-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BwsZxf1Kadl7EOElyF+LqGryLVgN/qAjvSlNmhTaE1g8C2n5NTq0kl/fK58QiBNy /9St14zZMVnlLNwpJ60a3A== 0000950152-02-003276.txt : 20020424 0000950152-02-003276.hdr.sgml : 20020424 ACCESSION NUMBER: 0000950152-02-003276 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20020202 FILED AS OF DATE: 20020424 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICHAEL ANTHONY JEWELERS INC CENTRAL INDEX KEY: 0000799515 STANDARD INDUSTRIAL CLASSIFICATION: JEWELRY, PRECIOUS METAL [3911] IRS NUMBER: 132910285 STATE OF INCORPORATION: DE FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10645 FILM NUMBER: 02619252 BUSINESS ADDRESS: STREET 1: 115 SO MACQUESTEN PKWY CITY: MOUNT VERNON STATE: NY ZIP: 10550 BUSINESS PHONE: 9146990000 MAIL ADDRESS: STREET 1: 115 SOUTH MACQUESTEN PKWY STREET 2: 115 SOUTH MACQUESTEN PKWY CITY: MOUNT VERNON STATE: NY ZIP: 10550 10-K 1 l93497ae10-k.txt MICHAEL ANTHONY JEWELERS, INC. FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 2, 2002 COMMISSION FILE NUMBER: 0-15230 MICHAEL ANTHONY JEWELERS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 13-2910285 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 115 SOUTH MACQUESTEN PARKWAY 10550 MOUNT VERNON, NEW YORK (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 699-0000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK PAR VALUE $.001 AMERICAN STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. X --- As of April 5, 2002, there were 6,338,234 shares outstanding of Michael Anthony's common stock. The aggregate market value of common stock held by nonaffiliates at April 5, 2002 was $10,731,921. For purposes of this calculation, affiliates includes Michael Anthony's executive officers and directors. DOCUMENTS INCORPORATED BY REFERENCE: Part III Portions of registrant's Definitive Proxy Statement for Annual Meeting of Stockholders for Fiscal 2002 (to be filed within 120 days of end of fiscal year). 2 PART I ITEM 1. BUSINESS. GENERAL Michael Anthony Jewelers, Inc. ("Michael Anthony") is a leading designer, marketer and manufacturer of affordable fine jewelry in the United States. We sell our jewelry directly to jewelry chain stores, discount stores, department stores, television home shopping networks, and wholesalers. Our jewelry is targeted towards the middle market, which generally retails between $20 and $200 and between $300 and $1,200 for watches. Our products include rope chain, bracelets, charms, pendants, earrings, rings and watches. Our products are sold in over 20,000 retail locations nationwide. Our home page on the Internet is www.michaelanthony.com. You can learn about Michael Anthony by visiting that site. Michael Anthony was organized as a Delaware corporation in 1986 and is the successor to Michael Anthony Jewelers, Inc., a New York corporation, organized in 1977. FISCAL YEAR Fiscal years ended February 2, 2002, January 27, 2001, and January 29, 2000 were comprised of 53, 52 and 52 weeks, respectively. As used throughout this document, (a) fiscal 2002 refers to the fiscal year ended February 2, 2002 (b) fiscal 2001 refers to the fiscal year ended January 27, 2001, and (c) fiscal 2000 refers to the fiscal year ended January 29, 2000. PRODUCT LINES Michael Anthony offers a broad selection of handcrafted gold and gemstone jewelry. Many of our products carry the "Ma" trademark, which has become widely recognized in the jewelry industry and with certain consumers. Michael Anthony manufactures an extensive selection of casted gold charms and pendants including religious symbols; popular sayings; sport themes and team logos; animal motifs; nautical, seashore, western, musical, zodiac and other thematic figures; initials; and abstract artistic creations. We manufacture gold rope, mesh and other chains and gold locks, and gold tubing and bangle blanks used in the production of bangle bracelets and earrings. We manufacture gold, stamped and tubed earrings, pendants and certain jewelry components. We also manufacture a line of men's and ladies' 14 karat gold watches under the "Michael Anthony" brand name. In addition, Michael Anthony designs, manufactures and distributes karat gold jewelry accented with colored gemstones and invisible set diamond rings. We have begun the outsourcing of certain gold products to enhance our product line. 3 The table below sets forth the approximate percentage of (a) sales and (b) kilograms shipped in fiscal years 2002, 2001 and 2000, respectively, attributable to each of Michael Anthony's product categories.
------------------------------------------------------------------------------ Fiscal Fiscal Fiscal 2002 2001 2000 ------------------------------------------------------------------------------ % of % of % of % of Kilograms % of Kilograms % of Kilograms Sales Shipped Sales Shipped Sales Shipped - --------------------------------- ---------- --------------- ---------- -------------- ---------- -------------- Casted charms/rings 30 26 30 25 34 29 - --------------------------------- ---------- --------------- ---------- -------------- ---------- -------------- Chains 43 51 43 53 42 50 - --------------------------------- ---------- --------------- ---------- -------------- ---------- -------------- Stamped/tubed earrings 14 12 10 8 9 7 - --------------------------------- ---------- --------------- ---------- -------------- ---------- -------------- Watches and other items 13 11 17 14 15 14 - --------------------------------- ---------- --------------- ---------- -------------- ---------- --------------
Michael Anthony maintains an in-house design staff which utilizes CAD/CAM (computer aided design/computer aided manufacturing) technology to enhance our design, modeling and production capabilities. The equipment is utilized for the design of Michael Anthony's new products and for modifying the scale of existing designs whenever possible. Michael Anthony obtains proprietary protection for its products and designs. Michael Anthony updates its product offerings periodically by adding new designs and eliminating less popular styles. We believe that our future success will depend, in part, on our ability to enhance existing product lines and develop new styles and products to meet an expanding range of customer requirements. As of April 5, 2002, our product development staff consisted of 21 full time employees. Product development expenses for molds and models for fiscal 2002 were approximately $794,310. We anticipate that we will continue to commit substantial resources to product development. 4 MANUFACTURING PROCESS Our manufacturing facility is located in Mount Vernon, New York. We utilize manufacturing processes that combine modern technology and mechanization with hand craftsmanship to produce fashionable and affordable gold jewelry. Our manufacturing processes include: - the casting (or lost wax) method, which is a long-standing jewelry manufacturing process; - a photo etching process, which has allowed Michael Anthony to enter the lower priced segment of the market through production of ultra light weight products; and - the diamond cut process, which produces a sparkling effect on a finished piece of gold jewelry. The machinery on which we manufacture our rope chain products can operate 24 hours a day and requires minimal direct labor. This has enabled us to become one of the lowest cost producers of rope chain in the world. During fiscal 2002, Michael Anthony manufactured approximately 89% of its products from gold bullion and other raw materials and purchased approximately 11% of its product as semi-finished or finished goods. Michael Anthony does not believe the loss of any supplier would have a material adverse effect on its business. Alternative sources of supply for the goods purchased by Michael Anthony are readily available. During fiscal 2002, Michael Anthony completed construction of a new 40,000 square feet manufacturing and assembly facility located in the Dominican Republic. The facility is used for manufacturing, finishing, assembly of castings, earrings and bangle bracelets. OPEN ORDERS Orders from our retail customers typically have shipment dates that range from 24 hours to 60 days. As of April 5, 2002, the aggregate dollar value of open orders was approximately $10,851,000. We expect that substantially all of the current orders will be shipped in the next 90 days. We do not believe that open orders are indicative of our future results of operations, as open orders as of any given date are not necessarily indicative of sales trends. MARKETING AND SALES We market and sell our jewelry primarily through our in-house sales force. Sales are made by our sales personnel primarily at our showroom in Mount Vernon, New York and direct presentations at customers' locations. Products are promoted through the use of catalogues, advertisements in trade publications, trade show exhibitions, cooperative advertising allowances with certain customers and advertisements in consumer magazines like Vogue, In Style, Martha Stewart and Vanity Fair. 5 Our marketing strategy is to increase brand recognition of the "Michael Anthony" name. This includes advertising in consumer magazines and other publications of many of America's finest retailers. We believe that there is growing brand recognition of the "Michael Anthony" name and the "Ma" trademark with consumers and that this recognition has enhanced sales of our products. To better meet our customers' needs, we have a wide range of customer service programs: - inventory management assistance through electronic data interchange; - customized packaging and bar coding; and - computerized analysis of sales and marketing trends. Our vertical integration and customer service programs enable us to be responsive to our customers' needs. We manufacture and deliver most orders on a timely and more cost-effective basis than many of our competitors. Our jewelry is sold primarily to jewelry chain stores, discount stores, department stores, television home shopping networks, and wholesalers. We assist our customers in allocating their purchasing budget among the items in the various product lines. We advise them of items having higher consumer demand as determined by Michael Anthony's computerized market analysis. Prices vary on the basis of service required by customers. We ship our products in bulk to wholesale distributors. For certain retail jewelry chains, such as Sterling, Inc. (a division of Signet Group PLC and the owner of Kay Jewelers and J.B. Robinson Jewelers), Wal*Mart, J.C. Penney, Zales and Kmart, we prepackage and price tag most items. We then ship an order of many different items to distribution centers and stores in the chain. We provide additional services to certain customers to meet their specific marketing needs, such as tagging, boxing and point-of-sale displays. We also ship our jewelry to a limited number of customers on a consignment basis. Through these arrangements, we deliver our products on consignment, and upon sale, the customer pays Michael Anthony for the consigned merchandise. Consigned merchandise is subject to our own consignment arrangements with our gold lenders. See Item 1. "Business - Supply; Related Financing Arrangements" and Item 7. "Management's Discussion And Analysis Of Financial Condition And Results of Operations - Liquidity and Capital Resources." During fiscal 2002, sales to the five largest of Michael Anthony's customers totaled approximately 60% of total net sales. Our two largest customers were Wal-Mart and Home Shopping Network, accounting for 17.4% and 14.3%, respectively, of net sales. Except for certain retail customers, Michael Anthony generally has no long-term contractual commitments with any of our customers. None of Michael Anthony's customers are prohibited from purchasing products from our competitors. 6 We reduce gross sales by the amount of returns and discounts to determine net sales each month. Each month we establish a reserve for returns based on our historical experience, the amount of gross sales and the customer base. The total of actual returns and the provision for the returns reserve amounted to approximately 11.5%, 12.2% and 11.1% of gross sales in each of fiscal 2002, fiscal 2001 and fiscal 2000, respectively. For further information regarding the reserve for returns, see Note 1 - Notes to Consolidated Financial Statements. If we lose one or more of our top customers or if any of them reduce, delay or cancel orders, return significant amounts of product or experience financial difficulties that result in their inability to pay, it could have a material adverse effect on our business, operating results and financial condition. INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS We use Italian-made machinery, together with acquired proprietary knowledge, to manufacture our rope chain products. Michael Anthony maintains certain trademarks and generally applies for copyrights covering the design of certain of our products. The level of protection available for our proprietary designs and products varies depending on a number of factors, including the distinctiveness of the product and originality of design. Our patents, trademarks and copyrights may not prevent competitors from producing products that are substantially similar to those of Michael Anthony. See Item 1. "Business - Product Lines." Michael Anthony seeks to avoid disclosure of its trade secrets, and requires those people with access to our proprietary information to sign confidentiality agreements. Access to our systems is also restricted. Despite Michael Anthony's efforts to protect our trademarks, copyrights and other proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that Michael Anthony considers confidential. Policing unauthorized use of Michael Anthony's intellectual property rights is difficult. We take appropriate action whenever we discover unauthorized use of our trademarks or if any of our copyrighted designs have been copied. Knockoffs and counterfeit products are a persistent problem in the jewelry industry. The laws of many countries do not protect our intellectual property rights to the same extent as the laws of the United States. There can be no assurance, that even if Michael Anthony's means of protecting our intellectual property and other proprietary rights were successful, our competitors may not independently develop similar products. We do not believe that our products or processes infringe on the proprietary rights of any third parties. There can be no assurance that third parties will not claim infringement with respect to existing or future products or processes. Any such claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require Michael Anthony to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to Michael Anthony or at all, which could have a material adverse effect on Michael Anthony's business, operating results and financial condition. 7 COMPETITION The jewelry industry is highly competitive, both in the United States and on a global basis. Michael Anthony encounters competition primarily from manufacturers with national and international distribution capabilities and, to a lesser extent, from small regional suppliers of jewelry. We believe that we are well positioned in the industry and have a reputation for responsive customer service, high quality and well-designed jewelry with broad consumer appeal. The principal competitive factors in the industry are price, quality, design and customer service. Our specialized customer service programs are important competitive factors in sales to nontraditional jewelry retailers, including television shopping networks. The recent trend towards consolidation at the retail level in the jewelry industry and low labor costs outside of the United States may increase the level of competition facing Michael Anthony. There can be no assurance that Michael Anthony will be able to compete successfully against current and future competitors or that competitive pressures faced by us will not have a material adverse effect on our business, operating results and financial condition. SEASONAL NATURE OF BUSINESS Our business is seasonal in nature. Presented below are our net sales for each quarter of fiscal 2002, fiscal 2001 and fiscal 2000:
NET % OF SALES NET SALES ----- --------- ($ IN THOUSANDS) ---------------- Fiscal 2002 Ended February 2, 2002 First Quarter $29,176 21% Second Quarter $28,210 20% Third Quarter $50,981 36% Fourth Quarter $33,551 23% Fiscal 2001 Ended January 27, 2001 First Quarter $25,700 21% Second Quarter $24,821 20% Third Quarter $41,045 33% Fourth Quarter $33,152 26% Fiscal 2000 Ended January 29, 2000 First Quarter $28,982 20% Second Quarter $25,331 17% Third Quarter $49,935 35% Fourth Quarter $40,689 28%
Michael Anthony has experienced a seasonal pattern in its operating results with the third and fourth quarters typically having the highest sales. This fluctuation is mitigated to a degree by the early placement of orders by many of our customers, particularly for the Christmas holiday season. In addition, we market holiday and seasonal products year round for such 8 occasions as Mother's Day, Valentine's Day, Father's Day, religious holidays and school graduations. GOLD SUPPLY AND RELATED FINANCING ARRANGEMENTS Gold used in the manufacturing process is at least .995 fine and is then combined with other metals to produce 14 karat and 10 karat gold. The term "karat" refers to the gold content of alloyed gold, measured from a maximum of 24 karats (100% fine gold). Varying quantities of metals such as silver, copper, nickel and zinc are combined with fine gold to produce 14 karat gold of different colors. These alloys are in abundant supply and are readily available to Michael Anthony. Michael Anthony uses gold consignment arrangements with the gold lenders to supply substantially all of its gold needs. See Item 7. "Management's Discussion And Analysis And Financial Condition And Results Of Operations-Liquidity and Capital Resources." INSURANCE We maintain primary all-risk insurance, with limits in excess of our current inventory levels (including consigned gold), to cover thefts and damage to inventory located on our premises and insurance on Michael Anthony goods in transit. We also maintain insurance covering theft and damage to inventory at our suppliers' locations. The amount of coverage available under such policies is limited and may vary by location, but generally is in excess of the value of the gold held by a particular supplier. Additional insurance coverage is provided by some of Michael Anthony's suppliers. We also maintain fidelity insurance, which is insurance providing coverage against theft or embezzlement by our employees. EMPLOYEES As of February 2, 2002, we employed 742 persons, 368 of which were directly engaged in manufacturing and distribution operations, 164 of which were engaged in administration and sales and 210 of which were employed at our assembly facility in the Dominican Republic. None of our employees are represented by a union and we have not experienced any labor-related work stoppage. We place a heavy emphasis on employee relations through educational and training programs and employee teams. We consider our relations with our employees to be good. We believe there is an adequate pool of labor available to satisfy our foreseeable hiring needs for our sales, manufacturing and distribution operations. ENVIRONMENTAL MATTERS Extensive environmental laws and regulations and various other federal, state and local laws and regulations regarding health and safety matters affect our operations. Since our manufacturing operations routinely use materials regulated by the environmental laws we may incur material liabilities if any claims are brought against us in connection with these operations. We have taken steps to reduce the environmental risks associated with our operations and believe that we are currently in substantial compliance with all environmental laws. 9 AGREEMENTS Although we intend to continue to aggressively market our gold jewelry product lines to our existing customer base, we believe there are opportunities to increase sales by expanding our customer base and exploring product lines that may utilize diamonds or colored stones, which are precious, semiprecious or synthetic. Our strategy is to increase sales to new and existing customers as well as raise our average price points and gross margins. On December 22, 2000, Michael Anthony entered into a distribution agreement with the Almond Jewelry Group. Under the arrangement, Michael Anthony has acquired the exclusive rights to market and distribute gold jewelry products manufactured by Almond to retailers in the United States. Almond will no longer directly market its gold jewelry products to retailers in the United States. Michael Anthony has also entered into a supply agreement with Almond, which will assure its customer base the continuity of a supply of high quality and innovative merchandise. In connection with the distribution agreement, Almond was issued warrants to purchase 300,000 shares of common stock at a price of $1.62 per share. As a result of this agreement, we have increased our market share with an existing customer and added new customers. We plan to pursue our long term growth strategy, that may include the acquisition of one or more additional companies that manufacture and distribute jewelry products. ITEM 2. PROPERTIES. Our manufacturing and distribution facilities are all owned and they are located in three adjacent buildings in Mount Vernon, New York having a total of approximately 74,000 square feet. On September 16, 1999, Michael Anthony acquired the buildings which house two manufacturing facilities, located at 70 and 60 South MacQuesten Parkway, Mount Vernon, NY from MacQuesten Realty Company for a price of $2,450,000. Michael Anthony incurred $929,000 of long term debt, which has a four-year term and accrues interest at an annual rate of 7.50%, and paid the balance with cash. At February 2, 2002, $427,000 of principal remained outstanding under the loan. On February 10, 1999, the Company obtained a loan in the amount of $937,500. As collateral for the loan, the Company granted the lender a first mortgage on one of its manufacturing facilities. The mortgage has a fifteen-year term and accrues interest at an annual rate of 7.05%. At February 2, 2002, $823,000 of principal remained outstanding under the loan. We also own the building housing our sales and administrative offices located at 115 South MacQuesten Parkway, in Mount Vernon, New York, and an adjacent parking area. The headquarters building has approximately 71,000 square feet. The mortgage has a ten-year term and accrues interest at an annual rate of 8.0%. There is a balloon payment of $1,149,000 due on October 20, 2002. At February 2, 2002, $1,785,000 of principal remained outstanding under the loan. 10 See Item 7. "Management's Discussion And Analysis Of Financial Condition And Results Of Operations" and Item 13. "Certain Relationships And Related Transactions." Our offices and facilities are protected by state-of-the-art security systems, procedures and a security staff. The Company believes our current manufacturing, distribution and administrative facilities are adequate for our current needs. During fiscal 2000, Michael Anthony began leasing a 7,500 square foot assembly facility in the Dominican Republic. The facility was used for finishing and assembly of earrings and bangle bracelets. The lease was terminated in June 2001. During fiscal 2002, Michael Anthony, through MADOR S.A., completed the construction of a 40,000 square feet assembly and manufacturing facility located in the Dominican Republic. The facility was operational in May 2001 at a cost of approximately $2,000,000 for land, building, machinery and equipment with cash. ITEM 3. LEGAL PROCEEDINGS. Legal proceedings to which Michael Anthony is a party are routine litigation incidental to our business which are not material to Michael Anthony's business or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our common stock is traded on the American Stock Exchange under the symbol MAJ. Our common stock began its listing on AMEX on October 25, 1991. Prior to its listing on AMEX, our common stock was traded in NASDAQ National Market System. The following table sets forth the high and low sale prices per share on AMEX for the fiscal years 2002 and 2001. HIGH LOW ---- --- FISCAL YEAR ENDED FEBRUARY 2, 2002 - ---------------------------------- First Quarter 1 1/2 2 Second Quarter 1 11/16 2 13/16 Third Quarter 2 1/8 2 3/4 Fourth Quarter 2 13/16 2 15/16 FISCAL YEAR ENDED JANUARY 27, 2001 - ---------------------------------- First Quarter 3 1/8 2 9/16 Second Quarter 3 2 1/8 Third Quarter 2 1/2 1 3/4 Fourth Quarter 2 1 7/16 As of April 5, 2002, there were 1,094 holders of record of Michael Anthony's common stock. We have never paid a cash dividend. We anticipate that all of our earnings will be retained for use in our business and we do not intend to pay cash dividends in the foreseeable future. Future dividend policy will depend upon, among other factors, our earnings and financial condition. See Item 7. "Management's Discussion And Analysis Of Financial Condition And Results Of Operations," and Note 6 "Long Term Debt" - Notes to the Consolidated Financial Statements. In December 1995, we announced a common stock repurchase program under which Michael Anthony 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 we may repurchase under the stock repurchase plan. On May 26, 1998, the board authorized a further increase of up to an additional 1,000,000 shares of common stock that we may repurchase under the stock repurchase plan. The combined total of the stock repurchase programs amount to 2,250,000 shares. As of April 5, 2002, Michael Anthony had purchased a total of 2,143,000 shares on the open market for an aggregate of approximately $6,429,000, at an average price of $3.00. 12 ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data of Michael Anthony should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Form 10-K.
Feb. 2, Jan. 27, Jan. 29, Jan. 30, Jan. 31, 2002 2001 2000 1999 1998 --------- --------- --------- --------- --------- (In thousands, except per share amounts) Statement of Operations - ----------------------- Net sales $ 141,918 $ 124,718 $ 144,937 $ 137,567 $ 129,949 Cost of goods sold 113,263 99,983 110,096 105,870 107,182 --------- --------- --------- --------- --------- Gross profit 28,655 24,735 34,841 31,697 22,767 Selling, general and administrative expenses 24,435 24,940 28,257 25,942 25,155 --------- --------- --------- --------- --------- Operating income/(loss) 4,220 (205) 6,584 5,755 (2,388) Other(expense)/income: Interest expense/ Gold consignment fee (2,806) (2,261) (2,699) (2,290) (2,827) Other income/(expense), net 119 140 342 326 1,002 --------- --------- --------- --------- --------- Income/(loss) before extraordinary item and income taxes 1,533 (2,326) 4,227 3,791 (4,213) Income tax provision/(benefit) 582 (886) 1,607 1,441 (1,601) --------- --------- --------- --------- --------- Income/(loss) before extraordinary item 951 (1,440) 2,620 2,350 (2,612) --------- --------- --------- --------- --------- Extraordinary item (net of income taxes of $130,000) - - - 212 - --------- --------- --------- --------- --------- Net income/(loss) $ 951 $ (1,440) $ 2,620 $ 2,138 $ (2,612) ========= ========= ========= ========= ========= Earnings/(loss) per share before extraordinary item - basic $ .15 $ (0.23) $ 0.40 $ 0.30 $ (0.34) ========= ========= ========= ========= ========= Earnings/(loss) per share before extraordinary item - diluted $ .15 $ (0.23) $ 0.39 $ 0.30 $ (0.34) ========= ========= ========= ========= ========= Extraordinary item $ - $ - $ - $ (.03) $ - ========= ========= ========= ========= ========= Weighted average number of shares - basic 6,203 6,319 6,592 7,111 7,746 Weighted average number of shares - diluted 6,314 6,319 6,702 7,111 7,746 Balance Sheet Data: - ------------------- Working capital $ 34,724 $ 33,231 $ 35,960 $ 39,171 $ 37,260 Total assets(1) 65,360 63,335 67,914 65,037 65,644 Long-term debt and capital lease liability 9,166 10,987 12,684 12,509 12,736 Stockholders' equity 43,492 42,681 44,044 43,298 43,389
(1) The fiscal years ended February 2, 2002, January 27, 2001, January 29, 2000, January 30, 1999, and January 31, 1998 do not include consigned inventory, which had approximate value of $40,635,000, $30,718,000, $38,076,000, $35,096,000, and $33,208,000, respectively. 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CRITICAL ACCOUNTING POLICIES Inventories and Cost of Goods Sold - ---------------------------------- Inventories are valued at lower of cost (first-in, first-out method) or market. The Company satisfies a majority of its gold supply needs through gold consignment agreements with financial institutions that lease gold to the Company ("gold lenders"), whereby the gold lenders have agreed to consign fine gold to the Company (see Note 4). In accordance with the terms of the agreements, the Company has the option of repaying the gold lenders in an equivalent number of ounces of fine gold or cash based upon the then quoted market price of gold. The principal component of cost of goods sold is the cost of the gold bullion and other raw materials used in the production of the Company's jewelry. Other components of cost of goods sold include direct costs incurred by the Company in its manufacturing operations, depreciation, freight and insurance. Revenue Recognition - ------------------- Revenue from sales to customers (other than consignment) is recognized at the time the merchandise is shipped. Merchandise sold under consignment arrangements between the Company and certain customers is not recognized as revenue by the Company until the products are sold by the consignee. In certain cases, the Company accepts payment for merchandise in gold. Additionally, the Company enters into arrangements for certain customers of its rope chain and tubing products whereby the gold value of the finished product is transferred in the form of fine gold ounces from the customer to the Company. The value of the finished product that exceeds the gold content value is recovered as revenue and the related cost to manufacture is recorded as an expense ("tolling arrangements"). Allowance for Sales Returns - --------------------------- The Company reduces gross sales by the amount of discounts and returns to determine net sales. Each month the Company estimates a reserve for returns based on historical experience and the amount of gross sales. The reserve is adjusted periodically to reflect the Company's actual return experience. Adjustments to the Company's reserve have not been material. Derivative Financial Instruments - -------------------------------- On January 28, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("FAS 133") "Accounting for Derivative Instruments and Hedging Activities", as amended, and interpreted, which requires that all derivative instruments be recorded on the balance sheet at their fair value. SFAS 133 requires the Company to recognize all derivatives as 14 either assets or liabilities on the balance sheet and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either stockholders' equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. The impact of adopting FAS 133 on the Company's Consolidated Statement of Operations and Consolidated Balance Sheet was not material. The Company uses financial instruments, including commodity futures, forwards and options on futures, to limit its exposure to fluctuations in the price of gold. The Company does not enter such contracts for speculative purposes. For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in earnings in the current period. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure of variability in expected future cash flows that would be attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of Accumulated comprehensive loss (a component of stockholders' equity) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument, if any (i.e., the ineffective portion and any portion of the derivative instrument excluded from the assessment of effectiveness) is recognized in earnings in the current period. Results of Operations The following table sets forth, as a percentage of net sales, certain items appearing in our Statements of Operations for the indicated fiscal years.
YEAR ENDED --------------------------------------------------------------------- FEBRUARY 2, JANUARY 27, JANUARY 29, JANUARY 30, 2002 2001 2000 1999 ---- ---- ---- ---- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 79.8 80.2 76.0 77.0 Selling, general and administrative expenses 17.2 20.0 19.5 18.8 Interest and gold consignment fee expense 2.0 1.8 1.9 1.7 Other income (.1) (.1) (.2) (.2) Income tax provision/(benefit) .4 (.7) 1.1 1.0 Extraordinary item - - - .1 Net income/(loss) .7 (1.2) 1.8 1.6
15 FISCAL 2002 VS. FISCAL 2001 Net sales for fiscal 2002 were approximately $141,918,000, an increase of 13.8% from net sales of approximately $124,718,000 for the comparable period in fiscal 2001. The increase in sales was primarily due to increased shipments to the retail segment of our customer base, primarily from the introduction of new products. Gross profit on sales for fiscal 2002 were approximately $28,655,000, an increase of $3,920,000 from approximately $24,735,000 for the comparable period in fiscal 2001. As a percentage of net sales, gross profit increased to 20.2% in fiscal 2002 compared to 19.8% in fiscal 2001. The increase in gross margin was attributable to a change in the customer and product mix and a reduction of costs primarily from the Company's manufacturing facility located in the Dominican Republic. Selling, general and administrative expenses for fiscal 2002 were approximately $24,435,000, a decrease of $505,000 or 2.0% from approximately $24,940,000 for the comparable period in fiscal 2001. The decrease is primarily attributable to decreases in (a) advertising expenses, (b) payroll and payroll related expenses, and (c) product and packaging supplies. Interest expense and gold consignment fees for fiscal 2002, were approximately $2,806,000, an increase of $545,000 or 24.1% compared to approximately $2,261,000 for the comparable period in fiscal 2001. The increase was primarily due to the Company's higher average level of consigned inventory, higher consignment rates and increased borrowings under the Company's line of credit. For the year ended February 2, 2002, an income tax provision of $582,000 was recorded compared to an income tax benefit of $886,000 for the prior year. The effective tax rates for fiscal 2002 and fiscal 2001 were 38%. As a result of the above factors our net income for fiscal 2002 was approximately $951,000 compared to a net loss of $(1,440,000) for fiscal 2001. FISCAL 2001 VS. FISCAL 2000 - --------------------------- Net sales for fiscal 2001 were approximately $124,718,000, a decrease of 14.0% from net sales of approximately $144,937,000 for the comparable period in fiscal 2000. The decrease in sales was primarily due to decreased shipments to the retail segment of our customer base. Gross profit on sales for fiscal 2001 were approximately $24,735,000, a decrease of $10,106,000 from approximately $34,841,000 for the comparable period in fiscal 2000. As a percentage of net sales, gross profit decreased to 19.8% in fiscal 2001 compared to 24.0% in fiscal 2000. The decrease in gross margin was attributable to a change in the customer and product mix. Selling, general and administrative expenses for fiscal 2001 were approximately $24,940,000, a decrease of $3,317,000 or 11.7% from approximately $28,257,000 for the 16 comparable period in fiscal 2000. The decrease is primarily attributable to decreases in (a) advertising expenses, (b) payroll and payroll related expenses, and (c) product and packaging supplies. Interest expense and gold consignment fees for fiscal 2001, were approximately $2,261,000, a decrease of $438,000 or 16.2% compared to approximately $2,699,000 for the comparable period in fiscal 2000. The decrease was primarily due to the Company's lower consignment rates and lower average level of consigned inventory. For the year ended January 27, 2001, an income tax benefit of $886,000 was recorded compared to an income tax provision of $1,607,000 for the prior year. The effective tax rates for fiscal 2001 and fiscal 2000 were 38%. As a result of the above factors our net loss for fiscal 2001 was approximately $(1,440,000) compared to net income of $2,620,000 for fiscal 2000. LIQUIDITY AND CAPITAL RESOURCES We rely on a gold consignment program, short-term borrowings and internally generated funds to finance our inventories and accounts receivable. We fill most of our gold supply needs through gold consignment arrangements with gold lenders. Under the terms of those arrangements, we are entitled to lease the lesser of (a) an aggregate of 240,000 ounces of fine gold or (b) consigned gold with an aggregate value equal to $79,000,000. The consigned gold is secured by certain property of Michael Anthony, including inventory and machinery and equipment. Michael Anthony 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. We believe that our financing rate under the consignment arrangements is substantially similar to the financing rates charged to gold consignees similarly situated to Michael Anthony. As of February 2, 2002, Michael Anthony held approximately 143,100 ounces of gold on consignment with a market value of $40,635,000. In December 2001, Michael Anthony was notified by one of its gold lenders that it planned to discontinue its involvement in gold trading and jewelry financing. In January 2002, the Company received approval from a new gold lender, and in February 2002, began a relationship with this new lender. The consignment agreements contain restrictive covenants relating to maximum usage, net worth, working capital and other financial ratios and each of the agreements requires Michael Anthony to own a specific amount of gold at all times. At February 2, 2002, Michael Anthony's owned gold inventory was valued at approximately $6,280,000. We believe that the supply of gold available through our gold consignment arrangements, together with the gold we own, is sufficient to meet our requirements. The consignment agreements are terminable by Michael Anthony or the respective gold lenders upon 30 days notice. If any gold lender were to terminate its existing gold consignment arrangement, we do not believe we would experience an interruption of our gold supply that would materially adversely affect the business. Michael Anthony believes that other consignors 17 would be willing to enter into similar arrangements if any gold lender terminates its relationship with Michael Anthony. Consigned gold is not included in our inventory, and there is no related liability recorded. As a result of these consignment arrangements, Michael Anthony is able to shift a substantial portion of the risk of market fluctuations in the price of gold to the gold lenders, since Michael Anthony does not purchase gold from the gold lenders until receipt of a purchase order from, or shipment of jewelry to, our customers. Michael Anthony then either locks in the selling price of the jewelry to our customers at the same time as 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. At February 2, 2002 there were 17,000 ounces on forward contracts and no options on futures outstanding. While we believe our supply of gold is relatively secure, significant increases or rapid fluctuations in the cost of gold may impact the demand for our products. From February 1999 until February 2, 2002, the closing price of gold according to the Second London Gold Fix ranged from a low of $252.80 per ounce to a high of nearly $325.50 per ounce. Fluctuations in the precious metals markets and credit may result in an interruption of our gold supply or the credit arrangements necessary to allow us to support our accounts receivable and continue the use of consigned gold. In January 1999, Michael Anthony entered into a Loan and Security Agreement with General Electric Capital Business Asset Funding Corporation in the principal amount of $10,444,444. This loan is secured by our machinery and equipment. The loan agreement contains a cross collateral/cross default clause in connection with Michael Anthony's line of credit agreement. The loan agreement does not contain any restrictive financial covenants. The loan bears interest at 6.85% per annum and payments of interest only are due for the first year of the loan. The loan matures in January 2007. As of February 2, 2002, $7,951,000 of principal remained outstanding under the notes. On October 6, 1995, Michael Anthony obtained a loan from a bank in the amount of $2,500,000. As collateral for the loan, we granted the bank a first mortgage on our corporate headquarters. The mortgage has a ten-year term and interest on the mortgage will accrue at 8% per annum. There is a balloon on payent of $1,149,000 due on October 10, 2005. In addition, the mortgage contains restrictive financial covenants. As of February 2, 2002, $1,785,000 of principal remained outstanding under the mortgage. At February 2, 2002, the Company had a line of credit arrangement with a commercial bank which varies seasonally from $10,000,000 to $18,350,000. On October 20, 2001, the Bank temporarily increased the Company's line of credit to $24,000,000. This temporary increase was repaid on December 21, 2001. The line of credit is secured by certain assets of the Company, including accounts receivable and inventory. Borrowings under the facility bear interest, at the Company's option, at (a) the bank's prime rate, (b) the fixed rate loan (as defined in the agreement) or (c) the adjusted Eurodollar rate plus 2.5%. The line of credit expires on July 31, 2002 subject to annual renewal. Management believes that the line of credit will be renewed; however, if the current lender decides not to renew the line, we believe that other lenders would 18 be willing to enter into a similar arrangement. As of February 2, 2002, $3,300,000 was outstanding under the line of credit. The amount was repaid in full on February 13, 2002. On February 10, 1999, Michael Anthony obtained a loan in the amount of $937,500. As collateral for the loan, we granted the lender a first mortgage on one of our manufacturing facilities. The mortgage has a fifteen-year term and accrues interest at an annual rate of 7.05%. At February 2, 2002, approximately $823,000 of principal remained outstanding under the loan. On September 16, 1999, Michael Anthony acquired two buildings which house two manufacturing facilities, located at 70 and 60 South MacQuesten Parkway, Mount Vernon, NY from MacQuesten Realty Company for a price of $2,450,000. Michael Anthony incurred $929,000 of long-term debt, which has a four-year term and accrues interest at an annual rate of 7.50%, and paid the balance with cash from its operations. At February 2, 2002, approximately $427,000 of principal remained outstanding under the loan. During fiscal 2002, cash used from operating activities was $2,127,000. This was primarily the result of an increase in inventory and accounts receivable, offset by depreciation and amortization, and the provision for sales returns. The increase in inventory at year end was primarily due to the increase in projected sales for the months of February and March 2002. Cash of $1,357,000 was utilized for investing purposes during fiscal 2002, primarily for the purchase of machinery and equipment. During fiscal 2002, cash provided by financing activities totaled $1,499,000. This was primarily attributed to the net proceeds from the line of credit which were offset by payments of long-term debt. For fiscal 2003, Michael Anthony projects capital expenditures of approximately $1,000,000, which includes machinery and equipment expenses and certain improvements on its leased and owned properties. See Item 2. "Properties" and Item 13. "Certain Relationships And Related Transactions." We believe that our existing lines of credit provide sufficient funding for our operations. In the event that we require additional financing during fiscal 2003, it will be necessary to fund this requirement through expanded credit facilities with existing or other lenders. We believe that additional financing can be arranged. FORWARD-LOOKING STATEMENTS This annual report on Form 10-K contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include the words "believe," "expect," "plans" or similar words and are based in part on Michael Anthony's reasonable expectations and are subject to a number of factors and risks, many of which are beyond Michael Anthony's control. Actual results could differ materially from those discussed under "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," as a result of any of these factors: 19 (a) general economic conditions and their impact on the retail sales environment; (b) fluctuations in the price of gold and other metals used to manufacture our jewelry; (c) risks related to the concentration of our customers, particularly the operations of any of our top customers; (d) increased competition from outside the United States where labor costs are substantially lower; (e) variability of customer requirements and the nature of customers' commitments on projections and orders; and (f) the extent to which we are able to retain and attract key personnel. In light of these uncertainties and risks, there can be no assurance that the forward-looking statements in this annual report on Form 10-K will occur or continue in the future. Except for as required in periodic filings under the Securities Exchange Act of 1934, Michael Anthony undertakes no obligations to release publicly any revisions to these forward-looking statements that may reflect events or circumstances after the date of this annual report on Form 10-K or to reflect the occurrence of unanticipated events. NEW ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141), which supersedes APB Opinion No. 16, "Business Combinations". SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and modifies the application of the purchase accounting method. The elimination of the pooling-of-interests method is effective for transactions initiated after June 30, 2001. The remaining provisions of SFAS No. 141 will be effective for transactions accounted for using the purchase method that are completed after June 30, 2001. The Company is currently reviewing the statement, but does not anticipate the new standard will have any effect on its financial statements. In July 2001, the FASB also issued Statement of Financial Accounting Standards No. 142, "Goodwill and Intangible Assets" (SFAS No. 142), which supersedes APB Opinion No. 17, "Intangible Assets". SFAS No. 142 eliminates the current requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a defined life and addresses the impairment testing and recognition for goodwill and intangible assets. SFAS 142 will apply to goodwill and intangible assets arising from transactions completed before and after the Statement's effective date. SFAS No. 142 is effective for fiscal 2003. As of February 2, 2002, the Company had no goodwill or intangible assets with indefinite lives. Therefore, this standard has no impact on the financial statements. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets. SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount of fair value less cost to sell, whether reported in continuing 20 operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not occurred. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, is to be applied prospectively. The Company does not expect the adoption of SFAS No. 144 to have a material effect on its financial condition or results of operations. In November 2001, the FASB Emerging Issues Task Force released Issue 01-9, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)." The scope of Issue 01-9 includes vendor consideration to any purchasers of the vendor's products at any point along the distribution chain, regardless of whether the purchaser receiving the consideration is a direct customer of the vendor. Issue 01-9 is to be applied to annual or interim periods beginning after December 15, 2001. Our adoption, effective February 3, 2002 will not change the Company's presentation of cooperative advertising expenses. ITEM 7a. QUANTATIVE AND QUALITATIVE DISCOUNT ABOUT MARKET RISK. The Company utilizes financial instruments, including commodity futures, forwards and options on futures, to limit its exposure to fluctuations in the price of gold. The Company does not hold or issue such instruments for trading purposes. The Company hedges its future contracts for gold against anticipated sales commitments with its customers. Gains or losses on the future contracts are deferred until settlement of the related anticipated sales to a customer. The Company's exposure to market risk related to the derivative financial instruments is limited to fluctuations in the price of gold. The Company is also exposed to credit loss in the event of nonperformance by the counterparties to the instruments; however, the risk of credit loss is not considered to be significant. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See Item 14 and pages F-1 through F-26, S-1 and S-2. 21 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information contained under the headings "Election of Directors" and "Compliance with Section 16 of the Exchange Act" of Michael Anthony's Proxy Statement for the 2002 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 10. EXECUTIVE COMPENSATION. The information contained under the heading "Executive Compensation" of Michael Anthony's Proxy Statement for the 2002 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained under the heading "Beneficial Ownership of Common Stock" of Michael Anthony's Proxy Statement for the 2002 Annual Meeting of Stockholders is incorporated by reference herein. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information contained under the heading "Certain Transactions" of Michael Anthony's Proxy Statement for the 2002 Annual Meeting of Stockholders is incorporated herein by reference. See also Item 2. "Properties." 22 PART IV ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K. (a) The following documents are filed as a part of this Report:
PAGE ---- (1) Financial Statements: Report of Independent Certified Public Accountants' F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Changes in Stockholders' Equity F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-7 (2) Financial Statement Schedule: Report of Independent Certified Public Accountants' S-1 Schedule II-Valuation and Qualifying Accounts S-2
All other schedules are omitted as the required information is inapplicable or is presented in the consolidated financial statements or related notes. The financial statement schedule should be read in conjunction with the financial statements in the 2002 Annual Report to Stockholders. (3) Exhibits:
Exhibit No. Description Page No. --- ----------- -------- 3.1 Certificate of Incorporation of Registrant, as Incorporated by reference to Exhibit 3.1 to amended Amendment No. 2 to the Company's Registration Statement on Form S-3 (File No. 3371308) (the "1993 Registration Statement") 3.1.1 Certificate of Merger of Michael Anthony Jewelers, Incorporated by reference to Exhibit 3.1.1 of the Inc. (New York) and Michael Anthony Jewelers, Inc. Company's Annual Report on Form 10-K for the (Delaware) fiscal year ended June 30, 1993 (the "1993 Form 10-K") 3.2 Amended and Restated ByLaws of Registrant Incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 29, 1995
23
Exhibit No. Description Page No. --- ----------- -------- 4.1 Form of Common Stock Certificate Incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 (File No. 338289) (the "1986 Registration Statement") 4.2 Common Stock Purchase Warrant issued to Almond Filed as Exhibit 4.2 to this Form 10-K. International Inc. 10.1 Consignment Agreement dated as of August 20, 1993 Filed as Exhibit 10.40 to the 1993 Form 10-K; and between the Registrant and Registrant's Gold Exhibit 10.45 to the 2000 Form 10-K Lenders, as amended 10.2 Security Agreement dated as of August 20, 1993 Filed as Exhibit 10.39 to the 1993 Form 10-K; among the Registrant and Registrant's Gold Exhibit 10.5 to the October 1995 Form 10-Q; Lenders, as amended Exhibit 10.6 to the October 1995 Form 10-Q and as Exhibit 10.44 to the 2000 10-K. 10.3 Amended and Restated Consignment Agreement dated Filed as Exhibit 10.44 to the 1993 Form 10-K as of August 20, 1993 between the Registrant and ABN AMRO Bank N.V., New York Branch 10.4 First Amendment to 1993 Long-Term Incentive Plan Filed as Exhibit 10.48 to the 1993 Form 10-K of the Registrant dated as of September 21, 1993 10.5 Consignment Agreement dated as of January 31, 1994 Filed as Exhibit 10.46 to the 1994 Form 10-K (effective as of May 16, 1994) between the Registrant and Credit Suisse, New York Branch 10.6 Loan Agreement dated October 6, 1995 between First Filed as Exhibit 10.1 to the October 1995 Form Fidelity Bank, National Association ("First 10-Q Fidelity") and Registrant 10.7 Mortgage Note in principal amount of $2,500,000 Filed as Exhibit 10.2 to the October 1995 Form dated October 6, 1995 issued by Registrant in 10-Q favor of First Fidelity
24
Exhibit No. Description Page No. --- ----------- -------- 10.8 Mortgage and Security Agreement dated October Filed as Exhibit 10.3 to the October 1995 Form 6,1995 by Registrant for the benefit of First 10-Q Fidelity 10.9 Fifth Amendment to Assignment of Trademarks and Filed as Exhibit 10.7 to the October 1995 Form Service Marks dated October 20, 1995 among 10-Q Registrant and Registrant's gold lenders 10.10 Deferred Compensation Plan dated as of March 4, Filed as Exhibit 10.59 to the 1996 Form 10-K 1996 10.11 Amendment to the 1993 Long Term Incentive Plan Filed as Exhibit 10.1 to the Company's October 1996 Form 10-Q. 10.12 Amendment to the Non-Employees Directors' Plan Filed as Exhibit 10.2 to the Company's October 1996 Form 10-Q 10.13 1993 Long-term Incentive Plan of the Registrant Filed as Exhibit 10.54 to the 1998 Form 10-K 10.14 1993 Non-Employee Directors' Stock Option Plan of Filed as Exhibit 10.55 to the 1998 Form 10-K the Registrant 10.15 Loan and Security Agreement, dated January 29, Filed as Exhibit 10.33 to the 1999 Form 10-K; 1999, by and between the Registrant and General Exhibit 10.34 to the 1999 Form 10-K Electric Capital Business Asset Funding Corporation, as amended 10.16 Term Promissory Note, dated January 29, 1999, of Filed as Exhibit 10.35 to the 1999 Form 10-K the Registrant in favor of General Electric Capital Business Asset Funding Corporation 10.17 Mortgage, Security Agreement and Assignment of Filed as Exhibit 10.37 to the 1999 Form 10-K Leases and Rents dated February 10, 1999, by and between Registrant and General Electric Capital Business Asset Funding Corporation
25 10.18 Promissory Note dated February 10, 1999 by and Filed as Exhibit 10.38 to the 1999 Form 10-K between the Registrant and General Electric Capital Business Asset Funding Corporation 10.19 Consignment Agreement dated as of November 29,1999 Filed as Exhibit 10.40 to the 2000 Form 10-K between Registrant and Mitsui & Co. (U.S.A.), Inc. 10.20 Amended and Restated Intercreditor Agreement Filed as Exhibit 10.41 to the 2000 Form 10-K; as dated, January 28, 1999 among Registrant and Exhibit 10.42 to the 2000 Form 10-K Registrant's gold lenders, as amended 10.21 Second Amendment and Agreement to Amended and Filed as Exhibit 10.43 to the 2000 Form 10-K Restated Collateral Sharing Agreement, dated March 1,2000, among Registrant and Registrant's gold lenders 10.22 1999 Employee Change of Control Plan of the Filed as Exhibit 10.46 to the 2000 Form 10-K Registrant 10.23 1999 Non-Employee Director Change of Control Plan Filed as Exhibit 10.47 to the 2000 Form 10-K of the Registrant 10.24 Assumption Agreement dated September16, 1999 among Filed as Exhibit 10.50 to the 2000 Form 10-K Registrant, MacQuesten Realty Company, and First Union National Bank, successor in interest to First Fidelity 10.25 Promissory Note dated August 16, 2000 issued by Filed as Exhibit 10.37 to the 2001 Form 10-K Registrant to the Chase Manhattan Bank 10.26 Consignment Agreement dated January 22, 2001 Filed as Exhibit 10.26 to this Form 10-K between the Company and Commerzbank International S.A. 10.27 Fourth Amendment to the Restated Intercreditor Filed as Exhibit 10.27 to this Form 10-K Agreement dated January 31, 2002 among Registrant, Registrant's Gold Lenders, JPMorgan Chase Bank and General Electric Capital Business Asset Funding Corporation
26 10.28 Fifth Amendment and Agreement to Amended and Filed as Exhibit 10.28 to this Form 10-K Restated Collateral Sharing Agreement dated January 31, 2002 among Registrant and Registrant's Gold Lenders 10.29 Ninth Amendment to Amended and Restated Security Filed as Exhibit 10.29 to this Form 10-K Agreement dated January 31, 2002 among Registrant and Registrant's Gold Lenders 10.30 Fourth Amendment to Security Agreement (Trademarks Filed as an Exhibit to this Form 10-K and Service Marks) dated January 31, 2002 among Registrant and Registrant's Gold Lenders 10.31 Twelfth Amendment and Agreement to Consignment Filed as Exhibit 10.31 to this Form 10-K Agreement dated January 31, 2002 between the Company and Fleet Precious Metals, Inc. 10.32 Consignment Agreement dated January 31, 2002 between Filed as Exhibit 10.32 to this Form 10-K the Company and Sovereign Precious Metals, LLC 10.33 Employment Agreement between the Company and Claudia Filed as Exhibit 10.33 to this Form 10-K Hollingsworth dated February 2, 2002 21 Subsidiaries of the Registrant Filed as an Exhibit to this Form 10-K 23 Consent of BDO Seidman, LLP Filed as an Exhibit to this Form 10-K
REPORT ON FORM 8-K None 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 22, 2002 MICHAEL ANTHONY JEWELERS, INC. By: /s/ Michael Paolercio -------------------------------------------- Michael W. Paolercio, Co-Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Michael Paolercio Co-Chairman of the Board April 22, 2002 - ----------------------------------- and Chief Executive Officer (Michael W. Paolercio) (Principal Executive Officer) /s/ Anthony Paolercio Co-Chairman of the Board April 22, 2002 - ----------------------------------- and Chief Operating Officer (Anthony Paolercio, Jr.) /s/ Claudia Hollingsworth President and Director April 22, 2002 - ----------------------------------- (Claudia Hollingsworth) /s/ Allan Corn Chief Financial Officer, April 22, 2002 - ----------------------------------- (Allan Corn) Senior Vice President and Director (Principal Accounting Officer) /s/ Michael A. Paolercio Senior Vice President, April 22, 2002 - ----------------------------------- Treasurer and Director (Michael Anthony Paolercio) /s/ Michael Wager Director April 22, 2002 - ----------------------------------- (Michael Wager) /s/ David Harris Director April 22, 2002 - ----------------------------------- (David Harris) /s/ Nathan Light Director April 22, 2002 - ----------------------------------- (Nathan Light) /s/ Barry Scheckner Director April 22, 2002 - ----------------------------------- (Barry Scheckner)
28 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders of Michael Anthony Jewelers, Inc. Mount Vernon, New York We have audited the accompanying consolidated balance sheets of Michael Anthony Jewelers, Inc. and subsidiaries as of February 2, 2002 and January 27, 2001 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended February 2, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Michael Anthony Jewelers, Inc. and subsidiaries at February 2, 2002, and January 27, 2001 and the result of their operations and their cash flows for each of the three years in the period ended February 2, 2002, in conformity with accounting principles generally accepted in the United States. BDO Seidman, LLP New York, New York March 28, 2002 F-1 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS February 2, January 27, - ------ 2002 2001 -------- -------- CURRENT ASSETS: Cash and equivalents $ 2,129 $ 4,114 Accounts receivable: Trade (less allowances of $4,255 and $2,536, respectively) 17,067 15,105 Other 153 224 Inventories 25,826 20,496 Prepaid expenses and other current assets 1,544 1,424 Deferred taxes 672 1,186 -------- -------- Total current assets 47,391 42,549 PROPERTY, PLANT AND EQUIPMENT - net 17,605 19,675 INTANGIBLES - net - 62 OTHER ASSETS 364 1,049 -------- -------- $ 65,360 $ 63,335 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Accounts payable - trade $ 2,321 $ 3,302 Line of credit 3,300 - Current portion of long-term debt 1,820 1,696 Taxes payable 1,274 529 Accrued expenses 3,952 3,791 -------- -------- Total current liabilities 12,667 9,318 -------- -------- LONG-TERM DEBT 9,166 10,987 -------- -------- DEFERRED TAXES 35 349 -------- -------- 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; 8,329,000 and 8,317,000 shares issued and outstanding as of February 2, 2002, and January 27, 2001, respectively 8 8 Additional paid-in capital 32,221 32,196 Retained earnings 17,753 16,802 Accumulated comprehensive loss (61) - Treasury stock, 2,143,000 and 2,095,000 shares as of February 2, 2002 and January 27, 2001, respectively (6,429) (6,325) -------- -------- Total stockholders' equity 43,492 42,681 -------- -------- $ 65,360 $ 63,335 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-2 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended -------------------------------------------- February 2, January 27, January 29, 2002 2001 2000 --------- --------- --------- NET SALES $ 141,918 $ 124,718 $ 144,937 COST OF GOODS SOLD 113,263 99,983 110,096 --------- --------- --------- GROSS PROFIT ON SALES 28,655 24,735 34,841 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 24,435 24,940 28,257 --------- --------- --------- OPERATING INCOME/(LOSS) 4,220 (205) 6,584 --------- --------- --------- OTHER INCOME (EXPENSES): Gold consignment fee (1,379) (1,039) (1,483) Interest expense (1,427) (1,222) (1,216) Interest income 68 139 175 Other income 51 1 167 --------- --------- --------- TOTAL OTHER EXPENSES (2,687) (2,121) (2,357) --------- --------- --------- INCOME/(LOSS) BEFORE INCOME TAXES 1,533 (2,326) 4,227 INCOME TAX PROVISION/(BENEFIT) 582 (886) 1,607 --------- --------- --------- NET INCOME/(LOSS) $ 951 $ (1,440) $ 2,620 ========= ========= ========= EARNINGS/(LOSS) PER SHARE - Basic Income/(loss) $ .15 $ (.23) $ .40 ========= ========= ========= EARNINGS/(LOSS) PER SHARE - Diluted Income/(loss) $ .15 $ (.23) $ .39 ========= ========= ========= WEIGHTED AVERAGE NUMBER OF SHARES - Basic 6,203 6,319 6,592 ========= ========= ========= WEIGHTED AVERAGE NUMBER OF SHARES - Diluted 6,314 6,319 6,702 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-3 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS)
Common Stock Additional Accumulated Treasury Stock -------------------- Paid-In Retained Comprehensive -------------------- Shares Dollars Capital Earnings Loss Shares Dollars Total -------- -------- -------- -------- -------- -------- -------- -------- Balance - January 30, 1999 8,288 $ 8 $ 31,762 $ 15,622 - (1,457) $ (4,094) $ 43,298 Purchase of treasury stock - - - - - (494) (1,938) (1,938) Proceeds from exercise of stock options 15 - 44 - - - - 44 Issuance of stock 5 - 20 - - - - 20 Net income - - - 2,620 - 2,620 -------- -------- -------- -------- -------- -------- -------- -------- Balance - January 29, 2000 8,308 8 31,826 18,242 - (1,951) (6,032) 44,044 Purchase of treasury stock - - - - - (144) (293) (293) Issuance of stock 9 - 25 - - - - 25 Issuance of warrants - - 345 - - 345 Net loss - - - (1,440) - - - (1,440) -------- -------- -------- -------- -------- -------- -------- -------- Balance - January 27, 2001 8,317 8 32,196 16,802 - (2,095) (6,325) 42,681 Purchase of treasury stock - - - - - (48) (104) (104) Issuance of stock 12 - 25 - - - - 25 Comprehensive Income: Change in fair value of cash flow hedges - - - - (61) - - (61) Net income - - - 951 - - 951 -------- -------- -------- -------- -------- -------- -------- -------- Total comprehensive income - - - 951 (61) - - 890 -------- -------- -------- -------- -------- -------- -------- -------- Balance - February 2, 2002 8,329 $ 8 $ 32,221 $ 17,753 $ (61) (2,143) $ (6,429) $ 43,492 ======== ======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Year Ended ---------------------------------------- February 2 January 27, January 29, 2002 2001 2000 ---------- --------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income/(loss) $ 951 $ (1,440) $ 2,620 Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation and amortization 3,501 3,547 4,091 Provision for doubtful accounts (54) 79 60 Provision for sales returns 1,773 1,450 (110) Deferred tax (benefit)/provision 200 (572) (293) Gain/(loss) on disposal of property, plant and equipment (6) 45 (45) Provision for stock compensation 25 25 20 (Increase)/decrease in operating assets: Accounts receivable (3,610) 8,950 3,639 Inventories (5,330) (4,226) (2,058) Prepaid expenses and other current assets (120) 137 8 Other assets 679 (474) 210 Increase/(decrease) in operating liabilities: Accounts payable (981) 1,104 (610) Taxes payable 745 (1,445) 1,162 Accrued expenses 100 (1,150) 789 -------- -------- -------- Net cash (used in)/provided by in operating activities (2,127) 6,030 9,483 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (1,365) (2,553) (6,642) Proceeds from sale of equipment 8 7 175 -------- -------- -------- Net cash used in investing activities (1,357) (2,546) (6,467) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt and capital lease liabilities (1,697) (1,657) (404) Proceeds from long-term debt - - 901 Proceeds from line of credit 24,000 17,100 16,400 Payments to line of credit (20,700) (17,100) (16,400) Proceeds from exercise of stock options - - 44 Purchase of treasury stock (104) (293) (1,938) -------- -------- -------- Net cash provided by/(used in) financing activities 1,499 (1,950) (1,397) -------- -------- -------- NET (DECREASE)/INCREASE IN CASH (1,985) 1,534 1,619 CASH AND EQUIVALENTS AT BEGINNING OF YEAR 4,114 2,580 961 -------- -------- -------- CASH AND EQUIVALENTS AT END OF YEAR $ 2,129 $ 4,114 $ 2,580 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Year Ended ------------------------------------ February 2, January 27, January 29, 2002 2001 2000 ------ ------ ------ SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES: Investing: Mortgage incurred with purchase of building $ - $ - $ 929 Issuance of warrants $ - $ 345 $ - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest and gold consignment fees $2,747 $2,399 $2,959 Income taxes $ 428 $1,441 $ 804
The accompanying notes are an integral part of these consolidated financial statements. F-6 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------------------------------- Nature of Operations -------------------- Michael Anthony Jewelers, Inc. ("Michael Anthony" or "the Company"), is a leading designer, marketer and manufacturer of affordable fine jewelry whose customers include jewelry chain stores, discount stores, department stores, television home shopping networks, catalogue retailers, and wholesalers. Basis of Consolidation and Presentation --------------------------------------- The accompanying consolidated financial statements include the accounts of Michael Anthony Jewelers, Inc. and its subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated. Inventories and Cost of Goods Sold ---------------------------------- Inventories are valued at lower of cost (first-in, first-out method) or market. The Company satisfies a majority of its gold supply needs through gold consignment agreements with financial institutions that lease gold to the Company ("gold lenders"), whereby the gold lenders have agreed to consign fine gold to the Company (see Note 4). In accordance with the terms of the agreements, the Company has the option of repaying the gold lenders in an equivalent number of ounces of fine gold or cash based upon the then quoted market price of gold. The principal component of cost of goods sold is the cost of the gold bullion and other raw materials used in the production of the Company's jewelry. Other components of cost of goods sold include direct costs incurred by the Company in its manufacturing operations, depreciation, freight and insurance. Property, Plant and Equipment ----------------------------- Property, plant and equipment are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, five to fifteen years for machinery and equipment and thirty years for buildings. Leasehold improvements are amortized over the lesser of the estimated life of the asset or the lease. F-7 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------------------------------- (Continued) Molds and Models ---------------- For molds and models with a life greater than one year, the Company capitalizes and amortizes the costs over a three-year period. In fiscal 2002, 2001 and 2000 the Company capitalized approximately $475,000, $538,000 and $556,000, respectively. Intangibles ----------- Intangible assets which became fully amortized in fiscal 2002 (net of accumulated amortization of $1,938,000 as of January 27, 2001), consisted of patents which were amortized on a straight-line basis over the lives of the patents, approximately 14 years and a covenant-not-to-compete which was amortized on a straight-line basis over the life of the covenant of five years. Long-lived Assets ----------------- In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of ", long-lived assets, consisting of property, plant and equipment, to be held, and used are reviewed by the Company for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If a review for recoverability is necessary, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, an impairment loss is not recognized. Any impairment loss recognized is measured as excess of carrying amount of the asset over the fair value of the asset. For the years ended February 2, 2002, January 27, 2001 and January 29, 2000, there were no impairment losses. Revenue Recognition ------------------- Revenue from sales to customers (other than consignment) is recognized at the time the merchandise is shipped. Merchandise sold under consignment arrangements between the Company and certain customers is not recognized as revenue by the Company until the F-8 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------------------------------- (Continued) Revenue Recognition (Continued) ------------------- products are sold by the consignee. In certain cases, the Company accepts payment for merchandise in gold. Additionally, the Company enters into arrangements for certain customers of its rope chain and tubing products whereby the gold value of the finished product is transferred in the form of fine gold ounces from the customer to the Company. The value of the finished product that exceeds the gold content value is recovered as revenue and the related cost to manufacture is recorded as an expense ("tolling arrangements"). Allowance for Sales Returns --------------------------- The Company reduces gross sales by the amount of discounts and returns to determine net sales. Each month the Company estimates a reserve for returns based on historical experience and the amount of gross sales. The reserve is adjusted periodically to reflect the Company's actual return experience. Adjustments to the Company's reserve have not been material. Catalog Costs ------------- Catalog costs are charged to expense as incurred, the only exception being major catalog revisions. Costs capitalized are amortized over the units of catalogs shipped, up to a maximum of two years. At February 2, 2002, January 27, 2001 and January 29, 2000, in connection with three significant catalog revisions, approximately $-0-, $36,000, and $169,000, respectively, had been capitalized. Included in the statements of operations for the years ended February 2, 2002, January 27, 2001 and January 29, 2000, is amortization expense of $36,000, $110,000 and $124,000, respectively. Shipping and Handling Costs --------------------------- Shipping and handling costs billed to customers are recorded as revenue. The costs associated with shipping goods to customers are recorded as a selling expense. Shipping and handling expenses for the years ended February 2, 2002, January 27, 2001 and January 28, 2000 were $1,078,000, $1,051,000 and $1,030,000, respectively. < F-9 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------------------------------- (Continued) Advertising Expense ------------------- Advertising costs are expensed as incurred. Advertising costs associated with our cooperative advertising programs are accrued as the related revenues are recognized. Total advertising expenses were $4,464,000, $5,038,000 and $6,057,000 for the years ended February 2, 2002, January 27, 2001 and January 29, 2000, respectively. Cash Equivalents ---------------- Highly liquid investments with maturities of three months or less at the date of acquisition are classified as cash equivalents. Derivative Financial Instruments -------------------------------- On January 28, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("FAS 133") "Accounting for Derivative Instruments and Hedging Activities", as amended, and interpreted, which requires that all derivative instruments be recorded on the balance sheet at their fair value. SFAS 133 requires the Company to recognize all derivatives as either assets or liabilities on the balance sheet and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either stockholders' equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. The impact of adopting FAS 133 on the Company's Statement of Income and Balance Sheet was not material. The Company uses financial instruments, including commodity futures, forwards and options on futures, to limit its exposure to fluctuations in the price of gold. The Company does not enter such contracts for speculative purposes. For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in earnings in the current period. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure of variability in expected future cash flows that would be attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of Accumulated comprehensive loss (a component of stockholders' equity) and reclassified F-10 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------------------------------- (Continued) Derivative Financial Instruments (Continued) -------------------------------- into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument, if any (i.e., the ineffective portion and any portion of the derivative instrument excluded from the assessment of effectiveness) is recognized in earnings in the current period. Earnings (Loss) Per Share ------------------------- Basic EPS is computed by dividing net income (loss) by the weighted average shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if options to issue common stock were exercised and converted to common stock. The following table sets forth the computation of diluted earnings per share (in thousands):
Feb. 2, Jan. 27, Jan. 29, 2002 2001 2000 ------------------------------------------------------------------------------------------------ Numerator: Net income (loss) available to common shareholders $951 $(1,440) $2,620 ------------------------------------------------------------------------------------------------ Denominator (shares in thousands): Weighted-average shares outstanding 6,203 6,319 6,592 Effect of dilutive securities: Stock options and warrants 111 - 110 ------------------------------------------------------------------------------------------------ Adjusted weighted-average shares and assumed conversions 6,314 6,319 6,702 ------------------------------------------------------------------------------------------------
The following options to purchase shares of common stock were outstanding during a portion of each year but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common shares and, therefore, would be antidilutive.
Feb. 2, Jan. 27, Jan. 29, 2002 2001 2000 -------------- ------------ -------------- Number of options 966,000 760,000 896,000 Weighted-average exercise price $2.49 $2.79 $3.18
F-11 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------------------------------- (Continued) New Accounting Pronouncements Not Yet Adopted --------------------------------------------- In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141), which supersedes APB Opinion No. 16, "Business Combinations". SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and modifies the application of the purchase accounting method. The elimination of the pooling-of-interests method is effective for transactions initiated after June 30, 2001. The remaining provisions of SFAS No. 141 will be effective for transactions accounted for using the purchase method that are completed after June 30, 2001. The Company is currently reviewing the statement, but does not anticipate the new standard will have any effect on its financial statements. In July 2001, the FASB also issued Statement of Financial Accounting Standards No. 142, "Goodwill and Intangible Assets" (SFAS No. 142), which supersedes APB Opinion No. 17, "Intangible Assets". SFAS No. 142 eliminates the current requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a defined life and addresses the impairment testing and recognition for goodwill and intangible assets. SFAS 142 will apply to goodwill and intangible assets arising from transactions completed before and after the Statement's effective date. SFAS No. 142 is effective for fiscal 2003. As of February 2, 2002, the Company had no goodwill or intangible assets with indefinite lives. Therefore, this standard has no impact on the financial statements. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets. SFAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount of fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not occurred. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, is to be applied prospectively. The Company does not expect the adoption of SFAS No. 144 to have a material effect on its financial condition or results of operations. In November 2001, the FASB Emerging Issues Task Force released Issue 01-9, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)." The scope of Issue 01-9 includes vendor consideration to any purchasers of the vendor's products at any point along the distribution chain, regardless of F-12 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------------------------------- (Continued) New Accounting Pronouncements Not Yet Adopted (Continued) --------------------------------------------- whether the purchaser receiving the consideration is a direct customer of the vendor. Issue 01-9 is to be applied to annual or interim periods beginning after December 15, 2001. The adoption, effective February 3, 2002, will not change the Company's presentation of cooperative advertising expenses. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fiscal Year End --------------- The Company's fiscal year end is the Saturday closest to the end of January. The financial statements for the fiscal years ended February 2, 2002, January 27, 2001 and January 29, 2000 were comprised of 53, 52 and 52 weeks, respectively. Reclassifications ----------------- Certain reclassifications were made to the prior year's financial statements to conform to the current year's presentation. 2. INVENTORIES -----------
Inventories consist of: February 2, January 27, 2002 2001 ---------- ----------- (In thousands) Finished goods $42,151 $32,837 Work in process 18,494 14,636 Raw materials 5,816 3,741 -------- -------- 66,461 51,214 Less: Consigned gold 40,635 30,718 ------- -------- $25,826 $20,496 ======= =======
At February 2, 2002 and January 27, 2001, inventories excluded approximately 143,000 and 117,000 ounces of gold on consignment, respectively. F-13 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 3. PROPERTY, PLANT AND EQUIPMENT ----------------------------- Property, plant and equipment consist of the following:
February 2, January 27, 2002 2001 ------- ------- (In thousands) Machinery and equipment $41,198 $41,351 Building and building improvements 12,677 11,381 Land 2,341 2,192 ------- ------- 56,216 54,924 Less: Accumulated depreciation and amortization 38,611 35,249 ------- ------- $17,605 $19,675 ======= =======
4. GOLD CONSIGNMENT AGREEMENTS --------------------------- The Company has gold consignment agreements with gold lenders. Under the terms of the agreements, the Company is entitled to lease the lesser of an aggregate amount of 240,000 ounces, or an aggregate consigned gold value not to exceed $79,000,000. The consigned gold is secured by certain property of the Company including its inventory and equipment. Title to such consigned gold remains with the gold lenders until the Company purchases the gold. However, during the period of consignment, the entire risk of physical loss, damage or destruction of the gold is borne by the Company. The purchase price per ounce is based on the daily Second London Gold Fix. The Company pays the gold consignors a consignment fee based on the dollar value of gold ounces outstanding, as defined in the agreements. In December 2001, Michael Anthony was notified by one of its gold lenders that it planned to discontinue its involvement in gold trading and jewelry financing. In January 2002, the Company received approval from a new gold lender, and in February 2002, began a relationship with this new lender. The consignment agreements are terminable by the Company or the respective gold lenders upon 30 days notice. If any gold lender were to terminate its existing gold consignment agreement, the Company does not believe it would experience an interruption of its gold supply that would materially adversely affect its business. The Company believes that other consignors would be willing to enter into similar arrangements if any gold lender terminates its relationship with the Company. F-14 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 4. GOLD CONSIGNMENT AGREEMENTS (Continued) --------------------------- The consignment agreements contain certain restrictive covenants relating to maximum usage, net worth, working capital, and other financial ratios, and each of the agreements require the Company to own a specific amount of gold at all times. The Company was in compliance of all restrictive covenants as of February 2, 2002. 5. ACCRUED EXPENSES ---------------- Accrued expenses consist of the following:
February 2, January 27, 2002 2001 ------ ------ (In thousands) Accrued advertising $2,259 $1,930 Accrued payroll expenses 655 845 Customer deposits payable 222 331 Accrued interest 239 179 Other accrued expenses 577 506 ------ ------ $3,952 $3,791 ====== ======
6. LONG-TERM DEBT -------------- Long-term debt consists of the following:
February 2, January 27, 2002 2001 --------- -------- (In thousands) Note payable - interest at 6.85%, interest only of $60,000 payable monthly for first year, interest and principal of $157,000 payable monthly over a seven-year term through January 2007.(a) $7,951 $9,240 Mortgage payable - interest at 8%, interest and principal of $24,000 payable monthly over a ten-year term through October 2005.(b) 1,785 1,924 Note payable - interest at 7.05%, interest and principal of $8,500 payable monthly over a fifteen year term through March 2014.(c) 823 865 Mortgage payable - interest at 7.5%, interest and principal of $22,000 payable monthly over a four-year term through September 2003.(d) 427 654 -------- ---------- 10,986 12,683 Less: current portion 1,820 1,696 ------- ---------- $9,166 $10,987 ======= ==========
F-15 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 6. LONG-TERM DEBT (Continued) -------------- (a) On January 27, 1999, the Company repaid its existing long-term debt with the insurance companies. The Company obtained a loan from a new lender in the amount of $10,444,000. As collateral for the loan, the Company granted the lender a lien on the Company's machinery and equipment. The loan does not contain any restrictive financial covenants. The loan agreement contains a cross collateral/cross default clause in connection with the Company's Line of Credit Agreement (see Note. 7). (b) The 8.0% mortgage is secured by a lien on the Company's corporate headquarters. There is a balloon payment of $1,149,000 due on October 10, 2002. Additionally, the mortgage agreement contains certain restrictive financial covenants. The Company was in compliance of all restrictive financial covenants as of February 2, 2002. (c) On February 10, 1999, the Company obtained a loan in the amount of $937,500. As collateral for the loan, the Company granted the lender a first mortgage on one of its manufacturing facilities. (d) On September 16, 1999 the Company exercised the option to purchase the remaining manufacturing and distribution facilities housed in the buildings located at 60 and 70 South MacQuesten Parkway, Mt. Vernon at an aggregate purchase price of $2,450,000. Maturities of long-term debt as of February 2, 2002 are as follows (in thousands): Year Ending January ------------------- 2003 1,820 2004 1,873 2005 1,812 2006 3,042 2007 1,874 Thereafter 565 ------- $10,986 ======= F-16 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 7. LINE OF CREDIT -------------- At February 2, 2002, the Company had a credit arrangement with a commercial bank which varies seasonally from $10,000,000 to $18,350,000 (the "line of credit"). On October 20, 2001, the Bank temporarily increased the Company's line of credit to $24,000,000. This temporary increase was repaid on December 21, 2001. The line of credit is secured by a lien on certain assets of the Company, including accounts receivable and inventory. Borrowings under the facility bear interest at the Company's option of the bank's prime rate, the fixed rate loan (as defined in the agreement) or the adjusted Eurodollar rate plus 2.5%. The line of credit expires on July 31, 2002 subject to annual renewal. Management believes that the line of credit will be renewed; however, if the current lender decides not to renew the line, the Company believes that other lenders would be willing to enter into a similar arrangement. At February 2, 2002, there was $3,300,000 outstanding under the line of credit. The amount was repaid in full on February 13, 2002. 8. FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS ---------------------------------------------------- (A) Notes and mortgage payable The carrying amounts and fair values of the Company's financial instruments are as follow:
February 2, 2002 January 27, 2001 ---------------- ---------------- Carrying Fair Carrying Fair Value Value Value Value ----- ----- ----- ----- (In thousands) Notes with lenders: 6.85% note payable $7,951 $8,044 $9,240 $9,496 8.0% mortgage payable 1,785 1,915 1,924 2,040 7.05% note payable 823 839 865 891 7.5% mortgage payable 427 453 654 654
The Company believes the carrying amount of the following financial instruments is equal to their fair value due to their short period of maturity: cash, accounts receivable, accounts payable and accrued expenses. The Second London Gold Fix is used daily to value the ounces of gold and as such the carrying value of gold inventory approximates fair value. F-17 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 8. FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS (Continued) ----------------------------------------------------- (B) Forward Contracts To reduce its exposure to fluctuations in the price of gold, the Company is party to commodity futures, forwards and options on futures, which are hedged against anticipated sales commitments with its customers. Gains or losses on the future contracts are deferred until settlement of the related anticipated sales to a customer. As of February 2, 2002, there were 17,000 ounces on forward contracts which were all related to the sale of merchandise to customers. The contracts hedge against fluctuations of gold prices. As of February 2, 2002, the fair value of these contracts, which are determined by quoted market prices and expire through June 25, 2002 was $61,000 which was recorded as accumulated comprehensive income and will be reclassed to cost of goods sold during fiscal 2003. For the year ended February 2, 2002, the Company recognized an immaterial loss relating to its future contracts. While the Company is exposed to credit loss in the event of nonperformance by the counter parties of these contracts, the Company does not anticipate nonperformance by the counter parties. The risk of credit loss is not considered to be significant. (C) Concentrations of Credit Risk Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of trade receivables and short-term cash investments. The Company places its short-term cash investments with high credit quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited due to a large customer base and its dispersion across geographic areas. The Company maintains an allowance for losses based on the expected collectability of all receivables. F-18 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 9. INCOME TAXES ------------ Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and for income tax purposes. Income tax provision/(benefit) consists of the following: Year Ended --------------------------------------- February 2, January 27, January 29, 2002 2001 2000 ------- ------- ------- (In thousands) Current: Federal $ 342 $ (268) $ 1,630 State and local 40 (46) 270 ------- ------- ------- 382 (314) 1,900 Deferred income tax 200 (572) (293) ------- ------- ------- Total $ 582 $ (886) $ 1,607 ======= ======= ======= The following is a reconciliation of the federal statutory rate to the effective tax rate:
Year Ended -------------------------------------- February 2, January 27, January 29, 2002 2001 2000 Statutory tax (benefit) rate 34.0% (34.0)% 34.0% State and local taxes (benefit), net of federal benefit 3.0 (3.0) 3.0 Other 1.0 (1.0) 1.0 ---- ---- ---- Statutory tax (benefit) rate 38.0% (38.0)% 38.0% ==== ==== ====
F-19 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 9. INCOME TAXES (Continued) ------------ The tax effects of significant items comprising the Company's deferred tax (liabilities) and assets are as follows (in thousands): February 2, January 27, 2002 2001 ------- ------- Non-current deferred tax items: Difference between book and tax depreciation methods $ (35) $ (349) ------- ------- Current deferred tax assets: Reserves for sales returns and doubtful accounts 473 964 Other 199 222 ------- ------- 672 1,186 ------- ------- Net deferred tax asset $ 637 $ 837 ======= ======= 10. RELATED PARTY TRANSACTIONS -------------------------- On September 16, 1999, the Company acquired two buildings which house two manufacturing facilities, located at 70 and 60 South MacQuesten Parkway, Mount Vernon, New York from MacQuesten Realty Company ("MRC"), a partnership consisting of certain stockholders of the Company, for a price of $2,450,000. Rent expense related to the MRC leases for the year ended January 29, 2000 amounted to $349,000, principally for manufacturing and distribution facilities. On February 29, 2000, the Company loaned $123,000 to an officer. On December 31, 2000, the Company extended the term of the note until December 31, 2002 and increased the principal to $131,000. Interest on the unpaid principal of $131,000 accrues at the rate of 8% per annum until the maturity date of December 31, 2002. F-20 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 11. COMMITMENTS ----------- The Company's product line includes licensed goods manufactured pursuant to two or three year agreements with licensors. Royalty fees range from 6% to 12% of net sales of these products, or a minimum guarantee, whichever is greater. The Company records the related expense over the units sold. As of February 2, 2002, the future guaranteed royalty commitments are $152,000 for the fiscal year ending February 1, 2003. On December 22, 2000 the Company entered into a distribution agreement with the Almond Jewelry Group. Under the arrangement, the Company acquired the exclusive rights to market and distribute gold jewelry products manufactured by Almond to retailers in the United States. Almond will no longer directly market its gold jewelry products to retailers in the United States. The Company has also entered into a supply agreement with Almond, which will assure its customer base the continuity of a supply of high quality and innovative merchandise. In connection with the distribution agreement, Almond was issued warrants to purchase 300,000 shares of common stock at a price of $1.62 per share. The warrants were ascribed a value of $345,000 using the Black-Scholes option pricing model. The warrants are being amortized into expense as the related income is earned. As of February 2, 2002 the unamortized balance was $247,000 and is recorded in prepaid and other current assets. 12. STOCK PLANS ----------- The Company has elected to continue to account for employees stock-based transactions under Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees". Since the exercise price of all stock options granted under the stock plans were equal to the price of the stock at the date of grant, no compensation has been recognized by the Company. Under the Company's stock option agreements, had the compensation expense been determined based upon the fair value at the grant date consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock Based Compensation," the Company's pro forma, net income (loss) and earnings (loss) per share would have been net income/(loss) of $828,000, $(1,526,000) and $2,543,000, and $.13, $(.24) and $.38 earnings/(loss) per share for the years ended February 2, 2002, January 27, 2001 and January 29, 2000, respectively. The weighted average per share fair value of the options granted during the years ended February 2, 2002, January 27, 2001 and January 29, 2000 were estimated at $.67, $.75 and $1.11, respectively, on the dates of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: F-21 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 12. STOCK PLANS (Continued) ----------- February 2, January 27, January 29, 2002 2001 2000 ---- ---- ---- Expected life (years) 3 3 3 Risk-free interest rates 6.5% 6.5% 6.5% Expected volatility 60.0% 60.0% 49.7% Expected dividend yield - - - The pro forma effect on net income and earnings per share for the year ended February 2, 2002 may not be representative of the pro forma effect in future years because it includes compensation cost on a straight line basis over the vesting periods of the grants. INCENTIVE STOCK OPTION PLANS During the year ended June 30, 1994, the Company adopted the 1993 Long-Term Incentive Plan and the 1993 Non-Employee Directors' Stock Option Plan. The Plans permit the granting of incentive stock options and non-qualified stock options to employees and non-employee directors for the purchase of up to an aggregate of 2,000,000 and 250,000 shares of common stock, respectively. The option term is for a period not to exceed five years from the date of grant. F-22 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 12. STOCK PLANS (Continued) ----------- Long-term Incentive Plan
Weighted Average Exercise Shares Option Price Price ------ ------------ ------------------ Outstanding at January 30, 1999 648,500 $3.33 $2.13 - $6.13 Lapsed (86,000) $5.35 $2.75 - $6.13 Exercised (15,000) $2.94 $2.94 Granted 288,000 $3.51 $3.13 - $3.63 -------- Outstanding at January 29, 2000 835,500 $3.19 $2.13 - $3.63 -------- Lapsed (433,440) $3.15 $2.13 - $3.63 Granted - $ - $ - -------- Outstanding at January 27, 2001 402,060 $3.01 $2.88 - $3.63 -------- Lapsed (82,040) $3.26 $3.13 - $3.63 Granted 347,000 $2.19 $2.11 - $2.30 -------- Outstanding at February 2, 2002 667,020 $2.71 $2.11 - $3.63 ========
Options exercisable at February 2, 2002 were for 271,510 shares of common stock at prices between $2.88 - $3.63 a share. At February 2, 2002, shares for future option grants totaling 1,287,980 were available under the plan. F-23 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 12. STOCK PLANS (Continued) ----------- Non-Employee Directors' Stock Option Plan -----------------------------------------
Weighted Average Exercise Shares Option Price Price ------ ------------ ------------- Outstanding at January 30, 1999 65,000 $3.08 $2.39 - $5.00 Lapsed (5,000) $5.00 $5.00 Granted 15,000 $3.27 $2.88 - $3.88 -------- Outstanding at January 29, 2000 75,000 $3.03 $2.56 - $3.88 Lapsed (15,000) $3.02 $2.63 - $3.50 Granted 35,000 $2.49 $1.88 - $2.94 -------- Outstanding at January 27, 2001 95,000 $2.81 $1.88 - $3.06 -------- Lapsed (10,000) $3.00 $3.00 Granted 25,000 $2.33 $1.80 - $2.68 -------- Outstanding at February 2, 2002 110,000 $2.73 $1.80 - $3.88 ========
Options exercisable at February 2, 2002 for 66,850 shares of common stock at prices between $1.88 - $3.06 a share. At February 2, 2002, shares for future option grants totaling 140,000 were available under this plan. WARRANTS AND NON-QUALIFIED OPTIONS The Company has granted common stock purchase warrants and non-qualified options. The changes in the number of shares under the stock purchase warrants and non-qualified options and the weighted average option price per share are as follows: F-24 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 12. STOCK PLANS (Continued) -----------
Weighted Average Exercise Shares Option Price Price -------- ------------ -------------- Outstanding at January 30, 1999 96,000 $3.00 $3.00 Granted - $ - $ - ------- Outstanding and exercisable at January 29, 2000 96,000 $3.00 $3.00 Issued - See Note 11 300,000 $1.62 $1.62 Lapsed (96,000) $3.00 $3.00 ------- Outstanding at January 27, 2001 300,000 $1.62 $1.62 ------- Issued - $ - $ - Lapsed - $ - $ - Outstanding and exercisable at February 2, 2002 300,000 $1.62 $1.62 =======
In connection with the distribution agreement with Almond, Almond was issued 300,000 shares of common stock purchase warrants. (See Note 11.) Options outstanding and exercisable at February 2, 2002 were as follows:
OUTSTANDING EXERCISABLE -------------------------------------------- --------------------------- Weighted Average Remaining Weighted Weighted Years of Average Average Range of Exercise Number of Contractual Exercise Number of Exercise Prices Options Life Price Options Price ----------------- --------------------------------------------------------------------------- $1.80 - $2.75 707,000 4.1 $1.97 323,300 $1.69 $2.81 - $3.06 149,000 1.0 $2.93 144,000 $2.93 $3.13 - $3.88 221,020 2.1 $3.49 170,700 $3.45 --------------------------------------------------------------------------- In Total 1,077,020 3.3 $2.41 638,000 $2.44 ---------------------------------------------------------------------------
F-25 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 13. RETIREMENT PLAN --------------- The Company established a 401(k) Retirement Plan and Trust for all eligible employees. Under the terms of the plan the employee may contribute 1% to 20% of compensation. There is a partial employer matching contribution. Included in the statement of operations for the years ended February 2, 2002, January 27, 2001 and January 29, 2000 is $72,000, $70,000 and $58,000 of expense for the employer portion of the contribution. 14. SIGNIFICANT CUSTOMERS --------------------- Sales to the Company's two largest customers were approximately 17% and 14%, 15% and 13%, and 15% and 13%, respectively, of net sales for the years ended February 2, 2002, January 27, 2001 and January 29, 2000. One customer accounted for approximately 16% of accounts receivable at February 2, 2002. 15. STOCK REPURCHASE PROGRAM ------------------------ In December 1995, the Company announced a Common Stock Repurchase Program, (the "1995 Stock Repurchase Program"), pursuant to which the Company may repurchase up to 750,000 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. During the years ended February 2, 2002, January 27, 2001 and January 29, 2000, the Company repurchased a total of 48,000, 144,000 and 494,000 shares, respectively, on the open market under the 1995 Stock Repurchase Program for an aggregate price of approximately $104,000, $293,000 and $1,938,000, respectively. 16. LEGAL PROCEEDINGS ----------------- The Company is involved in various legal claims and disputes, none of which is considered material and all of which, for the most part, are normal to the Company's business. In the opinion of management, the amount of losses that might be sustained, if any, from such claims and disputes would not have a material effect on the Company's financial statements. F-26 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 17. COMMITMENTS AND CONTINGENCIES ------------------------------ In early 1999, at the decision of the compensation committee the Company adopted a Change of Control Plan for executive officers, other key employees, and Non-Employee Directors. The Plan provides for severance payments to executive officers and other key employees. The severance payments will be an amount equal to one times the individual's most recent salary and bonus. The Plan also provides for continuation of medical and dental benefits for a period of one year and automatic vesting of stock options, if permissible under the applicable stock option plan. The Non-Employee Director Plan provides for a payment of the sum of the Non-Employee Director's regular compensation at the rate in effect at the time of the change of control. These benefits are triggered upon a change of control, as defined in the plan. Individual Agreements under the Plan have been entered into with each of the executive officers, other key employees and Non-Employee Directors. F-27 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. Summary of Quarterly Results (Unaudited) (in thousands)
Year Ended February 2, 2002 Year Ended January 27, 2001 Quarter Ended Quarter Ended ----------------------------------------------- --------------------------------------------- Apr. 28 Aug. 4, Nov. 3, Feb. 2, Apr. 29, Jul. 29, Oct. 28, Jan. 27, 2001 2001 2001 2002 2000 2000 2000 2001 ---- ---- ---- ---- ---- ---- ---- ---- Net sales(A) $ 29,176 $ 28,210 $ 50,981 $ 33,551 $ 25,700 $ 24,821 $ 41,045 $ 33,152 Cost of goods sold 23,920 22,633 40,027 26,683 20,111 20,147 33,203 26,522 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit 5,256 5,577 10,954 6,868 5,589 4,674 7,842 6,630 Selling, general & administrative expenses 5,119 5,531 7,631 6,154 5,955 5,821 6,854 6,310 -------- -------- -------- -------- -------- -------- -------- -------- Operating income/(loss) 137 46 3,323 714 (366) (1,147) 988 320 Other income (expense): Gold consignment fees (250) (407) (428) (291) (222) (246) (347) (224) Interest expense (247) (275) (463) (445) (249) (244) (294) (435) Interest income 34 9 1 24 90 20 5 24 Other - net 7 27 15 2 14 16 10 (39) -------- -------- -------- -------- -------- -------- -------- -------- Total other income (expense) (456) (646) (875) (710) (367) (454) (626) (674) Income/(loss) from operations before income taxes (319) (600) 2,448 4 (733) (1,601) 362 (354) Income tax provision/(benefit) (116) (234) 930 2 (279) (608) 137 (136) -------- -------- -------- -------- -------- -------- -------- -------- Net (loss)/income $ (203) $ (366) $ 1,518 $ 2 $ (454) $ (993) $ 225 $ (218) ======== ======== ======== ======== ======== ======== ======== ======== (Loss)/earnings per share (B): Net (loss)/earnings per share $(.03) $ (.06) $ .25 $ .00 $ (.07) $ (.16) $ .04 $ (.03) ======== ======== ======== ======== ======== ======== ======== ========
(A) The Company's net sales are subject to seasonal fluctuation. This fluctuation is mitigated to a degree by the early placement of orders for the holiday season. (B) Per share amounts do not always add to the annual per share amount because the figures are required to be independently calculated. F-28 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Michael Anthony Jewelers, Inc. Mount Vernon, New York The audits referred to in our report dated March 28, 2002 relating to the consolidated financial statements of Michael Anthony Jewelers, Inc. and subsidiaries which is contained in Item 8 of this Form 10-K, included the audits of the financial statements schedule listed in the accompanying index for the years ended February 2, 2002 and January 27, 2001. The financial statements schedule is the responsibility of management. Our responsibility is to express an opinion on the financial statements schedule based on our audits. In our opinion, such financial statements schedule presents fairly, in all material respects, the information set forth therein. /s/: BDO Seidman, LLP BDO Seidman, LLP New York, New York March 28, 2002 S-1 MICHAEL ANTHONY JEWELERS, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT ADDITIONS BALANCE AT BEGINNING OF CHARGED TO COSTS END OF DESCRIPTION PERIOD AND EXPENSES DEDUCTIONS(A) PERIOD - ---------------------------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts: - ---------------------------------------------------------------------------------------------------------------------------------- Year ended February 2, 2002 $610 $205 $259 $556 Year ended January 27, 2001 530 60 20 610 Year ended January 29, 2000 538 60 (68) 530 Allowance for sales returns: Year ended February 2, 2002 $1,926 $3,699 $(1,926) $3,699 Year ended January 27, 2001 477 1,926 (477) 1,926 Year ended January 29, 2000 586 397 (506) 477
(A) Allowances, returns and uncollectible accounts charged against the reserve, (net of collections on previously written-off accounts). S-2 EX-4.2 3 l93497aex4-2.txt EX-4.2 Exhibit 4.2 ----------- The securities represented by this Certificate have not been registered under the Securities Act of 1933, as amended (the "Act"). These securities have been acquired for investment and not a with view to distribution or re-sale, and may not be made subject to a security interest or pledged, hypothecated or otherwise transferred without an effective registration statement for such securities under the Act or an opinion of counsel of the Corporation that registration is not required under such Act. MICHAEL ANTHONY JEWELERS, INC. WARRANTS TO PURCHASE 300,000 SHARES OF COMMON STOCK COMMON STOCK PURCHASE WARRANT Not Transferable or Exercisable ------------------------------- Except Upon Conditions Herein Specified --------------------------------------- THIS CERTIFIES that, for value received, Almond International, Inc. is entitled to subscribe for and purchase from MICHAEL ANTHONY JEWELERS, INC., a Delaware corporation (hereinafter called the "Corporation"), 300,000 shares of the Corporation's Common Stock, par value $.001 per share (the "Common Stock"), at the price of $1.625 per share (hereinafter called the "Warrant Price") at any time from December 22, 2000 to and including December 22,2004; the term will be extended for one additional year provided that either the Distribution Agreement or the Manufacturing Agreement between Michael Anthony Jewelers, Inc., Almond International Inc. and Gold & Honey L. P. executed on December 22, 2000 are still in full force and effect (such period being hereinafter referred to as the "Exercise Period"). SECTION 1. EXERCISE OF WARRANTS. The rights represented by this Warrant may be exercised by the holder hereof, in whole at any time during the Exercise Period, by the surrender of this Warrant (properly endorsed) at the office of the Corporation, at 115 South MacQuesten Pkwy, Mt. Vernon, New York 10550-1724 or at such other agency of office of the Corporation in the United States of America as it may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Corporation, and by payment to the Corporation of the Warrant Price in cash or by check for each share of Common Stock being purchased. In the event of the exercise of the rights represented by this Warrant, a certificate or certificates for the shares of Common Stock so purchased, registered in the name of the holder, shall be delivered to the holder hereof within a reasonable time, not exceeding thirty days, after the rights represented by this Warrant shall have been so exercised. The person in whose name any certificate for shares of Common Stock is issued upon exercise of this Warrant shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Price and any applicable taxes were made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date when the stock transfer books of the Corporation are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. 76 SECTION 2. COVENANTS AS TO COMMON STOCK. The Corporation covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this warrant, will, upon issuance, be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof; assuming warrant price is paid in full as provided in Section 1 hereof. The Corporation further covenants and agrees that the Corporation will from time to time take all such action as may be requisite to assure that the stated or par value per share of the Common Stock is at all time equal to or less than the effective Warrant Price per share issuable upon exercise of this Warrant. The Corporation further covenants and agrees that the Corporation will at all times have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. SECTION 3. NO STOCKHOLDER RIGHTS. This warrant shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Corporation. SECTION 4. LIMITATION UPON TRANSFER OF WARRANT. This Warrant and any of the rights granted hereunder are not transferable without the consent of Michael Anthony Jewelers, Inc. SECTION 5. REORGANIZATIONS, ETC. In case, at any time after the date of issuance of this Warrant and prior to the expiration of the Exercise Period, of any capital reorganization, of any reclassification of the stock of the Corporation (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Corporation with or into another corporation (other than a consolidation or merger in which the Corporation is the continuing operation and which does not result in any change in the Common Stock) or of the sale of all or substantially all the properties and assets of the Corporation as an entirety to any other corporation, this Warrant shall, after such reorganization, reclassification, consolidation, merger or sale, be exercisable for the kind and number of shares of stock or other securities or property of the Corporation or of the corporation resulting from such consolidation or surviving such merger or to which such properties and assets shall have been sold to which such holder would have been entitled if he had held the Common Stock issuable upon the exercise hereof immediately prior to such reorganization, reclassification, consolidation, merger or sale. SECTION 6. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Corporation may, on such terms as to indemnity or otherwise as it may in its discretion impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Corporation, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. SECTION 7. EFFECTIVENESS OF RIGHTS GRANTED. The rights of the holder hereof are effective as of the date of issuance of this Warrant, provided, however, that no such rights shall be exercisable until registration under the Securities Act of 1933, as amended, of shares of Common Stock of the Company or its successor. SECTION 8. WAIVER AND MODIFICATION. The provisions of this Warrant Agreement may not be waived or modified unless such waiver or modification is in writing and signed by the parties hereto. 77 SECTION 9. GOVERNING LAW. The Warrant Agreement shall be governed by the laws of the State of Delaware. IN WITNESS WHEREOF, the Corporation, as of December 26, 2000, has issued this Warrant to be executed by its duly authorized officers under its seal. MICHAEL ANTHONY JEWELERS, INC. By: /s/: Michael W. Paolercio -------------------------- President [Corporate Seal] Attest: EX-10.26 4 l93497aex10-26.txt EX-10.26 EXHIBIT 10.26 ------------- CONSIGNMENT AGREEMENT CONSIGNMENT AGREEMENT ("AGREEMENT") made as of January 22, 2001, by and between COMMERZBANK INTERNATIONAL S.A, with its principal office at 11 rue Notre Dame, Luxembourg L-2013 ("Consignor"), and MICHAEL ANTHONY JEWELERS, INC., a Delaware corporation with its principal office 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 (0.5001). "CONSIGNEE'S COUNSEL" shall mean Rita Martin-Crowley, Esq., General Counsel 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) 45,000 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 $15,000,000.00 "CS" shall mean Credit Suisse, New York Branch arid ally legal successor in interest thereto. -1- "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 herein all Indebtedness that is payable upon demand o= within one (1) ,7EAR from the date of determination thereof unless such indebtedness is renewable or extendible 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- "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 others 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 or: 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 cut 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- "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: Commerzbank International S.A. 11 rue Notre Dame Luxembourg L-2013 Fax Number: 011 352 47 79 11 420 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. "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. "TANGIBLE NET WORTH" shall mean, at any date as of which the amount thereof shall be determined, the total assets of Consignee minus W 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. -4- "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 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 LO Consignee. The foregoing Notice requirement shall be a right o` 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. 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 pavement t 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 should 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 or the information reported in the statement and to have -5- 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. P_ 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. 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, -6- 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, 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, Commerzbank AG, New York ABA # 026-008-044 for further credit to Commerzbank AG, Frankfurt for Account Commerzbank International S.A. (ii) by 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 -7- 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(1) 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 (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, nonrenewal 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 -8- (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. 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 -9- (a) Consignee has heretofore furnished to Consignor Consignee's Financial Statements for the period ending January 29, 2000.,together with interim Financial Statements for the period ending July 29, 2000, 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 July 29, 2000 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 l,-mired by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of -he rights of creditors by equitable principles, whether enforcement Is sought in equity or at law; (c) The execution, delivery and performance by Consignee or the terms and provisions of this Agreement, the Security Agreement and any other security documents (-') have been duly authorized by all requisite corporate action, (ii) will not violate any provision of law, any order of 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 -10- 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 3 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, (j) treat, store, transport, transfer, dispose of, release or otherwise handle any Hazardous Material, except ,in compliance with all Environmental Requirements; and (k) 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. 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: -11- (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 forh 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 sated in (c) below; and (vii) Such other supporting documents and legal opinions as Consignor may reasonably request. -12- (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, betterment's 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 premise (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 before 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; (e) Furnish to Consignor: -13- (i) within ninety (90) days after the end of each fiscal year, Financial Statements showing its financial condition at the close of such fiscal such year and containing a statement to the 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, second 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 1officer of Consignee to the best of his or her information and belief; (iii) Simultaneously with the furnishing of each of the Financial Statements to be delivered pursuant to subsections (i) and (ii) above, a narrative statement of the President or chief Financial Officer of Consignee which shall comment upon and explain any material changes, (iv) 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 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); (vii) 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 -14- thereof by BDO SEIDMAN as to one 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 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; (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 3 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; (l) 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; -15- (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; (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 determined in accordance with generally accepted accounting principles consistently applied; and -16- (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 3 attached hereto and (ii) mortgages on Consignee's Mount Vernon, New York real property; (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, (i) collection (including endorsements) -n the ordinary course ofr business, and (i) 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; -17- (g) Obtain Precious Metal on consignment or loan from any source other than Consignor or those persons listed as secured parties on Schedule 3 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) 10,000 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; (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), I l (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(1) 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 -18- 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; (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; (l) 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; those certain Consignment Agreements or Amended and Restated Consignment Agreement dated as of August 20, 1993 between consignee and each of ABN, 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. -19- (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 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 -20- 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. 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, price 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 No-ice 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 or. 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 nature, known or unknown, foreseen or otherwise (including, without limitation, counsel and consultant 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. -21- 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. (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 (ii) 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. -22- 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 JURRY IN ANY ACTIN, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER ON ANY MATTER WHATSOEVER (INCLUDING, WITHOUT LIMITATION, ANY ACTION, PROCEEDING 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. Commerzbank International S.A. As Consignor By: /s/: E. Winter /s/: Ralf Kreikenbaum ------------------------------------------------------- Name: E. Winter Ralf Kreikenbaum Title Legal Advisor Senior Vice President MICHAEL ANTHONY JEWELERS, INC. AS CONSIGNEE BY: /S/: MICHAEL A. PAOLERCIO --------------------------------- NAME: MICHAEL A PAOLERCIO TITLE: SVP & TREASURER -23- EX-10.27 5 l93497aex10-27.txt EX-10.27 EXHIBIT 10.27 ------------- FOURTH AMENDMENT TO AMENDED AND RESTATED INTERCREDITOR AGREEMENT THIS FOURTH AMENDMENT dated as of _JANUARY 31 , 2002, among ABN AMRO BANK N.V., NEW YORK BRANCH, CREDIT SUISSE FIRST BOSTON INTERNATIONAL, FLEET PRECIOUS METALS INC., COMMERZBANK INTERNATIONAL S.A., MITSUI & CO., PRECIOUS METALS INC., and SOVEREIGN PRECIOUS METALS, LLC ("Sovereign") (collectively, in their capacity as consignors under the Consignment Agreements referred to below, the "Consignors", and individually, a "Consignor"); JPMORGAN CHASE BANK ("Chase"); and GENERAL ELECTRIC CAPITAL BUSINESS ASSET FUNDING CORPORATION (the "Lender"). W I T N E S S E T H: WHEREAS, the Consignors (other than Sovereign), Chase and the Lender are parties to a certain Amended and Restated Intercreditor Agreement dated as of January 28, 1999, as amended from time to time (as amended hereinafter, the "Intercreditor Agreement"), pursuant to which the Consignors (other than Sovereign), Chase and the Lenders 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 MA BRANDS, INC. ("MAJ Delaware") and have provided for the enforcement of such security interests; and WHEREAS, Sovereign has requested that it be added as a "Consignor" pursuant to the terms of the Intercreditor Agreement as Sovereign will be entering into a consignment arrangement with Debtor; and WHEREAS, Sovereign 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. 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. Sovereign is hereby added as a party to the Intercreditor Agreement, with Sovereign to be included as a Consignor pursuant to the terms of the Intercreditor Agreement. 3. The Consignors, Chase, the Lender, the Debtor and MAJ Delaware hereby each consent to the addition of Sovereign as a party to the Intercreditor Agreement, with Sovereign to be included as a Consignor pursuant to the terms of the Intercreditor Agreement and all references in the Intercreditor Agreement to "the Consignment Agreements" shall include the Consignment Agreement between Sovereign and the Debtor. 4. The first "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 MICHAEL ANTHONY JEWELERS, INC., a Delaware corporation (the "Debtor") pursuant to certain Consignment Agreements or Amended and Restated Consignment Agreements, dated August 20, 1993 in the case of Fleet Precious Metals Inc. and ABN AMRO Bank N.V., New York Branch, January 31, 1994 in the case of Credit Suisse First Boston International, November 29, 1999 in the case of Mitsui & Co., Precious Metals Inc., January 22, 2001 in the case of Commerzbank International S.A., and _JANUARY 31, 2002, in the case of Sovereign Precious Metals, LLC, between the Debtor and each of the Consignors (as amended and as the same may be amended from time to time, the "Consignment Agreements"); and" 5. 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, Sovereign and Sovereign 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. 6. Any necessary, conforming changes to the Intercreditor Agreement occasioned by reason of this Fourth Amendment are hereby deemed to be made. 7. This Fourth Amendment shall be binding upon the parties and their respective successors and assigns. 8. Each of the Consignors, Chase and the Lenders 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 previously amended and as amended and supplemented by this Fourth Amendment. 9. This Fourth 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. -25- 10. This Fourth 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 Fourth Amendment to be executed by their duly authorized officers as of the date first above written. FLEET PRECIOUS METALS INC. By ---------------------------------------- Title ------------------------------------- By /s/: Louis P. Massa ---------------------------------------- Title Vice President ------------------------------------- Address: 111 Westminster Street Providence, RI 02903 Attention: Louis Massa Telecopier: (401) 278-3077 ABN AMRO BANK N.V., NEW YORK BRANCH By /s/: Jeffrey Sarfaty --------------------------------------- Title V.P. ------------------------------------ By Ned Kopelson ---------------------------------------- Title VP ------------------------------------- Address: 680 Fifth Avenue - 6th Floor New York, NY 10019 Attention: Jeffrey Sarfaty Telecopier: (212) 649-5149 -26- CREDIT SUISSE FIRST BOSTON INTERNATIONAL By ---------------------------------------- Title ------------------------------------ By ---------------------------------------- Title ------------------------------------ Address: One Cabot Square London E14 4QJ, England Attn: (1) Head of Credit Risk Management, (2) Managing Director - Operations Department, and (3) Managing Director - Legal Department Telecopier: 011-44(20) 7 888 1600 COMMERZBANK INTERNATIONAL S.A. By /s/: Jeremy East /s/: Manfred Jahns --------------------------------------- Title Vice President Vice President ------------------------------------- Address: Attention: Telecopier: MITSUI & CO., PRECIOUS METALS INC. By ---------------------------------------- Title ------------------------------------- Address: 200 Park Avenue New York, NY 10166 Attention: Steve Scacalossi Telecopier: (212) 878-4122 SOVEREIGN PRECIOUS METAL, LLC By /s/: Irene A. Ogarek ---------------------------------------- Title Vice President ------------------------------------- Address: RI1 WST BW-01 15 Westminster Street Providence, Rhode Island 02904 Attention: Irene Ogarek Telecopier: (401) 752-1438 -27- JPMORGAN CHASE BANK By /s/: Gaspar Nunez ---------------------------------------- Title Vice President ------------------------------------- Address: 1375 Broadway - 8th Floor New York, NY 10018 Attention: Irene Spector Telecopier: (212) 827-4483 GENERAL ELECTRIC CAPITAL BUSINESS ASSET FUNDING CORPORATION By ---------------------------------------- Title Vice President ------------------------------------- Address: 10900 N.E. 4th Street Suite 500 Bellevue, WA 98004 Attention: Deanna Pendergraft Telecopier: (425) 450-3501 Consented and agreed to: MICHAEL ANTHONY JEWELERS, INC. By /s/: Michael A. Paolercio -------------------------- Title Sr. Vp, Treasurer ------------------------ MA BRANDS, INC. By /s/: Michael A. Paolercio -------------------------- Title Asst. Treasurer ------------------------ -28- EX-10.28 6 l93497aex10-28.txt EX-10.28 EXHIBIT 10.28 ------------- FIFTH AMENDMENT AND AGREEMENT TO AMENDED AND RESTATED COLLATERAL SHARING AGREEMENT FIFTH AMENDMENT AND AGREEMENT TO AMENDED AND RESTATED COLLATERAL SHARING AGREEMENT dated as of JANUARY 31, 2002 by and among ABN AMRO BANK N.V., NEW YORK BRANCH ("ABN"); FLEET PRECIOUS METALS INC. ("FPM"); CREDIT SUISSE FIRST BOSTON INTERNATIONAL ("Credit Suisse"); MITSUI & CO., PRECIOUS METALS INC. ("Mitusi"); COMMERZBANK INTERNATIONAL S.A. ("Commerzbank"); and SOVEREIGN PRECIOUS METALS, LLC ("Sovereign") (each a "Consignor" and collectively, the "Consignors"); and FLEET PRECIOUS METALS INC., in its capacity as agent for itself and the other Consignors (the "Agent"). W I T N E S S E T H: WHEREAS, the Consignors (other than Sovereign) are parties to a certain Amended and Restated Collateral Sharing Agreement dated as of August 20, 1993 (hereinafter, as amended from time to time, the "Collateral Sharing Agreement"), pursuant to which the Consignors decided among themselves the parity of their security interest in the Collateral (as defined in the Collateral Sharing Agreement) of MICHAEL ANTHONY JEWELERS, INC. ("Debtor") and MA BRANDS, INC. and provided for the enforcement of such security interest therein; and WHEREAS, Debtor and Sovereign desire to add Sovereign as a "Consignor" pursuant to the terms of the Collateral Sharing Agreement as Sovereign has entered into a Consignment Agreement dated as of January 31, 2002 (hereinafter, as amended or modified from time to time, the "Sovereign Agreement") with Debtor; and WHEREAS, Sovereign is willing to assume all obligations and liabilities under the Collateral Sharing Agreement as a Consignor thereunder and to comply with the covenants and terms of such Collateral Sharing Agreement and any documents executed by the Consignors in connection with the Collateral Sharing Agreement; and 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 Collateral Sharing Agreement. 3. Sovereign is hereby added as a party to the Collateral Sharing Agreement, with Sovereign to be included as a Consignor pursuant to the terms of the Collateral Sharing Agreement. 4. The Collateral Sharing Agreement is hereby amended so that the terms "Consignor" and "Consignors" as used therein and herein shall include, from and after the date hereof, Sovereign and Sovereign 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 Collateral Sharing Agreement which are to be performed by the Consignors thereunder. In view of the execution of this Fifth Amendment to the Amended and Restated Collateral Sharing Agreement which, inter alia, adds Sovereign as a "Consignor" under the Collateral Sharing Agreement, the provisions of Section 8 of the Collateral Sharing Agreement which permit a consignor to be added to the Collateral Sharing Agreement by letter agreement are waived. 5. All necessary, conforming changes to the Collateral Sharing Agreement occasioned by reason of this Fifth Amendment are hereby deemed to be made. 6. This Fifth Amendment shall be binding upon the parties and their respective successors and assigns. 7. Each of the Consignors acknowledge and agree that, except as expressly provided herein, the terms and provisions of the Collateral Sharing Agreement remain unchanged and the Collateral Sharing Agreement remains in full force and effect in accordance with its terms. The terms "Agreement" as used in the Collateral Sharing Agreement and all references to the Collateral Sharing 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 Collateral Sharing Agreement as previously amended and as amended and supplemented by this Fifth Amendment. 8. 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. 9. 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. -30- 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. ABN AMRO BANK N.V., NEW YORK BRANCH, as Consignor By /s/: Jeffrey Sarfaty ------------------------------------------ Title V.P. ------------------------------------- By Ned Kopelson ------------------------------------------ Title VP ------------------------------------- Address: 680 Fifth Avenue - 6th Floor New York, NY 10019 Attention: Jeffrey Sarfaty Telecopier: (212) 649-5149 FLEET PRECIOUS METALS INC., as Agent and as Consignor By /s/: A. J. Capuano ------------------------------------------ Title SVP ------------------------------------- By /s/: Louis P. Massa ------------------------------------------ Title Vice President ------------------------------------- Address: 111 Westminster Street Providence, RI 02903 Attention: Louis Massa Telecopier: (401) 278-3077 -31- CREDIT SUISSE FIRST BOSTON INTERNATIONAL By ------------------------------------------ Title ------------------------------------- By ------------------------------------------ Title ------------------------------------- Address: One Cabot Square London E14 4QJ, England Attn: (1) Head of Credit Risk Management, (2) Managing Director - Operations Department, and (3) Managing Director - Legal Department Telecopier: +44(20) 7 888 1600 MITSUI & CO., PRECIOUS METALS INC. By ------------------------------------------ Title ------------------------------------- Address: 200 Park Avenue New York, NY 10166 Attention: Steve Scacalossi Telecopier: (212) 878-4122 COMMERZBANK INTERNATIONAL S.A. By /s/: Jeremy East /s/: Manfred Jahns ------------------------------------------ Title Vice President Vice President ------------------------------------- Address: Attention: Telecopier: SOVEREIGN PRECIOUS METALS, LLC By /s/: Irene A. Ogarek ------------------------------------------ Title Vice President ------------------------------------- Address: RI1 WST BW-01 15 Westminster Street Providence, Rhode Island 02904 Attention: Irene Ogarek Telecopier: (401) 752-1438 -32- Consented and agreed to: MICHAEL ANTHONY JEWELERS, INC. By /s/: Michael A. Paolercio -------------------------- Title Sr. VP and Treasurer ---------------------- MA BRANDS, INC. By /s/: Michael A. Paolercio ------------------------- Title Asst. Treasurer ---------------------- -33- EX-10.29 7 l93497aex10-29.txt EX-10.29 EXHIBIT 10.29 ------------- NINTH AMENDMENT TO AMENDED AND RESTATED SECURITY AGREEMENT THIS NINTH AMENDMENT is made as of the 31st day of January, 2002, 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 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 INTERNATIONAL ("Credit Suisse"), FLEET PRECIOUS METALS INC. ("FPM"), MITSUI & CO. PRECIOUS METALS, INC. ("Mitsui"), COMMERZBANK INTERNATIONAL S.A. ("Commerzbank") and SOVEREIGN PRECIOUS METALS, LLC ("Sovereign")(jointly and severally, the "Secured Parties"). W I T N E S S E T H T H A T: - - - - - - - - - - - - - - WHEREAS, the Secured Parties (other than Sovereign), 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, a certain Fourth Amendment dated as of October 20, 1995, a certain Fifth Amendment dated October 23, 1998, a certain Sixth Amendment dated March 1, 2000, a certain Seventh Amendment dated March 1, 2001, and a certain Eighth Amendment dated March 23, 2001 (the "Security Agreement") pursuant to which the Debtor granted to the Secured Parties (other than Sovereign), 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 Sovereign desire to add Sovereign as a "Secured Party" pursuant to the terms of the Security Agreement as Sovereign has entered into a Consignment Agreement dated as of January 31, 2002 (hereinafter, as amended or modified from time to time, the "Sovereign Agreement") with the Debtor; and WHEREAS, Sovereign is willing to assume all obligations and liabilities under the Security Agreement as a Security Party thereunder and 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. 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 Sovereign as a party to the Security Agreement, with Sovereign 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 Sovereign 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, Sovereign and Sovereign shall be entitled to all of the rights and benefits of a Secured Party thereunder. 3. 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, November 29, 1999 in the case of Mitsui, January 22, 2001 in the case of Commerzbank, and JANUARY 31, 2002 in the case of Sovereign) (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" 4. In order to secure the due and punctual payment and performance of all indebtedness, liabilities and obligations of the Debtor contained in the Sovereign 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 Sovereign 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 Sovereign and to Sovereign, 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. 5. Any necessary, conforming changes to the Security Agreement occasioned by reason of this Ninth Amendment shall be deemed to have been made. 6. This Ninth Amendment shall be binding upon the parties and their respective successors and assigns. 7. 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 -35- Security Agreement as previously amended and as amended and supplemented by this Ninth Amendment. 8. 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. 9. This Ninth 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. 10. This Ninth 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 Ninth 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: SVP and Treasurer ---------------------------- FLEET PRECIOUS METALS INC., individually and as Agent for each of the Secured Parties By: /s/: Louis P. Massa ------------------------------- Title: Vice President ---------------------------- By: /s/: Anthony J. Capuano ------------------------------- Title: SVP ---------------------------- ABN AMRO BANK N.V., NEW YORK BRANCH By: /s/: Jeffrey Sarfaty ------------------------------- Title: VP ---------------------------- By: /s/: Ned Kopelson ------------------------------- Title: VP ---------------------------- -36- CREDIT SUISSE FIRST BOSTON INTERNATIONAL By: ------------------------------- Title: ---------------------------- By: ------------------------------- Title: ---------------------------- COMMERZBANK INTERNATIONAL S.A. By: /s/: Jeremy East /s/: Manfred Jahns --------------------------------------- Title: Vice President Vice President ------------------------------------- MITSUI & CO., PRECIOUS METALS INC. By: ------------------------------- Title: ---------------------------- SOVEREIGN PRECIOUS METALS, LLC By: /s/: Irene A. Ogarek ------------------------------- Title: Vice President ---------------------------- -37- EX-10.30 8 l93497aex10-30.txt EX-10.30 EXHIBIT 10.30 ------------- FOURTH AMENDMENT TO SECURITY AGREEMENT (TRADEMARKS AND SERVICE MARKS) THIS FOURTH AMENDMENT is made as of the 31st day of January, 2002, between MA BRANDS, INC., a Delaware corporation having a principal place of business at 900 Market Street, Suite, 200, Wilmington, Delaware 19801 ("MAJ DELAWARE"), and FLEET PRECIOUS METALS, INC., as agent (in such capacity, together with its successors and assigns in such capacity, "AGENT") for the benefit of ABN AMRO BANK N.V., NEW YORK BRANCH ("ABN"), FLEET PRECIOUS METALS INC. ("FPM"), CREDIT SUISSE FIRST BOSTON INTERNATIONAL ("Credit Suisse"), MITSUI & CO., PRECIOUS METALS INC. ("Mitusi"), COMMERZBANK INTERNATIONAL S.A. ("Commerzbank"), and SOVEREIGN PRECIOUS METALS, LLC ("Sovereign") and each of the financial institutions who become Consignors under, and as defined in, that certain Amended and Restated Security Agreement (Trademarks and Service Marks) dated August 20, 1993, as amended from time to time (jointly and severally, "CONSIGNORS"). W I T N E S S E T H T H A T: - - - - - - - - - - - - - - WHEREAS, the Consignors (other than Sovereign), the Agent and MAJ Delaware are parties to a certain Security Agreement (Trademarks and Service Marks) dated as of December 19, 1999, as amended from time to time (as amended, the "Security Agreement (Trademarks and Service Marks)" pursuant to which MAJ Delaware granted to the Consignors (other than Sovereign) and the Agent a security interest in the Marks (as defined therein) and provided for the enforcement of such security interest; and WHEREAS, MAJ Delaware and Sovereign desire to add Sovereign as a "Consignor" pursuant to the terms of the Security Agreement (Trademarks and Service Marks) as Sovereign has entered into a Consignment Agreement dated as of JANUARY 31, 2002 (hereinafter, as amended or modified from time to time, the "Sovereign Agreement") with Michael Anthony Jewelers, Inc. ("MAJ"); and WHEREAS, Sovereign is willing to comply with the covenants and terms of such Security Agreement (Trademarks and Service Marks) and any documents executed by the Consignors in connection with the Security Agreement (Trademarks and Service Marks). 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 Security Agreement (Trademarks and Service Marks). 2. The Consignors, the Agent and MAJ Delaware hereby consent to the addition of Sovereign as a party to the Security Agreement (Trademarks and Service Marks), with Sovereign to be included as a Consignor pursuant to the terms of the Security Agreement (Trademarks and Service Marks). 3. The Security Agreement (Trademarks and Service Marks) is hereby amended so that the term "Consignors" as used therein and herein shall include, from and after the date hereof, Sovereign and Sovereign shall be entitled to all of the rights and benefits of hereunder. 4. In order to secure the due and punctual payment and performance of all indebtedness, liabilities and obligations of MAJ contained in the Sovereign Agreement and any related security instruments, and to secure the due and punctual payment and performance of all indebtedness, liabilities and obligations of MAJ and MAJ Delaware to Sovereign 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 MAJ Delaware under the Security Agreement (Trademarks and Service Marks), obligations with respect to forward contracts for the purchase or sale of precious metal and obligations of MAJ 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 (Trademarks and Service Marks)), MAJ Delaware hereby grants to the Agent on behalf of Sovereign and to Sovereign, and hereby ratifies and affirms its grant to the Agent on behalf of the other Consignors and to each of the other Consignors of, a continuing security interest in and a lien upon the Marks. 5. Any necessary, conforming changes to the Security Agreement (Trademarks and Service Marks) occasioned by reason of this Fourth Amendment shall be deemed to have been made. 6. This Fourth Amendment shall be binding upon the parties and their respective successors and assigns. 7. Each of MAJ Delaware, each Consignor and the Agent acknowledge and agree that, except as expressly provided herein, the terms and provisions of the Security Agreement (Trademarks and Service Marks) remain unchanged and the Security Agreement (Trademarks and Service Marks) remains in full force and effect in accordance with its terms. The term "Security Agreement (Trademarks and Service Marks)" as used in the Security Agreement (Trademarks and Service Marks) and all references to the Security Agreement (Trademarks and Service Marks) in any other documents or agreements between any of the parties hereto which relate to MAJ Delaware shall refer, from and after the date hereof, to the Security Agreement (Trademarks and Service Marks) as previously amended and as amended and supplemented by this Fourth Amendment. 8. This Fourth 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. -39- 9. This Fourth 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 Fourth Amendment to be executed by their duly authorized officers as of the date first above written. MA BRANDS, INC. By /s/: Michael A. Paolercio ---------------------------------- Title Asst. Treasurer ------------------------------- Address: 900 Market St., Suite 200 Wilmington DE 19801 Telecopy: 914-699-2335 FLEET PRECIOUS METALS INC., as Agent By/s/: Louis P. Massa ---------------------------------- Title Vice President ------------------------------- By/s/: A. J. Capuano ---------------------------------- Title SVP ------------------------------- Telecopy: 401-278-3077 STATE OF NEW YORK COUNTY OF WESTCHESTER On the 28th day of JANUARY, 2002, before me personally appeared Michael A. Paolercio, ASST. TREASURER of MA Brands, Inc., to me known and known by me to be the person executing the foregoing instrument, and acknowledged said instrument by him executed to be his free act and deed in said capacity and the free act and deed of said MA Brands, Inc. /s/: Gladys Jagdeo ------------------------------------- Notary Public My commission expires: 6/24/02 --------------- -40- STATE OF RHODE ISLAND COUNTY OF PROVIDENCE On the 31st day of JANUARY, 2002, before me personally appeared LOUIS P. MASSA, VICE PRESIDENT and ANTHONY J. CAPUANO, SR. VICE PRESIDENT of Fleet Precious Metals Inc., to me known and known by me to be the persons executing the foregoing instrument, and acknowledged said instrument by them executed to be their free act and deed in said capacities and the free act and deed of said Fleet Precious Metals Inc., individually and as Agent. Diane L. Haley --------------------------------- Notary Public My commission expires: 8/30/05 ---------- EX-10.31 9 l93497aex10-31.txt EX-10.31 EXHIBIT 10.31 ------------- TWELFTH AMENDMENT AND AGREEMENT ------------------------------- TO -- CONSIGNMENT AGREEMENT --------------------- THIS TWELFTH AMENDMENT AND AGREEMENT TO CONSIGNMENT AGREEMENT is made as of the 29th day of JUNE, 2001, by and between FLEET PRECIOUS METALS INC., a Rhode Island corporation with its principal offices at 111 Westminster Street, Providence, Rhode Island 02903 (the "Consignor") and MICHAEL ANTHONY JEWELERS, INC., a Delaware corporation with its principal office at 115 South MacQuesten Parkway, Mount Vernon, New York 10550 (the "Consignee"). WITNESSETH THAT: WHEREAS, the Consignor and the Consignee are parties to a certain Consignment Agreement dated as of August 20, 1993, as previously amended by various amendments and letter agreements (as amended, the "Consignment Agreement") pursuant to which the Consignor agreed to consign precious metals to the Consignee from time to time for use in the Consignee's manufacturing operations; and WHEREAS, the parties hereto desire to amend the Consignment Agreement as hereinafter provided; NOW, THEREFORE, for value received, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. All capitalized terms used herein without definition shall have the meanings assigned by the Consignment Agreement. -42- 2. Effective the date hereof, the definition of "Consignment Limit" in Section 1 of the Consignment Agreement is amended in its entirety as follows: "Consignment Limit" shall mean: (i) the lesser of (a) the Fair Market Value of Fifty Thousand (50,000) 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 for which payment has not been received by Consignor) equal to Fifteen Million ($15,000,000); (ii) such limit as the Consignor and the Consignee may agree upon from time to time as evidenced by an amendment in substantially the form of Exhibit C attached hereto and made a part hereof or in such other form as the Consignor shall require; or (iii) such other limit as the Consignor may approve in its sole discretion." 3. All references to the "Consignment Agreement" in that certain Security Agreement dated August 20, 1993, as amended from time to time, by and among the Consignee, the Consignor, individually and as collateral agent for ABN AMRO Bank N.V., New York Branch; Credit Suisse First Boston, Consignor, and Paribas, and in any other documents or agreements by and between the parties hereto, shall from and after the effective date hereof refer to the Consignment Agreement, as previously amended and as amended hereby, and all obligations of the Consignee under the Consignment Agreement, as amended hereby, shall be secured by and entitled to the benefits of said Security Agreement and such other documents and agreements. 4. Except as amended hereby, the Consignment Agreement shall remain in full force and effect and is in all respects hereby ratified and affirmed. IN WITNESS WHEREOF, the undersigned parties have caused this 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: SVP and Treasurer --------------------------------- FLEET PRECIOUS METALS INC. By: /s/: A. J. CAPUANO ---------------------------------- Title: SVP -------------------------------- By: ------------------------------------ Title: --------------------------------- -43- EX-10.32 10 l93497aex10-32.txt EX-10.32 Exhibit 10.32 ------------- CONSIGNMENT AGREEMENT CONSIGNMENT AGREEMENT ("AGREEMENT") made as of January 31, 2002, by and between SOVEREIGN PRECIOUS METALS, LLC, a Pennsylvania limited liability company, with its principal office at 15 Westminster Street, Providence, Rhode Island 02903 ("Consignor"), and MICHAEL ANTHONY JEWELERS, INC., a Delaware corporation with its principal office 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 Sovereign Bank, or (ii) the rate quoted by Sovereign 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 Sovereign Bank for deposit, plus one-half of one percent (0.50%). "BULLION FORWARD EXPOSURE AMOUNT" shall mean any risk up to the Bullion Forwards Limit which the Consignor assumes with respect to outstanding gold forwards contracts now or in the future entered into by Consignee with Consignor, whether or not evidence by a written agreement. "BULLION FORWARDS LIMIT" shall mean an amount equal to $1,000,000. "CONSIGNEE'S COUNSEL" shall mean Rita Martin-Crowley, Esq., General Counsel 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) 45,000 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 $14,000,000.00 LESS the Bullion Forward Exposure Amount. "CI" shall mean Commerzbank International S.A. and any legal successor in interest thereto. "CS" shall mean Credit Suisse, New York Branch. "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 herein all Indebtedness that is payable upon demand within one (1) year from the date of determination thereof unless such indebtedness is renewable or extendible 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 mean 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 -45- 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. "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, (iv) that portion of all obligations arising under capital leases that is required to be capitalized or as stated as such on the balance sheet of Consignee, (v) 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. "MITSUI" shall mean Mitsui & Co (U.S.A.), Inc. "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. -46- "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: Sovereign Precious Metals, LLC 15 Westminster Street Providence, RI 02903 Attention: Irene A. Ogarek Vice President Fax Number: (401) 752-1438 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. "SECURITY AGREEMENT" shall mean that certain Amended and Restated Security Agreement of [even date herewith] among Consignee, as debtor, FPM as agent and secured party and ABN, CI, Mitsui and the Consignor, as secured parties. "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. "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 -47- 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. 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 fine 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. If for any reason the number of fine 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 must 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 -48- 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 Rhode Island 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. Any 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. 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. -49- 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, 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) Rhode Island 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) Rhode Island 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, Sovereign Bank, ABA #: 011075150, BNF: Sovereign Precious Metals, LLC, Acct. #: 98500027762, (ii) by 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 per annum (4% p.a.) 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 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. -50- 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 (together with Accord Form 27 (284) 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, nonrenewal 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. -51- 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. 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 per annum (4.0% p.a.), 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, 2001, together with interim Financial Statements for the period ending November 3, 2001, 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 November 3, 2001 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 -52- 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 determined by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors 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 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; -53- (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 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. 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 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; -54- (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 and all states where Consignee is qualified to do business, dated reasonably near the date of this Agreement, stating that Consignee is duly incorporated or duly qualified and in good standing in such state(s) 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 (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 -55- 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 premise; (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 before 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; (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 such year and containing a statement to 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, second 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; -56- (iii) Simultaneously with the furnishing of each of the Financial Statements to be delivered pursuant to subsections (i) and (ii) 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 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; (iv) within twenty (20) days after the end of each month, a consignment base certificate of Consignee as of the last Rhode Island 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); (v) 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); and (vi) Promptly, from time to time, furnish such other information regarding its operations, assets, business affairs and financial condition as Consignor may reasonably request; (f) 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 a field examination of the Consigned Precious Metal in the possession and control of Consignee (which examination shall include the observance thereof by BDO Seidman as to such examination, including an annual audit review of Consignee's control system), such examination 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 one field examination 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; -57- (g) 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; (h) 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; (i) 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; (j) 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; (k) Except 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; (l) 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; -58- (m) 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; (n) 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; (o) Maintain at all times Tangible Net Worth in an amount at least equal to $40,000,000. (p) Maintain at all times Working Capital in an amount at least equal to $22,000,000. (q) 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; (r) Maintain at all times a ratio of Current Liabilities PLUS long-term Indebtedness secured by current assets to working Capital of not more than 6.30:1.00; (s) 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 determined in accordance with generally accepted accounting principles consistently applied; and (t) 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 each 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 -59- 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; (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, (i) collection (including endorsements) in the ordinary course of business, and (ii) 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 fine troy ounces of 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, Mitsui and CI to the Consignee, (ii) 7,500 fine troy ounces at, or in transit to or from, any one location, or (iii) 15,000 fine troy ounces located outside the United States. 13. EVENTS OF DEFAULT; RIGHTS AND REMEDIES OF CONSIGNOR UPON DEFAULT. -60- 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; (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(f), 11(m), 11(n), 11(o), 11(p), 11(q), 11(r), 11(s), 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; -61- (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; (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 those certain Consignment Agreements or Amended and Restated Consignment Agreement dated as of August 20, 1993 between Consignee and each of ABN, FPM, [Mitsui?] respectively, as the same have been amended from time to time, that certain Consignment Agreement dated as of January 22, 2001 between CI and Consignee, as the same has been amended from time to time and any promissory note in favor of JP Morgan Chase 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 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 -62- 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. 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 -63- 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 or 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 nature, known or unknown, foreseen or otherwise (including, without limitation, counsel and consultant 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. (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 (ii) any enforcement hereof. (c) This Agreement shall be construed in accordance with and governed by the laws of the State of Rhode Island. -64- (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 Rhode Island and the United States District Court for the State of Rhode Island, 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 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 -65- 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. SOVEREIGN PRECIOUS METALS, LLC AS CONSIGNOR By: /s/: Irene A. Ogarek -------------------------------------- Name: Irene A. Ogarek Title: Vice President MICHAEL ANTHONY JEWELERS, INC. AS CONSIGNEE -66- EX-10.33 11 l93497aex10-33.txt EX-10.33 EXHIBIT 10.33 ------------- EMPLOYMENT AGREEMENT Michael Anthony Jewelers, Inc, a Delaware Corporation with its principal place of business in Mount Vernon, New York ("Corporation"), and Claudia Hollingsworth, an individual and resident of California ("Employee"), have, as of this 2nd day of FEBRUARY, 2002 entered into the following: AGREEMENT In consideration of the mutual promises and covenants of the parties, together with other valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Corporation and Employee agree as follows: 1. EMPLOYMENT. Corporation hereby employs Employee, and Employee accepts employment by Corporation, upon the terms and conditions of this Agreement. Employee represents that, at the Effective Date (as defined below), she will not be a party to any other employment agreement, nor will she be restricted in any way from being employed by Corporation or from completely performing her duties hereunder. 2. DUTIES. Employee shall serve as Corporation's President, reporting to Michael W. Paolercio, Chief Executive Officer, and shall perform such duties as the Corporation may require from time to time, consistent with such position as an executive officer of the Corporation. Shelly Light, Executive Vice President and Mark Hanna, Vice-President, Marketing and Sales, and any successors thereto, shall report directly to Employee. Employee will be required to maintain her office at the Corporation's corporate headquarters in Mount Vernon, New York. Changes in or additions to Employee's duties, consistent with the provisions of this Agreement, are not to be accompanied by additional compensation unless expressly agreed to by Corporation. Employee agrees to serve Corporation faithfully and to the best of her ability and to devote substantially her entire business and professional time, attention, and energies to the business of Corporation, and to the proper and timely discharge of her duties. Employee shall comply with all applicable laws and prevalent commercial and industry customs and practices. 3. COMPENSATION AND BENEFITS. For and in consideration of the covenants and promises of Employee herein, including, without limitation, the restrictive covenants contained in Section 5, and as full and complete remuneration for all services rendered by Employee hereunder, Employee shall receive the following compensation and benefits: 3.1 BASE SALARY. Employee shall be entitled to a base salary equal to Two Hundred and Seventy Five Thousand Dollars ($275,000.00) per annum for the first two years and Three Hundred Thousand Dollars ($300,000.00) for the third year, earned and payable in periodic weekly installments ("Base Salary"). All applicable deductions shall be withheld from Employee's compensation as required by law. 3.2 SIGNING BONUS. In addition to the Base Salary, Employee shall be entitled to a signing bonus equal to Fifty Thousand (50,000) shares of the Corporation's common stock upon execution and return of this Agreement to be issued as of the Effective Date and delivered to Employee within six weeks of the Corporation's receipt of the executed Agreement. Such shares to be -67- restricted for resale during the first year under federal law and the safe harbor provisions of Rule 144. To the extent the shares are eligible to be registered for resale under Form S-8, the Corporation shall register such shares within six (6) months following the Effective Date. In the event that such shares are no so registered and Employee desires to sell such shares during the first year following the Effective Date to cover any tax liability imposed as a result of the original issuance of such shares, the shareholders identified on the signature page of this Agreement, upon request of Employee, will purchase at fair market value, such number of shares as are necessary for Employee to meet her tax liability with respect to the original grant of the shares. The Corporation, with Employee's assistance and cooperation, will file all necessary documentation with the Securities and Exchange Commission relating to such issuance and resale. 3.3 BENEFITS. Employee shall be entitled to the following benefits at Corporation's expense: (i) twenty (20) business days' paid vacation each year. (ii) comprehensive medical and dental care, selected by the Corporation for Employee and dependents. Employee will also participate in the Medical Executive Reimbursement Plan, whereby Employee will be reimbursed up to $5,000.00 for medical expenses not covered by the Corporation's comprehensive medical and dental care plans. Corporation to pay COBRA expenses until Employee is eligible for coverage under Corporation's plan. (iii) disability insurance in accordance with the Corporation's group disability plan; (iii) term life insurance with death benefit equal to at least $50,000.; (iv) reimbursement for all documented ordinary, necessary, and reasonable business expenses, including without limitation travel expenses incurred by Employee in accordance with Corporation's policy. (v) participation in the Corporation's 401K Plan pursuant to the terms of the Plan. (vi) participation in the Corporation's Deferred Compensation Plan pursuant to the terms of such Plan. (vii) a living allowance and car service (to and from the Corporation's corporate headquarters) for the term of this Agreement. The living allowance for the first year of the Agreement shall be Seven Thousand Dollars ($7,000) per month and increase each year thereafter by Five Hundred Dollars ($500.00) per month unless otherwise mutually agreed upon by the parties. 3.4 OTHER COMPENSATION. Employee shall also be eligible to earn up to 100% of Employee's base salary as a bonus each year based upon meeting specific performance goals (to be mutually agreed upon by the parties and set forth in writing) and Corporation profitability thresholds as set forth in Exhibit A attached hereto. In the event Employee resigns employment with the Corporation, is terminated pursuant to Section 4.2 or otherwise ceases employment with the Corporation, Employee shall only be entitled to a pro-rata bonus based on the number of months Employee worked during the Initial Term or any Renewal Term hereof. -68- 3.5 STOCK OPTIONS On the Effective Date, Employee will receive Stock Options for 300,000 shares which vest over 3 years and which shall be exercisable over the longest period permitted under the Corporation's Stock Option Program, which shall, in no event be less than 5 years. Employee will receive additional Stock Option Awards for 100,000 shares for each year of the Initial Renewal Term, if applicable, in years 4, 5, and 6. The exercise price of any such option shall be determined in accordance with the terms of the Employee Stock Options Program but in no case shall be greater than the fair market value of a share of the Corporation's common stock on the grant date. The Corporation with Employee's assistance and cooperation will file all necessary documentation with the Securities and Exchange Commission. 3.6 CHANGE OF CONTROL As a member of Management, Employee would be covered by the Corporation's Change of Control Plan whereby, if there is a change of control at the Corporation, subject to the terms and conditions of the Plan, Employee would be eligible to receive the greater of (i) the compensation and benefits that would otherwise be payable to Employee through the end of the term of the Agreement or (ii) one year's salary and benefits. All issued stock options would automatically vest upon a change of control. 4. TERM AND TERMINATION 4.1 TERM. The initial term of this Agreement and Employee's employment hereunder shall commence on the 4th day of March, 2002 (the "Effective Date"), and, unless sooner terminated as provided for herein, expire on March 3, 2005 (the "Initial Term"); provided, however, that this Agreement shall be automatically renewed for successive renewal periods of three (3) years each (each a "Renewal Term") unless Corporation or Employee notifies the other in writing at least thirty (30) days prior to the expiration of the Initial Term or any Renewal Term that the Corporation or Employee, as the case may be, elects not to renew this Agreement, in which case this Agreement and Employee's employment hereunder shall terminate upon expiration of such term. Unless otherwise provided by prior written agreement between Corporation and Employee, any Renewal Term shall be on the same terms and conditions as those contained in this Agreement. Either Corporation or Employee may terminate this Agreement at the expiration of the Initial Term or any Renewal Term thereof, as provided in this Section 4.1, for any reason or for no reason, in its sole discretion. 4.2 TERMINATION FOR CAUSE. Corporation may terminate this Agreement, without notice to Employee and with immediate effect, for cause. The term "Cause" shall be defined as: (i) willful failure of Employee to comply with reasonable directives of the CEO and/or COO of Corporation or his designee; provided, however, that no such termination shall be effective unless and until Employee shall have had an opportunity to discuss such termination with the Board of Directors and the Board of Directors shall have reviewed and ratified such termination. (ii) chronic absenteeism of Employee not related to a physical illness; Employee's inability to perform her duties because of Employee's physical or mental illness or disability for a period of ninety (90) days in any twelve month period. (iii) Employee's conviction of a crime involving moral turpitude or other serious criminal offense; or -69- (iv) Employee's material breach of this Agreement, which breach remains uncured or continues for a period of thirty (30) days after the Corporation provides written notice to Employee of such breach. 4.3 EFFECT OF TERMINATION. In the event of (i) a termination for reasons other than "Cause" (as defined in Section 4.2 above) or (ii) a resignation for "Good Reason" which shall be defined as (A) a demotion or material change in duties or responsibilities without consent of Employee, or (B) a change of location at which Employee is required to provide services Employee shall receive the greater of (1) the compensation and other benefits that would otherwise be payable to Employee through the end of the term of the Agreement (payable in accordance with the Corporation's normal payroll practices) or (2) severance pursuant to the Corporation's policy which provides for one month's salary for every year of service up to a maximum of six months. 4.4 DISCLOSURE OF PROBLEM OR DISAGREEMENTS. Employee agrees to promptly bring to the attention of Corporation any problems or disagreements as to Corporation's policies, or any other matters which might cause Employee to seek to terminate or fail to renew this Agreement. Employee agrees to bring such matters to the attention of Corporation's management prior to giving notice of termination or non-renewal of this Agreement for reasons other than Good Reason.. The purpose and intent of the parties in including this provision is to ensure that Corporation is made aware of any employment related problems and, where possible, to resolve them to the parties' mutual satisfaction. 5. RESTRICTIVE COVENANTS. For and in consideration of the covenants and promises of Corporation herein, including without limitation, those contained in Section 3 concerning compensation and benefits, Employee covenants and agrees that: 5.1 CORPORATION'S SHOP RIGHT . Employee shall make prompt and complete disclosure to Corporation of any (i) invention, discovery, or improvement whether patentable or not ("Invention"); (ii) copyrightable or trademark material; or (iii) trade secrets, which relate to the business of Corporation and which are made, conceived, or authorized by Employee, alone or with others, during the term of this Agreement. To the maximum extent provided by law, Employee shall assign, and she does hereby assign, to Corporation all of her right, title, and interest in any such invention(s), copyrightable or trademark material(s) and trade secrets, and agrees to execute, acknowledge, and deliver any and all documents and instruments necessary or useful to confirm complete ownership thereof by Corporation. At the request and expense of Corporation, Employee shall promptly render whatever assistance may be reasonable and necessary for Corporation to secure a patent, copyright, or trademark for such Invention(s) or material(s). 5.2 PROPERTY. All data, reports, manuals, listings, customer lists (but exclusive of Employee's Contacts, as defined below) and any other documents, equipment or data furnished to or prepared or obtained by Employee during the course of or in connection with her employment shall be the sole and exclusive property of Corporation; and Employee shall promptly turn over to Corporation all such items upon the request of Corporation's Board of Directors or upon the expiration or termination of this Agreement for any reason. 5.3 CORPORATE OPPORTUNITIES. During the term of this Agreement, Employee shall promptly and fully disclose to Corporation any business opportunities involving any existing or prospective line of business or activity of Corporation, and shall not divert to her own use or benefit, or the use or benefit of others, such opportunities without the prior written consent of Corporation. -70- Employee agrees that she shall not accept from any third party, directly or indirectly, any material benefits, advantages, or remuneration (cash or otherwise) related to or arising out of Corporation's business or Employee's employment by Corporation, without the prior written consent of Corporation. 5 4. CONFIDENTIALITY. Employee hereby agrees and acknowledges that, as a result of her employment by Corporation, she will have access to, among other things, certain confidential techniques, data and information such as know-how, trade secrets, products, customer lists, catalogs, and price lists, computer records, policies, other confidential procedures and techniques, and other data and information relating to the business of Corporation or its products ("Proprietary Information"). Employee stipulates and agrees that such Proprietary Information is the sole and exclusive property of Corporation, and that such Proprietary Information is confidential and proprietary, and that the unauthorized use or disclosure thereof would seriously and irreparably damage Corporation's business. As a material inducement to Corporation to enter into this Agreement, Employee hereby agrees that she will not, for any purpose whatsoever, at any time during or after employment by Corporation, directly or indirectly use, divulge, communicate, or disclose to any person, firm, or organization, any such Proprietary Information obtained by or disclosed to Employee during or as a result of her employment by Corporation. Notwithstanding anything to the contrary set forth in this Agreement, Proprietary Information shall not include Employee's relationships or knowledge of customers, suppliers or other industry participants or Employee's Rolodex or similar database, whether or not in written form, of customers, suppliers or other industry contracts (collectively, "Employee's Contacts"). 5.5 NON-COMPETITION. As a material inducement to Corporation to enter into this Agreement, Employee agrees that: 5.5.1 During her employment by Corporation and, if Employee resigns for reasons other than Good Reason, retires, or is terminated by the Corporation for Cause pursuant to Section 4.2, and for a period of one (1) year thereafter, Employee shall not engage in Competitive Conduct (defined below). 5.5.2 For purposes of this Section 5.5, "Competitive Conduct" means: (i) Competing, directly or indirectly, with Corporation (A) while employed by the Corporation or receiving severance payments from the Corporation, by working for or providing services to any business that competes with the Corporation, or (B) subsequent to the termination of her employment with the Corporation, by working for or providing services to Aurafin or any Affiliates of Aurafin in the Territory (defined below); (ii) Soliciting or diverting, directly or indirectly, the business of any of Corporation's clients, customers, accounts, principals, agents, distributors, or suppliers with whom Employee conducted business during the term of her employment (A) while employed by the Corporation or while receiving severance payments from the Corporation, to or for the benefit of any business that competes with the Corporation, or (B) subsequent to the termination of her employment with the Corporation, to or for the benefit of Aurafin or its Affiliates; (iii) Soliciting or diverting, directly or indirectly, the business of any of Corporation's clients, customers, accounts, principals, agents, distributors, or suppliers with whom Corporation conducts business at the time Employee ceases employment with Corporation, or conducted business within the twelve (12) month period prior to such cessation of employment (A) -71- while employed by the Corporation or while receiving severance payments from the Corporation, on behalf of or for the benefit of any business that competes with the Corporation, or (B) subsequent to the termination of her employment with the Corporation, on behalf or for the benefit of Aurafin or its Affiliates; (iv) Employing or soliciting, directly or indirectly, for employment any person (A) employed by Corporation at the time Employee ceases employment with Corporation, or (B) employed by Corporation within the twelve (12) month period prior to the cessation of employment; and (v) Participating or acting, within the Territory (defined below), directly or indirectly, as an employee, agent, consultant, director, principal, owner, shareholder, or partner (A) while employed by the Corporation or receiving severance payments from the Corporaiton, in any business that competes with the Corporation, or (B) subsequent to the termination of her employment with the Corporation, in Aurafin or its Affiliates. 5.5.3 Notwithstanding anything to the contrary contained in Section 5.5.2 above, Employee may, at any time after termination of her employment but while she is receiving severance payments pursuant to this Agreement, elect to forego any remaining severance payments owed to her, in which case the definition of Competitive Conduct under this Agreement shall be limited to Section 5.5.2(iv) and ONLY clause (B) of Sections 5.5.2(i), (ii), (iii), and (v). 5.5.4 For purposes of this Section 5.5 "Territory" means all states in the United States. 5.6 SURVIVAL OF PROVISIONS. THE PROVISIONS OF THIS SECTION 5 AND EACH OF THE SUBSECTIONS HEREOF SHALL SURVIVE EXPIRATION OR TERMINATION OF THIS AGREEMENT OR EMPLOYMENT HEREUNDER FOR ANY REASON. 6. REASONABLENESS OF RESTRICTION. Employee has carefully read and considered the provisions of Section 5 of this Agreement and each of the subsections thereof, and, having done so, expressly agrees and acknowledges that the covenants and agreements set forth therein are based upon valuable and sufficient consideration, the receipt of which as of the date of this Agreement is hereby acknowledged, that such covenants and agreements are fair and reasonable in all respects, and are reasonably required and necessary for the protection of the legitimate business and competitive interests of Corporation; and that each of the covenants and agreements contained in Section 5 of this Agreement and each of the subsections thereof is separately and independently given, and each such covenant and agreement is intended to be enforceable separately and independently of the other such covenants and agreements, including, without limitation of remedy, enforcement by injunction or other equitable relief. 7. ENFORCEMENT REMEDIES. Employee acknowledges and agrees that any breach by Employee of any of the provisions of Section 5 will cause immediate and irreparable damage to Corporation. In the event of a breach or threatened breach by Employee of any of such provisions, Corporation shall be entitled to temporary, preliminary, and/or permanent injunctive relief in addition to, and not in lieu of, any other remedies available to Corporation at law or in equity. Corporation shall also be entitled to recover from Employee its legal costs and expenses, including reasonable attorneys' fees, in connection with proceedings arising from any actual or threatened breach by Employee of any -72- of the provisions of Section 5. The Restricted Period shall be extended in an amount which equals the time period during which Employee is in violation of any of the provisions of Section 5. 8. SEVERABILITY. If any part of provision of this Agreement shall be invalid, illegal, or unenforceable for any reason, the remaining provisions hereof shall remain effective and fully enforceable to the maximum extent permitted by law. 9. NOTICES. Any notice contemplated, required, or permitted under this Agreement shall be sufficient if in writing and shall be deemed given when delivered personally or when sent by prepaid certified or registered mail, return receipt requested to the addresses listed below or to such other addresses as either party hereto may hereafter designate in writing-from time to time: if to Corporation: Michael Anthony Jewelers, Inc. 115 So. MacQuesten Parkway Mt. Vernon, New York 10550-1724 Attention: Chief Executive Officer if to Employee: Claudia Hollingsworth 10520 Wilshire Boulevard #205 Los Angeles, California 90024 With a copy to: Robert Steinberg, Esq. Jeffer, Mangels, Butler & Marmaro LLP 2121 Avenue of the Stars, 10th Floor Los Angeles, CA 90067 10. GENERAL PROVISIONS. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors, heirs, and assigns; provided that, inasmuch as the services to be rendered by Employee are personal in nature, Employee may not assign, in whole or part, this Agreement or her rights or obligations hereunder. This Agreement may not be altered, modified, or amended, in whole or in part, except in writing signed by Employee and Corporation. Waiver by either party of any breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 11. CHOICE OF LAW. This Agreement shall in all respects be governed by and construed according to the laws of the state of New York. With respect to any dispute or controversy arising out of or relating to this Agreement, the laws of the state of New York shall likewise govern and apply. 12. EXCLUSIVE FORUM, VENUE, AND CONSENT TO JURISDICTION. The parties agree that the Supreme Court, Westchester County of the State of New York shall constitute the exclusive judicial forum for the adjudication of all disputes arising out of or relating to this Agreement, that Westchester County shall be the sole proper venue for any such adjudication, and that those Courts may exercise personal jurisdiction over them in any such adjudication. 13. ENTIRE AGREEMENT. This Agreement reflects the complete understanding of the parties and constitutes their entire agreement, all prior negotiations, representations, agreements, and statements having merged herein. -73- IN WITNESS WHEREOF, the parties have duly executed this Agreement under seal, as is their intention, as of the date and year first above written. CORPORATION: MICHAEL ANTHONY JEWELERS, INC. ATTEST: By: /s/: Michael W. Paolercio -------------------------- Michael W. Paolercio, CEO EMPLOYEE: /s/: Claudia Hollingsworth -------------------------- Claudia Hollingsworth PRIMARY SHAREHOLDERS (solely for purposes of Section 3.2 of this Agreement): /s/: Michael W. Paolercio - -------------------------- MICHAEL W. PAOLERICO /s/: Anthony Paolercio, Jr. --------------------------- Anthony Paolercio, Jr. -74- EXHIBIT A CORPORATION PROFITABILITY THRESHOLDS & EMPLOYEE BONUS LEVEL ----------------------------------------------------------- Corporation pre-tax income must exceed 5% of net worth for Bonus to be payable: For the initial term of the Agreement the Net Worth shall be determined as of FY2002 Year End (February 2, 2002) and recalculated for successive renewal periods. Above Threshold Salary % Bonus Calculation 1st million 7.5% 2nd million 15% 3rd million 20% 4th million 30% 5th million 40% 6th million 50% 7th million 75% 8th million and above 100% -75- EX-21 12 l93497aex21.txt EX-21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following are the Company's subsidiaries as of April 8, 2002. All beneficial interests are wholly-owned by the Company and are included in the Company's consolidated financial statements. Name of Subsidiary State of Organization Date of Incorporation ------------------ --------------------- --------------------- MA Brands, Inc. Delaware 9-16-97 Mador, S.A. Dominican Republic 10-29-99 EX-23 13 l93497aex23.txt EX-23 Exhibit 23 ---------- CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders of Michael Anthony Jewelers, Inc. Mount Vernon, New York We hereby consent to the incorporation by reference of the previously filed Registration Statements on Form S-8 and Form S-3 (File Nos. 333-29029, 333-29037, 333-74629 and 333-83056) of Michael Anthony Jewelers, Inc. of our report dated March 28, 2002, relating to the consolidated financial statements of Michael Anthony Jewelers, Inc. appearing in the Annual Report on Form 10-K for the year ended February 2, 2002. /s/: BDO Seidman, LLP BDO Seidman, LLP New York, New York April 22, 2002 -----END PRIVACY-ENHANCED MESSAGE-----