, indebtedness or obligations of Consignee to be due and payable PROVIDED, HOWEVER, that the foregoing listing of Events of Default shall not be deemed to limit Consignor's right at any time, even if an Event of Default has not occurred, to demand, upon thirty (30) days' prior written notice to Consignee, (x) that Consignee Redeliver Consigned Precious Metal and (y) payment of all liabilities, indebtedness or obligations of Consignee to Consignor, subject to and pursuant to the provisions of SECTION 14 of 20 21 this Agreement. Upon Consignor's declaration and the expiration of such thirty (30) day notice period, such liabilities, indebtedness and obligations shall become immediately due and payable, both as to principal and/or interest, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, anything contained herein or in any other evidence of such indebtedness, obligations and liabilities to the contrary notwithstanding. Notwithstanding the foregoing, in the case of an Event of Default under Section 13(g)(and assuming that the thirty (30) day period provided for in Section 13(g), if applicable, has expired) or under Section 13(h) of this Agreement, this Agreement shall terminate immediately and automatically upon the occurrence of such Event of Default, and all of the liabilities, indebtedness or obligations of Consignee shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by Consignee, anything contained herein or in any other evidence of such indebtedness, obligations and liabilities to the contrary notwithstanding. Consignor may enforce payment of the same and exercise any or all of the rights, powers and remedies possessed by Consignor, under this Agreement or under any agreement securing the obligations of Consignee hereunder, whether afforded by the Uniform Commercial Code or otherwise afforded by law or in equity. The remedies provided for herein are cumulative and are not exclusive of any other remedies provided by law. Consignee agrees to pay Consignor's reasonable attorney's fees and legal expenses incurred in enforcing Consignor's rights, powers and remedies under this Agreement, the Security Agreement and any agreement securing the liabilities, indebtedness or obligations of Consignee to Consignor, whether such enforcement is directly by Consignor or through its agent. Without limiting the foregoing, upon the occurrence of any Event of Default and at any time thereafter during the continuance thereof, Consignor shall have the right to enter and/or remain upon the premises of Consignee or any other place or places where any Consigned Precious Metal is located and kept (without any obligation to pay rent to Consignee or others) and; (i) remove Consigned Precious Metal or inventory containing the same therefrom to the premises of Consignor or any agent of Consignor, for such time as Consignor may desire, in order to maintain, collect, sell and/or liquidate said Consigned Precious Metal or (ii) use such premises, together with equipment, materials, supplies, books and records of Consignee, to maintain possession, refine and prepare said Consigned Precious Metal for sale, liquidation, or collection. Consignor may require Consignee to assemble the Consigned Precious Metal and make it available to Consignor at a place or places to be designated by Consignor which is reasonably convenient for the parties. Consignor may at any time and from time to time employ and maintain in any premises of Consignee or any place where any of the Consigned Precious Metal is located a custodian selected by Consignor who shall have full authority to do all acts necessary to protect Consignor's interests and to report to Consignor thereon. Consignee agrees to cooperate with any such custodian and to do whatever Consignor may reasonably request to preserve the Consigned Precious Metal. All reasonable expenses incurred by reason of the employment of the custodian shall be paid by Consignee pursuant to the last sentence in Section 8 hereof. 21 22 14. TERMINATION. ------------ This Agreement shall terminate, at the election of the Consignor, upon the occurrence of any Event of Default. Unless otherwise terminated in accordance with the terms hereof, this Agreement shall continue until either Consignor or Consignee elects to terminate this Agreement by not less than thirty (30) days' prior Notice to the other party. Unless otherwise mutually agreed in writing by Consignor and Consignee, no Delivery of Precious Metal to Consignee will be made following the giving of Notice by either Consignor or Consignee of its election to terminate this Agreement. Termination of this Agreement shall not affect Consignee's duty to pay and perform in full its obligations to Consignor hereunder. On the effective date of the termination of this Agreement, Consignee shall either Redeliver or purchase and pay for all Consigned Precious Metal which Consignor has previously Delivered and which has not been paid for or Redelivered, the price to be based on Consignor's spot market price on the date of such purchase and shall reimburse Consignor for any and all outstanding fees, costs, expenses and other obligations of Consignee to Consignor. 15. INDEMNITY. ---------- Consignee will defend, indemnify and hold harmless Consignor, its employees, agents, officers, and directors, from and against any and all claims, demands, penalties, causes of action, fines, liabilities, settlements, damages, costs or expenses of whatever kind or nature, known or unknown, foreseen or unforeseen, contingent or otherwise (including, without limitation, counsel and consultant fees and expenses, investigation and laboratory fees and expenses, court costs, and litigation expenses) arising out of, or in any way related to, (i) any breach by Consignee of any of the provisions of this Agreement, (ii) the presence, disposal, spillage, discharge, emission, leakage, release, or threatened release of any Hazardous Material within, on, under, about, from or affecting any real property owned or occupied by Consignee, including, without limitation, any damage or injury resulting from any such Hazardous Material to or affecting such property or the soil, water, air, vegetation, buildings, personal property, persons or animals located on such property or on any other property or otherwise, (iii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to any such Hazardous Material, (iv) any lawsuit brought or threatened, settlement reached, or order or directive of or by any Governmental Authority relating to such Hazardous Material or (v) any violation of any Environmental Requirement. 16. MISCELLANEOUS. -------------- (a) This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto, shall survive the execution and delivery to Consignor of this Agreement, and shall continue in full force and effect so long as this Agreement and any other indebtedness of Consignee to Consignor is outstanding and unpaid. In this Agreement, reference to a party shall be deemed to include the successors and permitted assigns of such party, and all covenants and agreements in this Agreement by or on behalf of Consignee shall inure to the benefit of the successors and assigns of Consignor. 22 23 (b) Consignee will reimburse Consignor upon demand for all out-of-pocket costs, charges and expenses of Consignor (including costs of searches of public records and filing and recording documents with public offices and reasonable fees and disbursements of counsel to Consignor) in connection with (i) the preparation, execution and delivery of this Agreement and any security document or other agreement contemplated hereby, (ii) any amendments, modifications, consents or waivers in respect hereof and (iii) any enforcement hereof. (c) This Agreement shall be construed in accordance with and governed by the laws of the State of New York. (d) No modification or waiver of any provision of this Agreement, or of any security document or other document contemplated hereby, nor consent to any departure of Consignee from a provision, shall be effective unless the same shall be in writing. A written consent shall be effective only in the specific instance, and for the purpose, for which given. No notice to, or demand on Consignee, in any one case, shall entitle Consignee to any other or future notice or demand in the same, similar or other circumstances. (e) Neither any failure nor any delay on the part of Consignor in exercising any right, power or privilege hereunder, or in any other instrument given as security therefor, shall operate as a waiver thereof , nor shall a single or partial exercise thereof preclude any other or future exercise, or the exercise of any other right, power or privilege. (f) Consignee shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of Consignor. (g) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. (h) Any Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. As used in this Agreement, the term "person" shall include any individual, corporation, partnership, joint venture, trust or unincorporated organization, or a government or any agency or political subdivision thereof. (i) Consignee hereby submits to the jurisdiction of the courts of the State of New York and the United States District Court for the Southern District of New York, as well as to the jurisdiction of all courts to which an appeal may be taken or other review sought from the aforesaid courts, for the purpose of any suit, action or other proceeding arising out of any of Consignee's obligations under or with respect to this Agreement, and expressly waives any and all objections it may have as to value in any of such courts. CONSIGNEE AND CONSIGNOR EACH WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER ON ANY MATTER WHATSOEVER (INCLUDING, WITHOUT LIMITATION, ANY ACTION, PROCEEDING 23 24 OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, ANY OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN). No party to this Agreement, including but not limited to any assignee or successor or a party, shall seek a jury trial in any lawsuit, proceeding, counterclaim, or any other litigation procedure based upon, or arising out of, this Agreement, any related instruments, any collateral or the dealings or the relationship between the parties. No party will seek to consolidate any such action, in which a jury trial has been waived, with any other action in which a jury trial cannot be or has not been waived. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. IN WITNESS WHEREOF, Consignor and Consignee have caused this Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. PARIBAS, AS CONSIGNOR By: \s\: Amy Kirschner ------------------------------ Title: Vice President --------------------------- By: \s\: R. Giurici ------------------------------ Title: Vice President --------------------------- MICHAEL ANTHONY JEWELERS, INC., AS CONSIGNEE By \s\: Michael A. Paolercio --------------------------- Title: Treasurer --------------------- 24 EX-10.2 3 EXHIBIT 10.2 1 Exhibit 10.2 FIFTH AMENDMENT TO AMENDED AND RESTATED SECURITY AGREEMENT --------------------------- THIS FIFTH AMENDMENT is made as of the 23rd day of October, 1998, among MICHAEL ANTHONY JEWELERS, INC., a Delaware corporation (the "Debtor"), each of the Secured Parties (as defined below) and FLEET PRECIOUS METALS INC. (the "Agent"), individually and as agent (as successor to BANKBOSTON, N.A., f/k/a Rhode Island Hospital Trust National Bank, pursuant to that certain Collateral Sharing Agreement dated as of August 20, 1993, as amended from time to time) for each of the following: ABN AMRO BANK N.V., NEW YORK BRANCH ("ABN"); CREDIT SUISSE FIRST BOSTON, f/k/a Credit Suisse, New York Branch ("Credit Suisse"), FLEET PRECIOUS METALS INC. ("FPM"), and PARIBAS ("Paribas") (jointly and severally, the "Secured Parties"); and BANKBOSTON, N.A., f/k/a Rhode Island Hospital Trust National Bank ("BankBoston"). W I T N E S S E T H T H A T: ------------------- -------- WHEREAS, the Secured Parties (other than Paribas), BankBoston, the Agent and the Debtor are parties to a certain Amended and Restated Security Agreement dated as of August 20, 1993 (hereinafter, as amended by a certain First Amendment dated as of May 16, 1994, a certain Second Amendment dated as of September 1, 1994, a certain Third Amendment dated as of January 15, 1995, and a certain Fourth Amendment dated as of October 20, 1995, the "Security Agreement") pursuant to which the Debtor granted to the Secured Parties (other than Paribas), BankBoston and the Agent a security interest in the Collateral (as defined therein) and provided for the enforcement of such security interest; and WHEREAS, the Debtor and Paribas desire to add Paribas as a "Secured Party" pursuant to the terms of the Security Agreement as Paribas will be entering into a Consignment Agreement dated as of October 23, 1998 (hereinafter, as amended or modified from time to time, the "Paribas Agreement") with the Debtor; and WHEREAS, Paribas is willing to comply with the covenants and terms of such Security Agreement and any documents executed by the Secured Parties in connection with the Security Agreement; and WHEREAS, BankBoston and the Debtor have terminated the Amended and Restated Consignment Agreement between BankBoston and the Debtor dated as of August 20, 1993 and all obligations of the Debtor to BankBoston have been satisfied in full; and WHEREAS, each of The Mocatta Group, a Division of Standard Chartered Bank, Deutsche Bank, A.G., New York Branch and Union Bank of Switzerland, by their execution of letters dated as of October 14, 1998, October 14, 1998 and October 20, 1998, respectively, have each acknowledged that they have terminated their consignment relationships with the Debtor and, accordingly, are no longer a party to the Security Agreement; 1 2 NOW, THEREFORE, in consideration of the premises and the agreements hereinafter set forth and for other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereto agree as follows: 1. The Secured Parties, the Agent and the Debtor hereby consent to the addition of Paribas as a party to the Security Agreement, with Paribas to be included as a Secured Party pursuant to the terms of the Security Agreement and all references in the Security Agreement to "the Consignment Agreements" shall include the Paribas Agreement. 2. The Security Agreement is hereby amended so that the term "Secured Parties" as used therein and herein shall include, from and after the date hereof, Paribas and Paribas shall be entitled to all of the rights and benefits of a Secured Party thereunder. 3. BankBoston is hereby deleted as a party to the Security Agreement and BankBoston is hereby released of any and all liability for the performance and observance of all and singular of the covenants, agreements, and conditions of the Security Agreement which are to be performed by the Secured Parties thereunder. BankBoston shall no longer be entitled to any of the benefits of the Security Agreement and all references in the Security Agreement to "the Consignment Agreements" shall no longer include the Amended and Restated Consignment Agreement dated as of August 20, 1993 between BankBoston and the Debtor. 4. The second "WHEREAS" clause on page 1 of the Security Agreement is hereby amended to read as follows: "WHEREAS, the Debtor and each of the Secured Parties have entered into Consignment Agreements or Amended and Restated Consignment Agreements dated as of August 20, 1993 (January 31, 1994 in the case of Credit Suisse and October 23, 1998 in the case of Paribas) (hereinafter, as amended from time to time, the "Consignment Agreements") pursuant to which such Secured Parties may deliver or have delivered gold on consignment for sale to the Debtor (hereinafter collectively referred to as the "Precious Metal"), and" 5. In order to secure the due and punctual payment and performance of all indebtedness, liabilities and obligations of the Debtor contained in the Paribas Agreement and any related security instruments, and to secure the due and punctual payment and performance of all indebtedness, liabilities and obligations of the Debtor to Paribas of every kind and description, direct, indirect or contingent, now or hereafter existing, secured or unsecured, due or to become due, including (without limitation) the obligations of the Debtor under the Security Agreement, obligations with respect to forward contracts for the purchase or sale of precious metal and obligations of the Debtor relating to unpaid purchase price for Precious Metal (which indebtedness, liabilities and obligations shall be deemed to be included as "Obligations" for all purposes of the Security Agreement), the Debtor hereby grants to the Agent on behalf of Paribas and to Paribas, and hereby ratifies and affirms its grant to the Agent on behalf of the other Secured Parties and to each of the other Secured Parties of, a continuing security interest in and a lien upon the Collateral. 2 3 6. Section 13 of the Security Agreement is amended in its entirety to read as follows: Section 13. Notices. ----------- -------- All notices, communications and distributions hereunder shall be given or made to the following parties at the following addresses: (i) if to the Debtor, to it at Michael Anthony Jewelers, Inc. 115 South MacQuesten Parkway Mount Vernon, New York 10550 Attention: Michael Paolercio (ii) if to the Agent, to it at Fleet Precious Metals Inc. 111 Westminster Street Providence, Rhode Island 02903 Attention: Sharon Delfino or in any of the foregoing cases at such other address as the addressee may hereafter specify for the purposes by written notice to the other party hereto. Such notices and other communications will be effectively given only if and when given in writing and delivered at the address set forth in this Section 13 or duly deposited in the mails with first class postage prepaid, or delivered by a telegraph company with all charges prepaid, addressed as aforesaid. 7. Exhibit A attached to the Security Agreement is hereby deleted and Exhibit A attached hereto is hereby added to and made a part of the Security Agreement as Exhibit A thereto. 8. Any necessary, conforming changes to the Security Agreement occasioned by reason of this Fifth Amendment shall be deemed to have been made. 9. This Fifth Amendment shall be binding upon the parties and their respective successors and assigns. 10. Each of the Debtor, each Secured Party and the Agent acknowledge and agree that, except as expressly provided herein, the terms and provisions of the Security Agreement remain unchanged and the Security Agreement remains in full force and effect in accordance with its terms. The term "Security Agreement" as used in the Security Agreement and all references to the Security Agreement in any other documents or agreements between any of the parties hereto which relate to the Debtor shall refer, from and after the date hereof, to the Security Agreement as amended and supplemented by this Fifth Amendment. 3 4 11. Unless otherwise defined herein or in the context otherwise requires, all terms and phrases which are defined in the Security Agreement shall have the same meaning when used herein. 12. This Fifth Amendment shall be construed in accordance with and governed by the laws of the State of New York, without giving effect to the conflict of laws principles thereof. 13. This Fifth Amendment may be executed with one or more counterparts hereof, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be executed by their duly authorized officers as of the date first above written. MICHAEL ANTHONY JEWELERS, INC. By: \s\: Michael A. Paolercio ------------------------------ Title: Treasurer -------------------------- FLEET PRECIOUS METALS INC., individually and as Agent for each of the Secured Parties By: \s\: Sharon DelFino ------------------------------ Title: Vice President -------------------------- By: \s\: Karen M. Sheil ------------------------------ Title: Vice President -------------------------- ABN AMRO BANK N.V., NEW YORK BRANCH By: \s\: Jeffrey Sarfaty ------------------------------ Title: Vice President -------------------------- By: \s\: Ned Kapelman ------------------------------ Title: Vice President -------------------------- 4 5 CREDIT SUISSE, FIRST BOSTON f/k/a Credit Suisse, New York Branch By: \s\: Stanley R. Steinberg ------------------------------ Title: Director --------------------------- By: \s\: Stuart B. Ganes ------------------------------ Title: Vice President ------------------------------ BANKBOSTON, N.A., formerly known as Rhode Island Hospital Trust National Bank By: \s\: Albert Brown ------------------------------ Title: Director ------------------------------ PARIBAS By: \s\: Amy Kirschner ------------------------------ Title: Vice President ------------------------------ By: \s\: R. Giurici ------------------------------ Title: Vice President ------------------------------ 5 EX-10.3 4 EXHIBIT 10.3 1 Exhibit 10.3 SIXTH AMENDMENT TO AMENDED AND RESTATED INTERCREDITOR AGREEMENT THIS SIXTH AMENDMENT dated as of October 23, 1998, among RELIASTAR LIFE INSURANCE COMPANY, formerly known as Northwestern National Life Insurance Company, a Minnesota corporation, NORTHERN LIFE INSURANCE COMPANY, a Washington corporation and RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK successor by merger to The North Atlantic Life Insurance Company Of America, a New York corporation, each having a mailing address at c/o Washington Square Capital, Inc., 1500 Northstar West, 625 Marquette Avenue South, Minneapolis, Minnesota 55402 (collectively, in their capacity as lenders under the First Note Purchase Agreement referred to below, the "First Insurance Companies", and individually, a "First Insurance Company"); NORTHERN LIFE INSURANCE COMPANY, a Washington corporation, ROYAL MACCABEES LIFE INSURANCE COMPANY, a Michigan corporation, RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK, successor by merger to THE NORTH ATLANTIC LIFE INSURANCE COMPANY OF AMERICA, a New York corporation, FARM BUREAU LIFE INSURANCE COMPANY OF MICHIGAN, a Michigan corporation, FB ANNUITY COMPANY, a Michigan corporation, and FARM BUREAU MUTUAL INSURANCE COMPANY OF MICHIGAN, a Michigan corporation, each having a mailing address at c/o Washington Square Capital, Inc., 100 Washington Square, Suite 800, Minneapolis, Minnesota 55401 (collectively, in their capacity as lenders under the Second Note Purchase Agreement referred to below, the "Second Insurance Companies", and individually, a "Second Insurance Company"; NORTHERN LIFE INSURANCE COMPANY, a Washington corporation and RELIASTAR LIFE INSURANCE COMPANY, formerly known as NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY, a Minnesota corporation (collectively, in their capacities as lenders under the Third Note Purchase Agreement, the "Third Insurance Companies" and individually, a "Third Insurance Company", and together with the First Insurance Companies and the Second Insurance Companies, sometimes collectively referred to herein as the "Insurance Companies" and individually as an "Insurance Company"); ABN AMRO BANK N.V., NEW YORK BRANCH; FLEET PRECIOUS METALS INC.; CREDIT SUISSE FIRST BOSTON, f/k/a Credit Suisse, New York Branch and PARIBAS ("Paribas"); BANKBOSTON, N.A., f/k/a Rhode Island Hospital Trust National Bank ("BankBoston") (collectively, in their capacity as consignors under the Consignment Agreements referred to below, the "Consignors", and individually, a "Consignor") and THE CHASE MANHATTAN BANK (as successor in interest to Chemical Bank ("Chase")). W I T N E S S E T H: WHEREAS, the Insurance Companies, the Consignors (other than Paribas) and Chase are parties to a certain Amended and Restated Intercreditor Agreement dated as of August 20, 1993 (hereinafter, as amended by a certain First Amendment dated as of November 15, 1993, a certain Second Amendment dated as of May 16, 1994, a certain Third Amendment dated as of 1 2 September 1, 1994, a certain Fourth Amendment dated as of February 15, 1995, and a certain Fifth Amendment dated October 20, 1995 the "Intercreditor Agreement"), pursuant to which the Insurance Companies, the Consignors and Chase have established among themselves the priority of their security interests in the Collateral (as defined therein) of MICHAEL ANTHONY JEWELERS, INC., a Delaware corporation ("Debtor") and have provided for the enforcement of such security interests; and WHEREAS, Paribas has requested that it be added as a "Consignor" pursuant to the terms of the Intercreditor Agreement as Paribas will be entering into a consignment arrangement with Debtor; and WHEREAS, Paribas is willing to assume all obligations and liabilities under the Intercreditor Agreement as a Consignor thereunder and to comply with the covenants and terms of such Intercreditor Agreement and any documents executed by the Consignors in connection with the Intercreditor Agreement; and WHEREAS, the First Insurance Companies have been paid in full; and WHEREAS, BankBoston has terminated the consignment arrangement between BankBoston and the Debtor; and WHEREAS, each of The Mocatta Group, a Division of Standard Chartered Bank, Deutsche Bank, A.G., New York Branch and Union Bank of Switzerland, by their execution of letters dated October 14, 1998, October 14, 1998 and October 20, 1998, respectively, have each acknowledged that they have terminated their consignment relationships with the Debtor and, accordingly, are no longer a party to the Intercreditor Agreement; WHEREAS, Debtor has requested, and Consignors have agreed, that Debtor may assign the Marks (as defined in that certain Security Agreement (Trademarks and Service Marks) dated October 23, 1998, 1998 ("MAJ Delaware Security Agreement") among Debtor and the Consignors) to MA BRANDS, INC., a Delaware corporation, a newly-formed, wholly-owned subsidiary of Debtor ("MAJ Delaware"); and WHEREAS, MAJ Delaware and Debtor are entering into a certain License Agreement whereby MAJ Delaware grants to Debtor certain rights to use the Marks; and WHEREAS, MAJ Delaware has agreed to enter into the MAJ Delaware Security Agreement; and WHEREAS, the parties hereto wish to reflect the relationship of the parties with respect to the Marks; 2 3 NOW, THEREFORE, in consideration of the premises and the agreements hereinafter set forth and for other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereto agree as follows: 1. Capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Intercreditor Agreement. 2. Paribas is hereby added as a party to the Intercreditor Agreement, with Paribas to be included as a Consignor pursuant to the terms of the Intercreditor Agreement. 3. The Intercreditor Agreement is hereby amended so that the terms "Consignor" and "Consignors" as used therein and herein shall include, from and after the date hereof, Paribas and Paribas shall be entitled to all of the rights and benefits as a Consignor thereunder and hereby assumes full liability for the performance and observance of all and singular of the covenants, agreements and conditions of the Intercreditor Agreement which are to be performed by the Consignors thereunder. 4. The First Insurance Companies are hereby deleted as parties to the Intercreditor Agreement and the First Insurance Companies are hereby released of any and all liability for the performance and observance of all and singular of the covenants, agreements, and conditions of the Intercreditor Agreement which are to be performed by the First Insurance Companies thereunder. All references to "the First Insurance Company Agreements" in the Intercreditor Agreement are hereby deleted from the Intercreditor Agreement. The First Insurance Companies shall no longer be entitled to any of the benefits of the Intercreditor Agreement. 5. BankBoston is hereby deleted as a party to the Intercreditor Agreement and BankBoston is hereby released of any and all liability for the performance and observance of all and singular of the covenants, agreements, and conditions of the Intercreditor Agreement which are to be performed by the Consignors thereunder. BankBoston shall no longer be entitled to any of the benefits of the Intercreditor Agreement. 6. The first "WHEREAS" clause of the Intercreditor Agreement is hereby deleted. 7. The third "WHEREAS" clause of the Intercreditor Agreement is hereby amended to read as follows: "WHEREAS, the Consignors, severally and not jointly, may (in their sole and individual discretion) extend financial accommodations to Debtor pursuant to certain Consignment Agreements or Amended and Restated Consignment Agreement dated as of August 20, 1993 (January 31, 1994 in the case of Credit Suisse and October ___, 1998 in the case of Paribas) between Debtor and each of the Consignors (as amended, and as the same may be amended from time to time, the "Consignment Agreements"); and" 3 4 8. The fifth "WHEREAS" clause of the Intercreditor Agreement is hereby amended to read as follows: "WHEREAS, Debtor, the Consignors and Fleet Precious Metals Inc., for itself and as agent for the Consignors (the "Agent"), have entered into a Security Agreement dated August 20, 1993 (as amended and as the same may be amended from time to time, the "Consignor Security Agreement'); and" 9. The Marks are hereby included in the definition of "Collateral" for purposes of the Intercreditor Agreement and shall be included in the definition of "Consignor Primary Collateral" for all purposes of the Intercreditor Agreement. 10. All references set forth in the Intercreditor Agreement to "Chemical Bank" or "Chemical" or the "Chemical Security Agreement" shall be deemed to mean and refer to "The Chase Manhattan Bank" and "Chase" and the "Chase Security Agreement", respectively. 11. Section 15 of the Intercreditor Agreement is amended to read as follows: "All notices to be given hereunder shall be given at the address for a party set forth on the first page hereof or the signature page hereof or, if a party is added to this Intercreditor Agreement by an amendment hereto, then for such party, at the address set forth on the signature page to the applicable amendment to the Intercreditor Agreement, or to such other address as a party may designate for itself by like notice and shall be deemed to have been validly served, given or delivered (i) on the fourth (4th) day following deposit in the United States mails (by registered or certified mail), with proper postage prepaid, (ii) on the day of transmittal by telex, cable or other electronic communication device capable of providing a written document, or (iii) if sent by overnight delivery service, when received or when delivery is refused." 12. Any necessary, conforming changes to the Intercreditor Agreement occasioned by reason of this Sixth Amendment are hereby deemed to be made. 13. This Sixth Amendment shall be binding upon the parties and their respective successors and assigns. 14. Each of the Insurance Companies, each of the Consignors and Chase acknowledge and agree that, except as expressly provided herein, the terms and provisions of the Intercreditor Agreement remain unchanged and the Intercreditor Agreement remains in full force and effect in accordance with its terms. The terms "Agreement" as used in the Intercreditor Agreement and all references to the Intercreditor Agreement in any other documents or agreements by and between any of the parties hereto which related to Debtor shall refer, from and after the date hereof, to the Intercreditor Agreement as amended and supplemented by this Sixth Amendment. 4 5 15. This Sixth Amendment shall be construed in accordance with and governed by the laws of the State of New York, without giving effect to the conflict of laws principles thereof. 16. This Sixth Amendment may be executed with one or more counterparts hereof, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment to be executed by their duly authorized officers as of the date first above written. RELIASTAR LIFE INSURANCE COMPANY, formerly known as NORTHWESTERN NATIONAL LIFE INSURANCE COMPANY By \s\: James V. Wittich --------------------------------- Title Authorized Representative ------------------------------ NORTHERN LIFE INSURANCE COMPANY By \s\: James V. Wittich --------------------------------- Title Assistant Treasurer ------------------------------ ROYAL MACCABEES LIFE INSURANCE COMPANY By \s\: Leonard S. Davenport --------------------------------- Title Director of Fixed Income ------------------------------ RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK, successor by merger to THE NORTH ATLANTIC LIFE INSURANCE COMPANY OF AMERICA By \s\: James V. Wittich --------------------------------- Title Vice President, Investments ------------------------------ FARM BUREAU LIFE INSURANCE COMPANY OF MICHIGAN By \s\: Steven R. Harkness --------------------------------- Title Portfolio Manager ------------------------------ 5 6 FB ANNUITY COMPANY By \s\: Steven R. Harkness --------------------------------- Title Portfolio Manager ------------------------------ FARM BUREAU MUTUAL INSURANCE COMPANY OF MICHIGAN By \s\: Steven R. Harkness --------------------------------- Title Portfolio Manager ------------------------------ FLEET PRECIOUS METALS INC. By: \s\: Sharon DelFino --------------------------------- Title: Vice President ------------------------------ By: \s\: Karen M. Sheil --------------------------------- Title: Vice President Address: 111 Westminster Street Providence, RI 02903 Attention: Sharon Delfino Telecopier: (401) 278-3077 ABN AMRO BANK N.V., NEW YORK BRANCH By: \s\: Jeffrey Sarfaty --------------------------------- Title: Vice President ------------------------------ By: \s\: Ned Kapelman --------------------------------- Title: Vice President ------------------------------ Address: 500 Park Avenue New York, NY 10017 Attention: Jeffrey Sarfaty Telecopier: (212) 644-6905 6 7 CREDIT SUISSE FIRST BOSTON formerly known as CREDIT SUISSE, NEW YORK BRANCH By: \s\: Stanley R. Steinberg --------------------------------- Title: Director ------------------------------ By: \s\: Stuart B. Ganes --------------------------------- Title: Vice President ------------------------------ Address: 11 Madison Avenue New York, New York 10010 Attention: Stuart Gaines Telecopier: (212) 238-2426 PARIBAS By: \s\: Amy Kirschner --------------------------------- Title: Vice President ------------------------------ By: \s\: R. Giurici --------------------------------- Title: Vice President ------------------------------ Address: 787 Seventh Avenue New York, NY 10019 Attention: Amy N. Kirschner Telecopier: (212) 841-2536 BANKBOSTON, N.A., f/k/a Rhode Island Hospital Trust National Bank By \s\: Albert Brown --------------------------------- Title Director ------------------------------ THE CHASE MANHATTAN BANK By \s\: Irene Spector --------------------------------- Title Vice President ------------------------------ By --------------------------------- Title ------------------------------- Address: 111 West 40th Street New York, NY 10018 Attention: Irene Spector Telecopier: (212) 403-5112 7 8 Consented and agreed to: MICHAEL ANTHONY JEWELERS, INC. By \s\: Michael A. Paolercio ----------------------------- Title Treasurer -------------------------- 8 EX-27 5 EXHIBIT 27
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR MICHAEL ANTHONY JEWELERS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JAN-31-1999 FEB-02-1998 OCT-31-1998 0 0 39,423 (862) 15,735 57,379 43,999 26,870 75,596 21,722 10,436 0 0 8 42,620 75,596 101,102 101,102 79,461 79,461 17,937 111 1,672 1,921 730 0 0 0 0 1,191 .17 0
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