<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended 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
<PAGE> 2
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
PAGE
----
PART I FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
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
</TABLE>
<PAGE> 3
MICHAEL ANTHONY JEWELERS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
-3-
<PAGE> 4
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
-4-
<PAGE> 5
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
---------------------- Paid-In Retained -----------------------
Shares Dollars Capital Earnings Shares Dollars Total
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
January 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
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
-5-
<PAGE> 6
MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
October 31, November 1,
1998 1997
----------- -----------
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
-6-
<PAGE> 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-
<PAGE> 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:
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
------- -------
(Unaudited)
(In thousands)
<S> <C> <C>
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
======= =======
</TABLE>
Inventories as of October 31, 1998 and January 31, 1998 excluded
approximately 159,800 and 108,900 ounces of gold on consignment,
respectively.
-8-
<PAGE> 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-
<PAGE> 10
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 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-
<PAGE> 11
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 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-
<PAGE> 12
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 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-
<PAGE> 13
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 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-
<PAGE> 14
ITEM 2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(INFORMATION SUBSEQUENT TO JANUARY 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 20
EXHIBIT INDEX
TO
FORM 10-Q FOR QUARTER ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
Exhibit No. Page No.
----------- --------
<S> <C> <C>
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
</TABLE>
-20-
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
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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
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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.
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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
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(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;
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<PAGE> 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
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<PAGE> 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;
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(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;
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(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;
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(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;
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(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;
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(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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 8
Consented and agreed to:
MICHAEL ANTHONY JEWELERS, INC.
By \s\: Michael A. Paolercio
-----------------------------
Title Treasurer
--------------------------
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-02-1998
<PERIOD-END> OCT-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 39,423
<ALLOWANCES> (862)
<INVENTORY> 15,735
<CURRENT-ASSETS> 57,379
<PP&E> 43,999
<DEPRECIATION> 26,870
<TOTAL-ASSETS> 75,596
<CURRENT-LIABILITIES> 21,722
<BONDS> 10,436
0
0
<COMMON> 8
<OTHER-SE> 42,620
<TOTAL-LIABILITY-AND-EQUITY> 75,596
<SALES> 101,102
<TOTAL-REVENUES> 101,102
<CGS> 79,461
<TOTAL-COSTS> 79,461
<OTHER-EXPENSES> 17,937
<LOSS-PROVISION> 111
<INTEREST-EXPENSE> 1,672
<INCOME-PRETAX> 1,921
<INCOME-TAX> 730
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,191
<EPS-PRIMARY> .17
<EPS-DILUTED> 0
</TABLE>
