Mr. Steve Nelson June 18, 1998
Reliastar Investment Research Inc.
100 Washington Avenue South, Ste. 800
Minneapolis, MN 55401-2121
Dear Steve:
As we discussed on the phone today, we need to clarify further the waiver letter
of April 14.
As acknowledged in your waiver letter, Michael Anthony took a special one-time
charge of $4.5 million in the fourth quarter of fiscal year 1998. This caused us
to need a waiver of the Fixed Charge Ratio requirements for the fiscal year
ending January 31, 1998 and the following three quarter periods of May 2, 1998,
August 1, 1998 and October 31, 1998. From an accounting point of view, this
charge has the effect of reducing the Company's current assets by approximately
$3 million ($4.5 million charge less tax refund receivable of $1.5 million). The
result is that the Company's working capital is penalized by $3 million. We
project that this will cause us to have a working capital below the required $36
million at the end of our next fiscal quarter, August 1, 1998. Compounding the
foregoing is the fact that the first $1 million payment of the 1995 notes will
move up to the current liabilities section of our balance sheet on that same
date. As you know, this has the effect of reducing our working capital by an
additional $1 million.
Clearly this was an oversight. Had we foreseen this, you would have included
this in your waiver letter. Accordingly, it is understood by all that we would
be considered to be in compliance with the Working Capital Requirement as long
as we have $33 million in working capital through our fiscal year ending January
30, 1999.
Thanks for your understanding. Please signify your acceptance of this
clarification by signing off and forwarding this letter to Holly Thompson at
Royal Maccabees and Steve Harkness at Farm Bureau for their signatures.
Very truly yours, RELIASTAR INSURANCE COMPANY OF NEW YORK
NORTHERN LIFE INSURANCE COMPANY
/s/ Michael A. Paolercio BY: /s/ Steve Nelson
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Michael A. Paolercio Steve Nelson
Senior Vice President and Treasurer
ROYAL MACCABEES INSURANCE CO.
MAP/gj
map\waiver BY: /s/ Leonard D. Davenport
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Leonard D. Davenport
FARM BUREAU MUTUAL INSURANCE COMPANY
FARM BUREAU LIFE INSURANCE COMPANY
BY: /s/ Steve Harkness
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Steve Harkness