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                                                                   Exhibit 10.37
                         MORTGAGE, SECURITY AGREEMENT,
                       AND ASSIGNMENT OF LEASES AND RENTS

                        MICHAEL ANTHONY JEWELERS, INC.,
                            a Delaware corporation,

                                    Grantor,

                                       to

                       GENERAL ELECTRIC CAPITAL BUSINESS
                           ASSET FUNDING CORPORATION,
                            a Delaware corporation,

                                    Grantee.

                                February 10, 1999

Location of Premises:

Address:          50 South MacQuesten Parkway
                  Mount Vernon
                  Westchester County, New York

Section:          2
Block:            1057
Lot:              12 & 14

NOTICE: THE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS THEREOF
BEING MODIFIED IN THE EVENT OF SALE OR CONVEYANCE OF THE PROPERTY HEREIN
CONVEYED.

THE REAL PROPERTY IS NOT PRINCIPALLY IMPROVED OR TO BE IMPROVED BY ONE OR MORE
STRUCTURES CONTAINING IN THE AGGREGATE NOT MORE THAN SIX RESIDENTIAL DWELLING
UNITS, EACH DWELLING UNIT HAVING ITS OWN SEPARATE COOKING FACILITIES.

                                            Prepared by, recording requested by,
                                            and when recorded, return to:

                                            Dorothea S. Costrini
                                            Lee Ann M. Williams, Jr.
                                            Hunter, Maclean, Exley & Dunn, P.C.
                                            200 East Saint Julian Street
                                            Savannah, Georgia 31412

                                            General Electric Capital Business
                                            Asset Funding Corporation
                                            Loan Number: 001-0003346-001


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         THIS MORTGAGE (herein "Instrument"), made as of February 10, 1999,
among the Mortgagor, MICHAEL ANTHONY JEWELERS, INC., a Delaware corporation,
whose address is 115 South MacQuesten Parkway, Mount Vernon, New York 10550
(herein "Borrower"), in favor of the Mortgagee, GENERAL ELECTRIC CAPITAL
BUSINESS ASSET FUNDING CORPORATION, a Delaware corporation, whose address is
Real Estate Department, 10900 Northeast Fourth Street, Suite 500, Bellevue,
Washington 98004 (herein "Lender"),


                              W I T N E S S E T H:

         THAT, WHEREAS, Borrower is justly indebted to Lender in the sum of Nine
Hundred Thirty-Seven Thousand Five Hundred and no hundredths Dollars
($937,500.00), as evidenced by a certain Promissory Note (as hereinafter
described),

         NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower irrevocably mortgages to Lender all of Borrower's right,
title and interest, now owned or hereafter acquired, including any reversion or
remainder interest, in the real property located in the City of Mount Vernon,
County of Westchester, State of New York, commonly known as 50 South MacQuesten
Parkway, and more particularly described on EXHIBIT A attached hereto and
incorporated herein including all heretofore or hereafter vacated alleys and
streets abutting the property, and all easements, rights, appurtenances,
tenements, hereditaments, rents, royalties, mineral, oil and gas rights and
profits, water, water rights, and water stock appurtenant to the property
(collectively "Premises");

         TOGETHER with all of Borrower's estate, right, title and interest, now
owned or hereafter acquired, in, under and to:

         (a) all buildings, structures, improvements, parking areas,
landscaping, equipment, fixtures and articles of property now or hereafter
erected on, attached to, or used or adapted for use in the operation of the
Premises; including but without being limited to, all heating, air conditioning
and incinerating apparatus and equipment; all boilers, engines, motors, dynamos,
generating equipment, piping and plumbing fixtures, water heaters, ranges,
cooking apparatus and mechanical kitchen equipment, refrigerators, freezers,
cooling, ventilating, sprinkling and vacuum cleaning systems, fire extinguishing
apparatus, gas and electric fixtures, carpeting, floor coverings, underpadding,
elevators, escalators, partitions, mantels, built-in mirrors, window shades,
blinds, draperies, screens, storm sash, awnings, signs, furnishings of public
spaces, halls and lobbies, and shrubbery and plants, and including also all
interest of any owner of the Premises in any of such items hereafter at any time
acquired under conditional sale contract, chattel mortgage or other title
retaining or security instrument, all of which property mentioned in this clause
(a) shall be deemed part of the realty covered by this Instrument and not
severable wholly or in part without material injury to the freehold of the
Premises (all of the foregoing together with replacements and additions thereto
are referred to herein as "Improvements") (subject to the rights of Lender in
connection with Loan No. 001-0003281-001);

         (b) all compensation, awards, damages, rights of action and proceeds,
including interest thereon and/or the proceeds of any policies of insurance
therefor, arising out of or relating to a (i) taking or damaging of the Premises
or Improvements thereon by reason of any public or private improvement,
condemnation proceeding (including change of grade), sale or transfer in lieu of
condemnation, or fire, earthquake or other casualty, or (ii) any injury to or
decrease in the value of the Premises or the Improvements for any reason
whatsoever;

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         (c) return premiums or other payments upon any insurance any time
provided for the benefit of or naming Lender, and refunds or rebates of taxes or
assessments on the Premises;

         (d) all written and oral leases and rental agreements (including
extensions, renewals and subleases; all of the foregoing shall be referred to
collectively herein as the "Leases") now or hereafter affecting the Premises
including, without limitation, all rents, issues, profits and other revenues and
income therefrom and from the renting, leasing or bailment of Improvements and
equipment, all guaranties of tenants' performance under the Leases, and all
rights and claims of any kind that Borrower may have against any tenant under
the Leases or in connection with the termination or rejection of the Leases in a
bankruptcy or insolvency proceeding;

         (e) plans, specifications, contracts and agreements relating to the
design or construction of the Improvements; Borrower's rights under any payment,
performance, or other bond in connection with the design or construction of the
Improvements; all landscaping and construction materials, supplies, and
equipment used or to be used or consumed in connection with construction of the
Improvements, whether stored on the Premises or at some other location; and
contracts, agreements, and purchase orders with contractors, subcontractors,
suppliers, and materialmen incidental to the design or construction of the
Improvements;

         (f) all contracts, accounts, rights, claims or causes of action
pertaining to or affecting the Premises or the Improvements, including, without
limitation, management contracts, service or supply contracts, permits,
licenses, franchises and certificates, and all commitments or agreements, now or
hereafter in existence, intended by the obligor thereof to provide Borrower with
proceeds to satisfy the loan evidenced hereby or improve the Premises or
Improvements, and the right to receive all proceeds due under such commitments
or agreements including refundable deposits and fees;

         (g) all books, records, surveys, reports and other documents related to
the Premises, the Improvements, the Leases, or other items of collateral
described herein; and

         (h) all additions, accessions, replacements, substitutions, proceeds
and products of the real and personal property, tangible and intangible,
described herein.


         All of the foregoing described collateral is exclusive of Borrower's
inventory and accounts receivable and any furniture, furnishings or trade
fixtures owned and supplied by tenants of the Premises. The Premises, the
Improvements, the Leases and all of the rest of the foregoing property are
herein referred to as the "Property."

         TO HAVE AND TO HOLD the Property and all parts, rights, members and
appurtenances thereof to the use, benefit and behoof of Lender and its
successors and assigns in fee simple forever.

         TO SECURE TO Lender (a) the repayment of the indebtedness evidenced by
Borrower's Promissory Note dated of even date herewith in the principal sum of
Nine Hundred Thirty-Seven Thousand Five Hundred and no hundredths Dollars
($937,500.00), with interest thereon as set forth therein, and having a maturity
date of March 1, 2014, and all renewals, extensions and modifications thereof
(herein "Note"); (b) the payment of all other sums, with interest thereon,
advanced in accordance herewith to protect the security of this Instrument or to
fulfill any of Borrower's obligations hereunder or under the other Loan
Documents (as defined


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below); and (c) the performance of the covenants and agreements of Borrower
contained herein or in the other Loan Documents. The indebtedness and
obligations described in clauses (a)-(c) above are collectively referred to
herein as the "Indebtedness;" The Note, this Instrument, and all other documents
evidencing, securing or guaranteeing the Indebtedness (except any Certificate
and Indemnity Agreement Regarding Hazardous Substances), as the same may be
modified or amended from time to time, are referred to herein as the "Loan
Documents;" The terms of the Note secured hereby may provide that the interest
rate or payment terms or balance due may be indexed, adjusted, renewed, or
renegotiated from time to time, and this Instrument shall continue to secure the
Note notwithstanding any such indexing, adjustment, renewal or renegotiation.

         PROVIDED, ALWAYS, that if Borrower shall pay unto Lender the
Indebtedness and if Borrower shall duly, promptly and fully perform, discharge,
execute, effect, complete and comply with and abide by each and every of the
stipulations, agreements, conditions and covenants of the Note and this
Instrument, then this Instrument and all assignments contained herein and liens
created hereby shall cease and be null and void; otherwise to remain in full
force and effect.

         Borrower represents and warrants that Borrower has good, marketable and
insurable title to, and has the right to mortgage an indefeasible fee simple
estate in, the Premises, Improvements, rents, and leases, and the right to
convey the other Property, that the Property is unencumbered except as disclosed
in writing to and approved by Lender prior to the date hereof, and that Borrower
will warrant and forever defend the title to the Property against all claims and
demands, subject only to the permitted exceptions set forth in SCHEDULE 1
attached hereto.

         Borrower represents. warrants, covenants and agrees for the benefit of
Lender as follows:

         1. PAYMENT OF PRINCIPAL AND INTEREST. Borrower shall promptly pay when
due the principal of and interest on the Indebtedness, any prepayment and other
charges provided in the Loan Documents and all other sums secured by this
Instrument.

         2. FUNDS FOR TAXES, INSURANCE AND OTHER CHARGES. Upon the occurrence of
an Event of Default (hereinafter defined), and at Lender's sole option at any
time thereafter, Borrower shall pay in addition to each monthly payment on the
Note, one-twelfth of the annual real estate taxes, insurance premiums,
assessments, water and sewer rates, ground rents and other charges (herein
"Impositions") payable with respect to the Property (as estimated by Lender in
its sole discretion), to be held by Lender without interest to Borrower, for the
payment of such obligations.

         If the amount of such additional payments held by Lender ("Funds") at
the time of the annual accounting thereof shall exceed the amount deemed
necessary by Lender to provide for the payment of Impositions as they fall due,
such excess shall be at Borrower's option, either repaid to Borrower or credited
to Borrower on the next monthly installment or installments of Funds due. If at
any time the amount of the Funds held by Lender shall be less than the amount
deemed necessary by Lender to pay Impositions as they fall due, Borrower shall
pay to Lender any amount necessary to make up the deficiency within thirty (30)
days after notice from Lender to Borrower requesting payment thereof.

         Upon the occurrence of an Event of Default hereunder, Lender may apply,
in any amount and in any order as Lender shall determine in Lender's sole
discretion, any Funds held by Lender at the time of application (i) to pay
Impositions which are now or will hereafter become due,


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or (ii) as a credit against sums secured by this Instrument. Upon payment in
full of all sums secured by this Instrument, Lender shall refund to Borrower any
Funds held by Lender.

         3. APPLICATION OF PAYMENTS. Unless applicable law provides otherwise,
each complete installment payment received by Lender from Borrower under the
Note or this Instrument shall be applied by Lender first in payment of amounts
payable to Lender by Borrower under SECTION 2 hereof, then to interest payable
on the Note, then to principal of the Note. Upon the occurrence of an Event of
Default, Lender may apply, in any amount and in any order as Lender shall
determine in Lender's sole discretion, any payments received by Lender under the
Note or this Instrument. Any partial payment received by Lender shall, at
Lender's option, be held in a non-interest bearing account until Lender receives
funds sufficient to equal a complete installment payment.

         4. CHARGES, LIENS. Borrower shall pay all Impositions attributable to
the Property in the manner provided under SECTION 2 hereof or, if not paid in
such manner, by Borrower making payment, when due, directly to the payee
thereof, or in such other manner as Lender may designate in writing. If 
requested by Lender, Borrower shall promptly furnish to Lender all notices of
Impositions which become due, and in the event Borrower shall make payment
directly, Borrower shall promptly furnish to Lender receipts evidencing such
payments. Borrower shall promptly discharge any lien which has, or may have,
priority over or equality with, the lien of this Instrument, and Borrower shall
pay, when due, the claims of all persons supplying labor or materials to or in
connection with the Property. Without Lender's prior written permission,
Borrower shall not allow any lien inferior to this Instrument to be perfected
against the Property. If any lien inferior to this Instrument is filed against
the Property without Lender's prior written permission and without the consent
of Borrower, Borrower shall, within thirty (30) days after receiving notice of
the filing of such lien, cause such lien to be released of record and deliver
evidence of such release to Lender.

         5. INSURANCE. Borrower shall obtain and maintain the following types of
insurance upon and relating to the Property:

         (a) "All Risk" property and fire insurance (with extended coverage
endorsement including malicious mischief and vandalism) in an amount not less
than the full replacement value of the Property (with a deductible not to exceed
$5,000), naming Lender under a lender's loss payee endorsement (form 438BFU or
equivalent) and including agreed amount, inflation guard, replacement cost and
waiver of subrogation endorsements;

         (b) Comprehensive general liability insurance in an amount not less
than $2,000,000.00 insuring against personal injury, death and property damage
and naming Lender as additional insured;

         (c) Business interruption insurance covering loss of rental or other
income (including all expenses payable by tenants) for up to six (6) months; and

         (d) Such other types of insurance or endorsements to existing insurance
as may be required from time to time by Lender.

         Upon the request of Lender, Borrower shall increase the coverages under
any of the insurance policies required to be maintained hereunder or otherwise
modify such policies in accordance with Lender's request. All of the insurance
policies required hereunder shall be issued by corporate insurers licensed to do
business in the state in which the Property is located and rated A:X or better
by A.M. Best Company, and shall be in form acceptable to Lender. If and to the


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extent that the Property is located within an area that has been or is hereafter
designated or identified as an area having special flood hazards by the
Department of Housing and Urban Development or such other official as shall from
time to time be authorized by federal or state law to make such designation
pursuant to any national or state program of flood insurance, Borrower shall
carry flood insurance with respect to the Property in amounts not less than the
maximum limit of coverage then available with respect to the Property or the
amount of the Indebtedness, whichever is less. Certificates of all insurance
required to be maintained hereunder shall be delivered to Lender, along with
evidence of payment in full of all premiums required thereunder,
contemporaneously with Borrower's execution of this Instrument. All such
certificates shall be in form acceptable to Lender and shall require the
insurance company to give to Lender at least thirty (30) days' prior written
notice before canceling the policy for any reason or materially amending it.
Certificates evidencing all renewal and substitute policies of insurance shall
be delivered to Lender, along with evidence of the payment in full of all
premiums required thereunder, at least fifteen (15) days before termination of
the policies being renewed or substituted. If any loss shall occur at any time
when Borrower shall be in default hereunder, Lender shall be entitled to the
benefit of all insurance policies held or maintained by Borrower, to the same
extent as if same had been made payable to Lender, and upon foreclosure
hereunder, Lender shall become the owner thereof. Lender shall have the right,
but not the obligation, to make premium payments, at Borrower's expense, to
prevent any cancellation, endorsement, alteration or reissuance of any policy of
insurance maintained by Borrower, and such payments shall be accepted by the
insurer to prevent same.

         If any act or occurrence of any kind or nature (including any casualty
for which insurance was not obtained or obtainable) shall result in damage to or
destruction of the Property (such event being called a "Loss"), Borrower will
give prompt written notice thereof to Lender. All insurance proceeds paid or
payable in connection with any Loss shall be paid to Lender. If (i) no Event of
Default has occurred and is continuing hereunder, (ii) Borrower provides
evidence satisfactory to Lender of its ability to pay all amounts becoming due
under the Note during the pendency of any restoration or repairs to or
replacement of the Property, (iii) the available insurance proceeds are, in
Lender's judgment, sufficient to fully and completely restore, repair or replace
the Property, and (iv) Borrower provides evidence satisfactory to Lender that
none of the tenants of the Property will terminate their Leases as a result of
either the Loss or the repairs to or replacement of the Property, Borrower shall
have the right to apply all insurance proceeds received in connection with such
Loss either (a) to restore, repair, replace and rebuild the Property as nearly
as possible to its value, condition and character immediately prior to such
Loss, or (b) to the payment of the Indebtedness in such order as Lender may
elect. If an Event of Default has occurred and is continuing hereunder at the
time of such Loss, if Lender determines that Borrower will be unable to pay all
amounts becoming due under the Note during the pendency of any restoration or
repairs to or replacement of the Property, if the available insurance proceeds
are insufficient, in Lender's judgment, to fully and completely restore, repair
or replace the Property or if Lender believes that one or more tenants of the
Property will terminate its Lease as a result of either the Loss or the repairs
to or replacement of the Property, then all of the insurance proceeds payable
with respect to such Loss will be applied to the payment of the Indebtedness, or
if so instructed by Lender, Borrower will promptly, at Borrower's sole cost and
expense and regardless of whether sufficient insurance proceeds shall be
available, commence to restore, repair, replace and rebuild the Property as
nearly as possible to its value, condition, character immediately prior to such
Loss. Borrower shall diligently prosecute any restoration, repairs or
replacement of the Property undertaken by or on behalf of Borrower pursuant to
this SECTION 5. All such work shall be conducted pursuant to written contracts
approved by Lender in writing. Notwithstanding anything contained herein to the
contrary, in the event the insurance proceeds received by Lender following any
Loss are insufficient in Lender's judgment to fully and completely restore,
repair or replace the


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Property, and if Borrower has complied with all of the other conditions
described in this SECTION 5, Borrower may elect to restore, repair or replace
the Property if it first deposits with Lender such additional sums as Lender
determines are necessary in order to fully and completely restore, repair or
replace the Property. In the event any insurance proceeds remain following the
restoration, repair or replacement of the Property, such proceeds shall be
applied to the Indebtedness in such order as Lender may elect.

         Borrower waives any and all right to claim or recover against Lender or
its officers, employees, agents and representatives, for loss of or damage to
Borrower, the Property, Borrower's property or the property of others under
Borrower's control from any cause insured against or required to be insured
against under this SECTION 5.

         6. PRESERVATION AND MAINTENANCE OF PROPERTY. Borrower (a) shall not
commit waste or permit impairment or deterioration of the Property, (b) shall
not abandon the Property, (c) shall restore or repair promptly and in a good and
workmanlike manner all or any part of the Property to the equivalent of its
original condition, or such other condition as Lender may approve in writing, in
the event of any damage, injury or loss thereto, whether or not insurance
proceeds are available to cover in whole or in part the costs of such
restoration or repair, (d) shall keep the Property, including all improvements,
fixtures, equipment, machinery and appliances thereon, in good repair and shall
replace fixtures, equipment, machinery and appliances on the Property when
necessary to keep such items in good repair, (e) shall comply with all laws,
ordinances, regulations and requirements of any governmental body applicable to
the Property, (f) if all or part of the Property is for rent or lease, then
Lender, at its option after the occurrence of an Event of Default, may require
Borrower to provide for professional management of the Property by a property
manager satisfactory to Lender pursuant to a contract approved by Lender in
writing, unless such requirement shall be waived by Lender in writing, (g) shall
generally operate and maintain the Property in a manner to ensure maximum
rentals, and (h) shall give notice in writing to Lender of and, unless otherwise
directed in writing by Lender, appear in and defend any action or proceeding
purporting to affect the Property, the security of this Instrument or the rights
or powers of Lender hereunder. Neither Borrower nor any tenant or other person,
without the written approval of Lender, shall remove, demolish or alter any
improvement now existing or hereafter erected on the Property or any fixture,
equipment, machinery or appliance in or on the Property except when incident to
the replacement of fixtures, equipment, machinery and appliances with items of
like kind.

         Borrower represents, warrants and covenants that the Property is and
shall be in compliance with the Americans with Disabilities Act of 1990 and all
of the regulations promulgated thereunder, as the same may be amended from time
to time.

         7. USE OF PROPERTY. Unless required by applicable law or unless Lender
has otherwise agreed in writing, Borrower shall not allow changes in the use for
which all or any part of the Property was intended at the time this Instrument
was executed. Borrower shall not, without Lender's prior written consent, (i)
initiate or acquiesce in a change in the zoning classification (including any
variance under any existing zoning ordinance applicable to the Property), (ii)
permit the use of the Property to become a non-conforming use under applicable
zoning ordinances, (iii) file any subdivision or parcel map affecting the
Property, or (iv) amend, modify or consent to any easement or covenants,
conditions and restrictions pertaining to the Property.

         8. PROTECTION OF LENDER'S SECURITY. If Borrower fails to perform any of
the covenants and agreements contained in this Instrument, or if any action or
proceeding is


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commenced which affects the Property or title thereto or the interest of Lender
therein, including, but not limited to, eminent domain, insolvency, code
enforcement, or arrangements or proceedings involving a bankrupt or decedent,
then Lender at Lender's option may make such appearances, disburse such sums and
take such action as Lender deems necessary, in its sole discretion, to protect
Lender's interest, including, but not limited to, (i) disbursement of attorneys'
fees, (ii) entry upon the Property to make repairs, (iii) procurement of
satisfactory insurance as provided in SECTION 5 hereof.

         Any amounts disbursed by Lender pursuant to this SECTION 8, with
interest thereon, shall become additional Indebtedness of Borrower secured by
this Instrument. Unless Borrower and Lender agree to other terms of payment,
such amounts shall be immediately due and payable and shall bear interest from
the date of disbursement at the highest rate which may be collected from
Borrower under applicable law or, at Lender's option, the rate stated in the
Note. Borrower hereby covenants and agrees that Lender shall be subrogated to
the lien of any mortgage or other lien discharged, in whole or in part, by the
Indebtedness. Nothing contained in this SECTION 8 shall require Lender to incur
any expense or take any action hereunder.

         9. INSPECTION. Lender may make or cause to be made reasonable entries
upon the Property to inspect the interior and exterior thereof.

         10. FINANCIAL DATA. Borrower will furnish to Lender, and will cause any
guarantor of the Indebtedness to furnish Lender on request, within ninety (90)
days after the close of its fiscal year (i) annual balance sheet and profit and
loss statements prepared in accordance with generally accepted accounting
principles and practices consistently applied and, if Lender so requires,
accompanied by the annual audit report of an independent certified public
accountant reasonably acceptable to Lender, (ii) an annual operating statement,
together with a complete rent roll and other supporting data reflecting all
material information with respect to the operation of the Property and
Improvements, and (iii) all other financial information and reports that Lender
may from time to time reasonably request, including, if Lender so requires,
income tax returns of Borrower and any guarantor of any portion of the
Indebtedness, and, to the extent that Borrower is able to do so, financial
statements of any tenants designated by Lender. (Failure to provide financial
statements of tenants shall not constitute an Event of Default hereunder.)

         11. CONDEMNATION. If the Property, or any part thereof, shall be
condemned for any reason, including without limitation fire or earthquake
damage, or otherwise taken for public or quasi-public use under the power of
eminent domain, or be transferred in lieu thereof, all damages or other amounts
awarded for the taking of, or injury to, the Property shall be paid to Lender
who shall have the right, in its sole and absolute discretion, to apply the
amounts so received against (a) the costs and expenses of Lender, including
attorneys' fees incurred in connection with collection of such amounts, and (b)
the balance against the Indebtedness; provided, however, that if (i) no Event of
Default shall have occurred and be continuing hereunder (ii) Borrower provides
evidence satisfactory to Lender of its ability to pay all amounts becoming due
under the Note during the pendency of any restoration or repairs to or
replacement of the Property, (iii) Lender determines, in its sole discretion,
that the proceeds of such award are sufficient to restore, repair, replace and
rebuild the Property as nearly as possible to its value, condition and character
immediately prior to such taking (or, if the proceeds of such award are
insufficient for such purpose, if Borrower provides additional sums to Lender's
satisfaction so that the aggregate of such sums and the proceeds of such award
will be sufficient for such purpose), and (iv) Borrower provides evidence
satisfactory to Lender that none of the tenants of the Property will terminate
its Lease as a result of either the condemnation or taking or the repairs to or
replacement of the Property, the proceeds of such award, together with
additional sums provided by Borrower, shall


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be placed in a separate account for the benefit of Lender and Borrower to be
used to restore, repair, replace and rebuild the Property as nearly as possible
to its value, condition and character immediately prior to such taking. All work
to be performed in connection therewith shall be pursuant to a written contract
therefor, which contract shall be subject to the prior approval of Lender. To
the extent that any funds remain after the Property has been so restored and
repaired, the same shall be applied against the Indebtedness in such order as
Lender may elect. To enforce its rights hereunder, Lender shall be entitled to
participate in and control any condemnation proceedings and to be represented
therein by counsel of its own choice, and Borrower will deliver, or cause to be
delivered to Lender such instruments as may be requested by it from time to time
to permit such participation. In the event Lender, as a result of any such
judgment, decree or award, believes that the payment or performance of any of
the Indebtedness is impaired, Lender may declare all of the Indebtedness
immediately due and payable.


         12. BORROWER AND LIEN NOT RELEASED. From time to time, Lender may, at
Lender's option, without giving notice to or obtaining the consent of Borrower,
Borrower's successors or assigns or of any junior lienholder or guarantors,
without liability on Lender's part and notwithstanding the occurrence of an
Event of Default, extend the time for payment of the Indebtedness or any part
thereof, reduce the payments thereon, release anyone liable on any of the
Indebtedness, accept an extension or modification or renewal note or notes
therefor, modify the terms and time of payment of the Indebtedness, release from
the lien of this Instrument any part of the Property, take or release other or
additional security, reconvey any part of the Property, consent to any map or
plan of the Property, consent to the granting of any easement, join in any
extension or subordination agreement, and agree in writing with Borrower to
modify the rate of interest or period of amortization of the Note or change the
amount of the monthly installments payable thereunder. Any actions taken by
Lender pursuant to the terms of this SECTION 12 shall not affect the obligation
of Borrower or Borrower's successors or assigns to pay the sums secured by this
Instrument and to observe the covenants of Borrower contained herein, shall not
affect the guaranty of any person, corporation, partnership or other entity for
payment of the Indebtedness, and shall not affect the lien or priority of the
lien hereof on the Property. Borrower shall pay Lender a service charge,
together with such title insurance premiums and attorneys' fees as may be
incurred at Lender's option, for any such action if taken at Borrower's request.

         13. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by Lender in
exercising any right or remedy hereunder, or otherwise afforded by applicable
law, shall not be a waiver of or preclude the exercise of any other right or
remedy. The acceptance by Lender of payment of any sum secured by this
Instrument after the due date of such payment shall not be a waiver of Lender's
right to either require prompt payment when due of all other sums so secured or
to declare a default for failure to make prompt payment. The procurement of
insurance or the payment of taxes or other liens or charges by Lender shall not
be a waiver of Lender's right to accelerate the maturity of the Indebtedness
secured by this Instrument, nor shall Lender's receipt of any awards, proceeds
or damages under SECTIONS 5 and 11 hereof operate to cure or waive Borrower's
default in payment of sums secured by this Instrument.

         14. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument is
intended to be a security agreement pursuant to the Uniform Commercial Code for
any of the items specified above as part of the Property which, under applicable
law, may be subject to a security interest pursuant to the Uniform Commercial
Code, and Borrower hereby grants and conveys to Lender a first and prior
security interest in all of the Property that constitutes personalty, whether
now owned or hereafter acquired. Any reproduction of this Instrument or of any
other security agreement or financing statement shall be sufficient as a
financing statement. In addition, Borrower agrees to execute and deliver to
Lender, upon Lender's request, any


                                       8

<PAGE>   10



financing statements, as well as extensions, renewals and amendments thereof,
and reproductions of this Instrument in such form as Lender may require to
perfect a security interest with respect to the foregoing items. Borrower shall
pay all costs of filing such financing statements and any extensions, renewals,
amendments and releases thereof, and shall pay all costs and expenses of any
record searches for financing statements Lender may require. Without the prior
written consent of Lender, Borrower shall not create or suffer to be created
pursuant to the Uniform Commercial Code any other security interest in said
items, including replacements and additions thereto. Upon the occurrence of an
Event of Default, including the covenants to pay when due all sums secured by
this Instrument, Lender shall have the remedies of a secured party under the
Uniform Commercial Code, and Lender may also invoke the remedies provided in
SECTION 26 of this Instrument as to such items. In exercising any of said
remedies Lender may proceed against the items of real property and any items of
personal property specified above separately or together and in any order
whatsoever, without in any way affecting the availability of Lender's remedies
under the Uniform Commercial Code or of the remedies provided in SECTION 26 of
this Instrument. Within ten (10) days following any request therefor by Lender,
Borrower shall prepare and deliver to Lender a written inventory specifically
listing all of the personal property covered by the security interest herein
granted, which inventory shall be certified by Borrower as being true, correct,
and complete.

         15. LEASES OF THE PROPERTY. Borrower shall comply with and observe
Borrower's obligations as landlord under all Leases of the Property or any part
thereof. All Leases hereafter entered into will be in form and substance subject
to the approval of Lender, which approval shall not be unreasonably withheld.
All Leases of the Property hereafter entered into shall specifically provide
that such Leases are subordinate to this Instrument; that the tenant attorns to
Lender, such attornment to be effective upon Lender's acquisition of title to
the Property; that the tenant agrees to execute such further evidences of
attornment as Lender may from time to time request; that the attornment of the
tenant shall not be terminated by foreclosure; and that Lender may, at Lender's
option, accept or reject such attornments. Borrower shall not, without Lender's
written consent, request or consent to the subordination of any Lease of all or
any part of the Property to any lien subordinate to this Instrument. If Borrower
becomes aware that any tenant proposes to do, or is doing, any act or thing
which may give rise to any right of set-off against rent, Borrower shall (i)
take such steps as shall be reasonably calculated to prevent the accrual of any
right to a set-off against rent, (ii) immediately notify Lender thereof in
writing and of the amount of said set-offs, and (iii) within ten (10) days after
such accrual, reimburse the tenant who shall have acquired such right to set-off
or take such other steps as shall effectively discharge such setoff and as shall
assure that rents thereafter due shall continue to be payable without set-off or
deduction. Upon Lenders receipt of notice of the occurrence of any default or
violation by Borrower of any of its obligations under the Leases, Lender shall
have the immediate right, but not the duty or obligation, without prior written
notice to Borrower or to any third party, to enter upon the Property and to take
such actions as Lender may deem necessary to cure the default or violation by
Borrower under the Leases. The costs incurred by Lender in taking any such
actions pursuant to this paragraph shall become part of the Indebtedness, shall
bear interest at the rate provided in the Note, and shall be payable by Borrower
to Lender on demand. Lender shall have no liability to Borrower or to any third
party for any actions taken by Lender or not taken pursuant to this paragraph.

         16. REMEDIES CUMULATIVE. Each remedy provided in this Instrument is
distinct and cumulative to all other rights or remedies under this Instrument or
afforded by law or equity, and may be exercised concurrently, independently, or
successively, in any order whatsoever.


                                       9

<PAGE>   11


         17. TRANSFERS OF THE PROPERTY OR BENEFICIAL INTERESTS IN BORROWER:
ASSUMPTION. Lender may, at its option, declare all sums secured by this
Instrument to be immediately due and payable, and Lender may invoke any remedies
permitted by SECTION 26 of this Instrument, if title to the Property is changed
without the prior written consent of Lender, which consent shall be at Lender's
sole discretion. Any transfer of any interest in the Property or in the income
therefrom, by sale, lease (except for leases to tenants in the ordinary course
of managing income property which are approved by Lender pursuant to SECTION 15
of this Instrument), contract, mortgage, deed of trust, further encumbrance or
otherwise (including any such transfers as security for additional financing of
the Property), and any change in the ownership interests in Borrower (including
any transfer, pledge, assignment, or hypothecation of, or other change in, the
ownership interests in Borrower or any legal entities which comprise or control
Borrower), shall be considered a change of title, except transfers and changes
in ownership (i) by devise or descent, (ii) for bona-fide estate-planning
purposes, (iii) pursuant to ordinary trading of stock in Borrower (Lender
acknowledging that Borrower is a publicly traded company), or (iv) by
acquisitions of other jewellery concerns by Borrower.

         Lender shall have the right to condition its consent to any proposed
sale or transfer described in this SECTION 17 upon, among other things, Lender's
approval of the transferee's creditworthiness and management ability and the
transferee's execution, prior to the sale or transfer, of a written assumption
agreement containing such terms as Lender may require, including, if required by
Lender, the imposition of an assumption fee of one percent (1%) of the then
outstanding balance of the Indebtedness. Consent by Lender to one transfer of
the Property shall not constitute consent to subsequent transfers or waiver of
the provisions of this SECTION 17. No transfer by Borrower shall relieve
Borrower of liability for payment of the Indebtedness. Borrower shall pay any
recording tax, recording cost, title insurance premium, attorneys' fees, or
other third-party expenses incurred by Lender in connection with any transfer,
whether or not consent is required.

         18. NOTICE. Except for any notice required under applicable law to be
given in another manner, any and all notices, elections, demands, or requests
permitted or required to be made under this Instrument or under the Note shall
be in writing, signed by the party giving such notice, election, demand or
request, and shall be delivered personally, by telegram, or sent by registered,
certified, or Express United States mail, postage prepaid, or by Federal Express
or similar service requiring a receipt, to the other party at the address stated
above, or to such other party and at such other address within the United States
of America as any party may designate in writing as provided herein. The date of
receipt of such notice, election, demand or request shall be the earliest of (i)
the date of actual receipt, (ii) three (3) days after the date of mailing by
registered or certified mail, (iii) one (1) day after the date of mailing by
Express Mail or the delivery (for redelivery) to Federal Express or another
similar service requiring a receipt, or (iv) the date of personal delivery (or
refusal upon presentation for delivery).

         19. SUCCESSORS AND ASSIGNS BOUND: JOINT AND SEVERAL LIABILITY; AGENTS;
CAPTIONS. The covenants and agreements herein contained shall bind, and the
rights hereunder shall inure to, the respective heirs, successors and
assigns of Lender and Borrower, subject to the provisions of SECTION 17 hereof.
If Borrower is comprised of more than one person or entity, whether as
individuals, partners, partnerships or corporations, each such person or entity
shall be jointly and severally liable for Borrower's obligations hereunder. In
exercising any rights hereunder or taking any actions provided for herein,
Lender may act through its employees, agents or independent contractors as
authorized by Lender. The captions and headings of the sections of this
Instrument are for convenience only and are not to be used to interpret or
define the provisions hereof.


                                       10

<PAGE>   12
     20. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the right
to assert any statute of limitations as a bar to the enforcement of the lien of
this Instrument or to any action brought to enforce the Note or any other
obligation secured by this Instrument.

     21. WAIVER OF MARSHALLING. Notwithstanding the existence of any other
security interests in the Property held by Lender or by any other party, Lender
shall have the right to determine the order in which any or all the Property
shall be subjected to the remedies provided herein. Lender shall have the right
to determine the order in which any or all portions of the Indebtedness secured
hereby are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Borrower, any party who consents to this Instrument
and any party who now or hereafter acquires a security interest in the Property
and who has actual or constructive notice hereof hereby waives any and all
right to require the marshalling of assets in connection with the exercise of
any of the remedies permitted by applicable law or provided herein.

     22. HAZARDOUS WASTE. Borrower has furnished to Lender a Phase I
Environmental Assessment dated December 22, 1998, prepared by AAS
Environmental,  Inc. and an Environmental Questionnaire dated January 12, 1999
(collectively, the "Report"). Except as disclosed to Lender in the Report,
Borrower has received no notification of any kind suggesting that the Property
or any adjacent property is or may be contaminated with any hazardous waste or
materials or is or may be required to be cleaned up in accordance with any
applicable law or regulation; and Borrower further represents and warrants
that, except as previously disclosed to Lender in writing, to the best of its
knowledge as of the date hereof after due and diligent inquiry, there are no
hazardous waste or materials located in, on or under the Property or any
adjacent property, or incorporated in any Improvements, nor has the Property or
any adjacent property ever been used as a landfill or a waste disposal site, or
a manufacturing, handling, storage, distribution or disposal facility for
hazardous waste or materials. As used herein, the term "hazardous waste or
materials" includes any substance or material defined in or designated as
hazardous or toxic wastes, hazardous or toxic material, a hazardous, toxic or
radioactive substance, or other similar term, by any federal, state, or local
statute, regulation or ordinance now or hereafter in effect. Borrower shall
promptly comply with all statutes, regulations and ordinances, and with all
orders, decrees or judgments of governmental authorities or courts having
jurisdiction, relating to the use, collection, treatment, disposal, storage,
control, removal or cleanup of hazardous waste or materials in, on or under the
Property or any adjacent property, or incorporated in any improvements, at
Borrower's expense. In the event that Lender at any time believes that the
Property is not free of all hazardous waste or materials or that Borrower has
violated any applicable environmental law with respect to the Property, then
immediately upon request by Lender, Borrower shall obtain and furnish to
Lender, at Borrower's sole cost and expense, an environmental audit and
inspection of the Property from an expert satisfactory to Lender. In the event
that Borrower fails to immediately obtain such audit or inspection, Lender or
its agents may perform or obtain such audit or inspection at Borrower's sole
cost and expense. Lender may, but is not obligated to, enter upon the Property
and take such actions and incur such costs and expenses to effect such
compliance as it deems advisable to protect its interest in the Property; and
whether or not Borrower has actual knowledge of the existence of hazardous
waste or materials on the Property or any adjacent property as of the date
hereof, Borrower shall reimburse Lender as provided in SECTION 23 below for the
full amount of all costs and expenses incurred by Lender prior to Lender
acquiring title to the Property through foreclosure or acceptance of a deed in
lieu of foreclosure, in connection with such compliance activities. Neither
this provision nor any of the other Loan Documents shall operate to put Lender
in the position of an owner of the Property prior to any acquisition of the
Property by Lender. The rights granted to Lender herein and in other Loan
Documents are granted solely for the protection of Lender's lien and security
interest covering the


                                       11
<PAGE>   13


Property, and do not grant to Lender the right to control Borrower's actions,
decisions or policies regarding hazardous waste or materials.

         23. ADVANCES, COSTS AND EXPENSES. Borrower shall pay within ten (10)
days after written demand from Lender all sums advanced by Lender and all costs
and expenses incurred by Lender in taking any actions pursuant to the Loan
Documents including attorneys' fees and disbursements, accountants' fees,
appraisal and inspection fees and the costs for title reports and guaranties,
together with interest thereon at the rate applicable under the Note after an
Event of Default from the date such costs were advanced or incurred. All such
costs and expenses incurred by Lender, and advances made, shall constitute
advances under this Instrument to protect the Property and shall be secured by
and have the same priority as the lien of this Instrument. If Borrower fails to
pay any such advances, costs and expenses and interest thereon, Lender may apply
any undisbursed loan proceeds to pay the same, and, without foreclosing the lien
of this Instrument, may at its option commence an independent action against
Borrower for the recovery of the costs, expenses and/or advances, with interest,
together with costs of suit, costs of title reports and guaranty of title,
disbursements of counsel and reasonable attorneys' fees incurred therein or in
any appeal therefrom.

         24. ASSIGNMENT OF LEASES AND RENTS. Borrower, for good and valuable
consideration, the receipt of which is hereby acknowledged, to secure the
Indebtedness, does hereby absolutely and unconditionally grant, bargain, sell,
transfer, assign, convey, set over and deliver unto Lender all right, title and
interest of Borrower in, to and under the Leases of the Property, whether now in
existence or hereafter entered into, and all guaranties, amendments, extensions
and renewals of said Leases and any of them, and all rents, income and profits
which may now or hereafter be or become due or owing under the Leases, and any
of them, or on account of the use of the Property.

         Borrower represents, warrants, covenants and agrees with Lender as
follows:

         (a) The sole ownership of the entire lessor's interest in the Leases is
vested in Borrower, and Borrower has not, and shall not, perform any acts or
execute any other instruments which might prevent Lender from fully exercising
its rights with respect to the Leases under any of the terms, covenants and
conditions of this Instrument.

         (b) The Leases are and shall be valid and enforceable in accordance
with their terms and have not been and shall not be altered, modified, amended,
terminated, canceled, renewed or surrendered except as approved in writing by
Lender. The terms and conditions of the Leases have not been and shall not be
waived in any manner whatsoever except as approved in writing by Lender.

         (c) Borrower shall not alter the term or the amount of rent payable
under any Lease without prior written notice to Lender and Lender's consent,
which shall not be unreasonably withheld.

         (d) There are no defaults now existing under any of the Leases and
there exists no state of facts which, with the giving of notice or lapse of time
or both, would constitute a default under any of the Leases.

         (e) Borrower shall give prompt written notice to Lender of any notice
received by Borrower claiming that a default has occurred under any of the
Leases on the part of Borrower, together with a complete copy of any such
notice.


                                       12


<PAGE>   14


         (f) Each of the Leases shall remain in full force and effect
irrespective of any merger of the interest of lessor and any lessee under any of
the leases.

         (g) Borrower will not permit any Lease to become subordinate to any
lien other than the lien of this Instrument.

         The assignment made hereunder is an absolute, present assignment from
Borrower to Lender, effective immediately, and is not merely an assignment for
security purposes but is irrevocable by Borrower so long as the Indebtedness
remains outstanding. Notwithstanding the foregoing, until a notice is sent to
the Borrower in writing that an Event of Default (as defined below) has occurred
under the terms and conditions of the Note or any instrument constituting
security for the Note (which notice is hereafter called a "Notice"), Borrower is
granted a license to receive, collect and enjoy the rents, income and profits
accruing from the Property.

         If an Event of Default shall occur, Lender may, at its option, after
service of a Notice, receive and collect all such rents, income and profits as
they become due, from the Property. Lender shall thereafter continue to receive
and collect all such rents, income and profits, until Lender shall otherwise
agree in writing. All sums received by Borrower after service of such Notice
shall be deemed received in trust and shall be immediately turned over to
Lender.

         Borrower hereby irrevocably appoints Lender its true and lawful
attorney-in-fact with power of substitution and with full power for Lender in
its own name and capacity or in the name and capacity of Borrower, from and
after service of Notice, to demand, collect, receive and give complete
acquittances for any and all rents, income and profits accruing from the
Property, either in its own name or in the name of Borrower or otherwise, which
Lender may deem necessary or desirable in order to collect and enforce the
payment of the rents, income and profits and to demand, correct, receive,
endorse, and deposit all checks, drafts, money orders or notes given in payment
of such rents. Such appointment is coupled with an interest and is irrevocable.
Lender shall not be liable for or prejudiced by any loss of any note, checks,
drafts, etc., unless such loss is due to the gross negligence or willful
misconduct of Lender.

         Lender shall apply the rents received from Borrower's lessees, to
accrued interest and principal under the Note. If no Event of Default remains
uncured, amounts received in excess of the aggregate monthly payment due under
the Note shall be remitted to Borrower in a timely manner. Nothing contained
herein shall be construed to constitute Lender as a mortgagee-in-possession in
absence of its physically taking possession of the Property.

         Borrower also hereby irrevocably appoints Lender as its true and lawful
attorney-in-fact to appear in any state or federal bankruptcy, insolvency, or
reorganization proceeding in any state or federal court involving any of the
tenants of the Leases. Lessees of the Property are hereby expressly authorized
and directed, from and after service of a Notice to pay any and all amounts due
Borrower pursuant to the Leases to Lender or such nominee as Lender may
designate in writing delivered to and received by such lessees who are expressly
relieved of any and all duty, liability or obligation to Borrower in respect of
all payments so made.

         If an Event of Default shall occur, Lender is hereby vested with full
power from and after service of a Notice to use all measures, legal and
equitable, deemed by it necessary or proper to enforce the assignment granted
hereunder and to collect the rents, income and profits assigned hereunder,
including the right of Lender or its designee, to enter upon the Property, or
any part thereof, and take possession of all or any part of the Property
together with all personal property, fixtures, documents, books, records, papers
and accounts of Borrower relating thereto, and may


                                       13

<PAGE>   15


exclude the Borrower, its agents and servants, wholly therefrom. Borrower hereby
grants full power and authority to Lender to exercise all rights, privileges and
powers herein granted at any and all times after service of a Notice, with full
power to use and apply all of the rents and other income herein assigned to the
payment of the costs of managing and operating the Property and of any
indebtedness or liability of Borrower to Lender, including but not limited to
the payment of taxes, special assessments, insurance premiums, damage claims,
the costs of maintaining, repairing, rebuilding and restoring the improvements
on the Property or of making the same rentable, reasonable attorneys' fees
incurred in connection with the enforcement of the assignment granted hereunder,
and of principal and interest payments due from Borrower to Lender on the Note
and this Instrument, all in such order as Lender may determine. Lender shall be
under no obligation to exercise or prosecute any of the rights or claims
assigned to it hereunder or to perform or carry out any of the obligations of
the lessor under any of the Leases and does not assume any of the liabilities in
connection with or arising or growing out of the covenants and agreements of
Borrower in the leases. It is further understood that the assignment granted
hereunder shall not operate to place responsibility for the control, care,
management or repair of the Property, or parts thereof, upon Lender, nor shall
it operate to make Lender liable for the performance of any of the terms and
conditions of any of the Leases, or for any waste of the Property by any lessee
under any of the Leases or any other person, or for any dangerous or defective
condition of the Property or for any negligence in the management, upkeep,
repair or control of the Property resulting in loss or injury or death to any
lessee, licensee, employee or stranger.

         25. DEFAULT. The following shall each constitute an event of default
("Event of Default"):

         (a) Failure of Lender to receive any portion of the sums secured by
this Instrument when due, and such failure shall continue for ten (10) days
after written notice of the same is given by Lender to Borrower; or

         (b) Failure of Borrower within the time required by this Instrument to
make any payment for taxes, insurance or for reserves for such payments, or any
other payment necessary to prevent filing of or discharge of any lien, and such
failure shall continue for a period of ten (10) days after written notice is
given to Borrower by Lender specifying such failure; or

         (c) Failure by Borrower to observe or perform any obligations of
Borrower to Lender on or with respect to any transactions, debts, undertakings
or agreements other than the transaction evidenced by the Note following the
giving of any notice required thereunder and/or the expiration of any applicable
period of grace provided thereby; or

         (d) Failure of Borrower to make any payment or perform any obligation
under any superior liens or encumbrances on the Property, within the time
required thereunder, or commencement of any suit or other action to foreclose
any superior liens or encumbrances; or

         (e) Failure by Borrower to observe or perform any of its obligations
under any of the Leases; or

         (f) The Property is transferred or any agreement to transfer any part
or interest in the Property in any manner whatsoever is made or entered into
without the prior written consent of Lender, except as specifically allowed
under this Instrument, including without limitation creating or allowing any
liens on the Property or leasing any portion of the Property; or


                                       14

<PAGE>   16

         (g) Filing by Borrower of a voluntary petition in bankruptcy or filing
by Borrower of any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment, liquidation, or similar
relief for itself under any present or future federal, state or other statute,
law or regulation relating to bankruptcy, insolvency or other relief for
debtors, or the seeking, consenting to, or acquiescing by Borrower in the
appointment of any trustee, receiver, custodian, conservator or liquidator for
Borrower, any part of the Property, or any of the income or rents of the
Property, or the making by Borrower of any general assignment for the benefit of
creditors, or the inability of or failure by Borrower to pay its debts generally
as they become due, or the insolvency on a balance sheet basis or business
failure of Borrower, or the making or suffering of a preference within the
meaning of federal bankruptcy law or the making of a fraudulent transfer under
applicable federal or state law, or concealment by Borrower of any of its
property in fraud of creditors, or the imposition of a lien upon any of the
property of Borrower which is not discharged in the manner permitted by SECTION
4 of this Instrument, or the giving of notice by Borrower to any governmental
body of insolvency or suspension of operations; or

         (h) Filing of a petition against Borrower seeking any reorganization,
arrangement, composition, readjustment, liquidation, or similar relief under any
present or future federal, state or other law or regulation relating to
bankruptcy, insolvency or other relief for debts, or the appointment of any
trustee, receiver, custodian, conservator or liquidator of Borrower, of any part
of the Property or of any of the income or rents of the Property, unless such
petition shall be dismissed within sixty (60) days after such filing, but in any
event prior to the entry of an order, judgment or decree approving such
petition; or

         (i) The institution of any proceeding for the dissolution or
termination of Borrower voluntarily, involuntarily, or by operation of law; or

         (j) A material adverse change occurs in the assets, liabilities or net
worth of Borrower from the assets, liabilities or net worth of Borrower
previously disclosed to Lender; or

         (k) Any warranty, representation or statement furnished to Lender by or
on behalf of Borrower under the Note, this Instrument, any of the other Loan
Documents or the Certificate and Indemnity Agreement Regarding Hazardous
Substances, shall prove to have been false or misleading in any material
respect; or

         (l) Failure of Borrower to observe or perform any other covenant or
condition contained in the Note or this Instrument, which default shall continue
for thirty (30) days after notice is given to Borrower specifying the nature of
the failure, or if the default cannot be cured within such cure period, Borrower
fails within such time to commence and pursue curative action with reasonable
diligence or fails at any time after expiration of such cure period to continue
with reasonable diligence all necessary curative actions. No notice of default
and no opportunity to cure shall be required with respect to defaults under
SECTION 17 of this Instrument or if during the prior twelve (12) months Lender
has already sent a notice to Borrower concerning default in performance of the
same obligation; or

         (m) Failure of Borrower to observe or perform any other obligation
under this any Loan Document (other than this Instrument or the Note) or the
Certificate and Indemnity Regarding Hazardous Substances when such observance or
performance is due, and such failure shall continue beyond the applicable cure
period set forth in such Loan Document, or if the default cannot be cured within
such applicable cure period, Borrower fails within such time to commence and
pursue curative action with reasonable diligence or fails at any time after
expiration of such applicable cure period to continue with reasonable diligence
all necessary curative actions. No


                                       15

<PAGE>   17


notice of default and no opportunity to cure shall be required if during the
prior twelve (12) months Lender has already sent a notice to Borrower concerning
default in performance of the same obligation; or

         (n) Borrowers abandonment of the Property; or

         (o) Any of the foregoing events occur with respect to any tenant of the
Property or any guarantor of such tenant's obligations under its Lease; or

         (p) The occurrence of any "Event of Default" under any of the documents
evidencing or securing Borrower's line of credit with Chase Manhattan Bank;

         26.  RIGHTS AND REMEDIES ON DEFAULT.

         26.1 REMEDIES. Upon the occurrence of any Event of Default and at any
time thereafter, Lender may exercise any one or more of the following rights and
remedies:

         (a) Lender may declare all sums secured by this Instrument, including
any prepayment premium which Borrower would be required to pay, immediately due
and payable.

         (b) Lender shall have the right to foreclose this Instrument in
accordance with applicable law by judicial proceedings, or to foreclose this
Instrument under the power of sale herein granted pursuant to sections 1401
through 1461 of the New York Real Property Law (Actions & Proceedings), after
publishing, posting, and serving notice as required by section 1402 of said law.
Lender may bid and purchase at such sale. If at the time of the sale Lender
shall deem it best for any reason to postpone or continue said sale for one or
more days it may do so, in which event notice of such postponement or
continuance shall be made in such manner as the Lender may deem sufficient under
section 1406 of the New York Real Property Law (Actions & Proceedings). Lender's
costs and expenses of sale shall be an additional indebtedness secured hereby.

         (c) In the event of any foreclosure, to the extent permitted by
applicable law, Lender will be entitled to a judgment which will provide that if
the foreclosure sale proceeds are insufficient to satisfy the judgment,
execution may issue for any amount by which the unpaid balance of the
obligations secured by this Instrument exceeds the net sale proceeds payable to
Lender.

         (d) With respect to all or any part of the Property that constitutes
personalty, Lender shall have all rights and remedies of secured party under the
Uniform Commercial Code.

         (e) Lender shall have the right to have a receiver appointed to take
possession of any or all of the Property, with the power to protect and preserve
the Property, to operate the Property preceding foreclosure or sale, to collect
all the rents and revenues from the Property and apply the proceeds, over and
above cost of the receivership, against the sums due under this Instrument, and
to exercise all of the rights with respect to the Property described in SECTION
24 above. The receiver shall post bond which shall not be minimal or nominal in
amount. To the extent permitted by law, Lender's right to the appointment of a
receiver shall exist whether or not apparent value of the Property exceeds the
sums due under this Instrument by a substantial amount; Employment by Lender
shall not disqualify a person from serving as a receiver.


                                       16

<PAGE>   18


         (f) In the event Borrower remains in possession of the Property after
the Property is sold as provided above or Lender otherwise becomes entitled to
possession of the Property upon default of Borrower, Borrower shall become a
tenant at will of Lender or the purchaser of the Property and shall pay a
reasonable rental for use of the Property while in Borrowers possession.

         (g) Lender shall have any other right or remedy provided in this
Instrument, the Note, or any other Loan Document or instrument delivered by
Borrower in connection therewith or available at law, in equity or otherwise.

         (h) Lender shall have all the rights and remedies set forth in SECTIONS
23 AND 24.

         26.2 SALE OF THE PROPERTY. In exercising its rights and remedies,
Lender may, at Lender's sole discretion, cause all or any part of the Property
to be sold as a whole or in parcels, and certain portions of the Property may be
sold without selling other portions. Lender may bid at any public sale on all or
any portion of the Property.

         26.3 NOTICE OF SALE. Lender shall give Borrower reasonable notice of
the time and place of any public sale of any personal property or of the time
after which any private sale or other intended disposition of the personal
property is to be made. Reasonable notice shall mean notice given in accordance
with applicable law, including notices given in the manner and at the times
required for notices in a nonjudicial foreclosure.

         26.4 WAIVER; ELECTION OF REMEDIES. A waiver by either party of a breach
of a provision of this Instrument shall not constitute a waiver of or prejudice
the party's right otherwise to demand strict compliance with that provision or
any other provision. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and all remedies of Lender under this Instrument
are cumulative and not exclusive. An election to make expenditures or take
action to perform an obligation of Borrower shall not affect Lender's right to
declare a default and exercise its remedies under this Instrument.

         27. SATISFACTION OF MORTGAGE. Upon payment of all sums secured by this
Instrument, Lender shall execute a satisfaction (or at Borrower's option, an
assignment) of this Instrument and shall surrender this Instrument and all notes
evidencing Indebtedness secured by this Instrument to the person or persons
legally entitled thereto. Such person or persons shall pay Lenders costs
incurred in connection with satisfaction or assignment of this Instrument.

         28. FUTURE ADVANCES. [DELETED.]


         29. IMPOSITION OF TAX BY STATE.

         29.1 STATE TAXES COVERED. The following constitute state taxes to which
this Section applies:

         (a) A specific tax upon mortgages or upon all or any part of the
indebtedness secured by a mortgage.

         (b) A specific tax on a mortgagor which the taxpayer is authorized or
required to deduct from payments on the indebtedness secured by a mortgage.


                                       17







<PAGE>   19


         (c) A tax on a mortgage chargeable against the mortgagee or the holder
of the note secured.

         (d) A specific tax on all or any portion of the indebtedness or on
payments of principal and interest made by a mortgagor.

         29.2 REMEDIES. If any state tax to which this Section applies is
enacted subsequent to the date of this Instrument, this shall have the same
effect as an Event of Default, and Lender may exercise any or all of the
remedies available to it unless the following conditions are met:

         (a) Borrower may lawfully pay the tax or charge imposed by state tax,
and

         (b) Borrower pays the tax or charge within thirty (30) days after
notice from Lender that the tax law has been enacted.

         30. ATTORNEYS' FEES. In the event suit or action is instituted to
enforce or interpret any of the terms of this Instrument (including without
limitation efforts to modify or vacate any automatic stay or injunction), the
prevailing party shall be entitled to recover all expenses reasonably incurred
at, before and after trial and on appeal whether or not taxable as costs, or in
any bankruptcy proceeding including, without limitation, attorneys' fees,
witness fees (expert and otherwise), deposition costs, copying charges and other
expenses. Whether or not any court action is involved, all reasonable expenses,
including but not limited to the costs of searching records, obtaining title
reports, surveyor reports, and title insurance, incurred by Lender that are
necessary at any time in Lender's opinion for the protection of its interest or
enforcement of its rights shall become a part of the Indebtedness payable on
demand and shall bear interest from the date of expenditure until repaid at the
interest rate as provided in the Note. The term "attorneys' fees'" as used in
the Loan Documents shall be deemed to mean such fees as are reasonable and are
actually incurred.

         31. GOVERNING LAW; SEVERABILITY. This Instrument shall be governed by
the law of the State of New York applicable to contracts made and to be
performed therein (excluding choice-of-law principles). In the event that any
provision or clause of this Instrument or the Note conflicts with applicable
law, such conflict shall not affect other provisions of this Instrument or the
Note which can be given effect without the conflicting provision, and to this
end the provisions of this Instrument and the Note are declared to be severable.

         32. TIME OF ESSENCE. Time is of the essence of this Instrument.

         33. CHANGES IN WRITING. This Instrument and any of its terms may only
be changed, waived, discharged or terminated by an instrument in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought. Any agreement subsequently made by Borrower or Lender
relating to this Instrument shall be superior to the rights of the holder of any
intervening lien or encumbrance.

         34. NO OFFSET. Borrower's obligation to make payments and perform all
obligations, covenants and warranties under this Instrument and under the Note
shall be absolute and unconditional and shall not be affected by any
circumstance, including without limitation any setoff, counterclaim, abatement,
suspension, recoupment, deduction, defense or other right that Borrower or any
guarantor may have or claim against Lender or any entity participating in making
the loan secured hereby. The foregoing provisions of this section, however, do
not constitute a

                                       18
<PAGE>   20

waiver of any claim or demand which Borrower or any guarantor may have in
damages or otherwise against Lender or any other person, or preclude Borrower
from maintaining a separate action thereon; provided, however, that Borrower
waives any right it may have at law or in equity to consolidate such separate
action with any action or proceeding brought by Lender.

         35. WAIVER OF JURY TRIAL. THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY
AND INTELLIGENTLY WAIVES ANY AND ALL RIGHTS THAT EACH PARTY TO THIS INSTRUMENT
MAY NOW OR HEREAFTER HAVE UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR THE
STATE OF NEW YORK, TO A TRIAL BY JURY OF ANY AND ALL ISSUES ARISING DIRECTLY OR
INDIRECTLY IN ANY ACTION OR PROCEEDING RELATING TO THIS INSTRUMENT, THE LOAN
DOCUMENTS OR ANY TRANSACTIONS CONTEMPLATED THEREBY OR RELATED THERETO. IT IS
INTENDED THAT THIS WAIVER SHALL APPLY TO ANY AND ALL DEFENSES, RIGHTS, CLAIMS
AND/OR COUNTERCLAIMS IN ANY SUCH ACTION OR PROCEEDING. 

         BORROWER UNDERSTANDS THAT THIS WAIVER IS A WAIVER OF A CONSTITUTIONAL 
SAFEGUARD, AND EACH PARTY INDIVIDUALLY BELIEVES THAT THERE ARE SUFFICIENT 
ALTERNATE PROCEDURAL AND SUBSTANTIVE SAFEGUARDS, INCLUDING, A TRIAL BY AN 
IMPARTIAL JUDGE, THAT ADEQUATELY OFFSET THE WAIVER CONTAINED HEREIN.

         36. MAXIMUM INTEREST CHARGES. Notwithstanding anything contained herein
or in any of the Loan Documents to the contrary, in no event shall Lender be
entitled to receive interest on the loan secured by this Instrument (the "Loan")
in amounts which, when added to all of the other interest charged, paid to or
received by Lender on the Loan, causes the rate of interest on the Loan to
exceed the highest lawful rate. Borrower and Lender intend to comply with the
applicable law governing the highest lawful rate and the maximum amount of
interest payable on or in connection with the Loan. If the applicable law is
ever judicially interpreted so as to render usurious any amount called for under
the Loan Documents, or contracted for, charged, taken, reserved or received with
respect to the Loan, or if acceleration of the final maturity date of the Loan
or if any prepayment by Borrower results in Borrower having paid or demand
having been made on Borrower to pay, any interest in excess of the amount
permitted by applicable law, then all excess amounts theretofore collected by
Lender shall be credited on the principal balance of the Note (or, if the Note
has been or would thereby be paid in full, such excess amounts shall be refunded
to Borrower), and the provisions of the Note, this Instrument and any demand on
Borrower shall immediately be deemed reformed and the amounts thereafter
collectible thereunder and hereunder shall be reduced, without the necessity of
the execution of any new document, so as to comply with the applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
thereunder and hereunder. The right to accelerate the final maturity date of the
Loan does not include the right to accelerate any interest which has not
otherwise accrued on the date of such acceleration, and Lender does not intend
to collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of the Loan
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread through the full term of the Loan until payment in full so
that the rate or amount of interest on account of the Loan does not exceed the
applicable usury ceiling. By execution of this Instrument, Borrower acknowledges
that it believes the Loan to be nonusurious and agrees that if, at any time,
Borrower should have reason to believe that the Loan is in fact usurious, it
will give Lender written notice of its belief and the reasons why Borrower
believes the Loan to be usurious, and Borrower agrees that Lender shall have
ninety (90) days following its



                                       19
<PAGE>   21

receipt of such written notice in which to make appropriate refund or other
adjustment in order to correct such condition if it in fact exists.

         37. NEW YORK REAL PROPERTY LAW 254. The clauses and covenants contained
herein which are construed by section 254 of the New York Real Property Law
shall be construed as provided in that section, except as otherwise provided in
this Instrument. The additional clauses and covenants contained herein shall
afford rights supplemental to and not exclusive of the rights conferred by the
clauses and covenants construed by such section 254 and shall not impair,
modify, alter or defeat such rights notwithstanding that such additional clauses
and covenants may relate to the same subject matter or provide for different or
additional rights in the same or similar contingencies as the clauses and
covenants construed by section 254. The rights of Grantee arising under the
clauses and covenants contained in this Instrument shall be separate, distinct
and cumulative, and none of them shall be in exclusion of any other provision,
anything herein or otherwise to the contrary notwithstanding.

         38. LIEN LAW COVENANT. Pursuant to section 13 of the Lien Law of New
York, Borrower shall receive the advances secured hereby and shall hold the
right to receive such advances as a trust fund to be applied first for the
purpose of paying the cost of any improvement and shall apply such advances
first to the payment of the cost of any such improvement on the Property before
using any part of the same for any other purpose.

                  IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS
                  AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY
                  THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER
                  TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN
                  CONTRACT MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE
                  TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN
                  AGREEMENT.

         IN WITNESS WHEREOF, Borrower has caused this Instrument to be executed
under seal by its duly authorized officers under seal as of the day and year
first written above.

                                      BORROWER:

                                      MICHAEL ANTHONY JEWELERS, INC.,
                                      a Delaware corporation
                                      
                                      By: /s/ Michael A. Paolercio
                                         -------------------------------
                                         Michael A. Paolercio, Treasurer

                                                    [SEAL]


Exhibits:
---------

Exhibit A - Description of Property
Schedule 1 - Permitted Exceptions




                                       20
<PAGE>   22

STATE OF NEW YORK       )
                        )        ss.
COUNTY OF Westchester   )        
         --------------

                                 ACKNOWLEDGMENT
                                 --------------


         PERSONALLY before me, the undersigned, a Notary Public in and for said
State, appeared Michael A. Paolercio, who resides at PARK RIDGE NEW JERSEY, to
me well-known and known by me [or proven upon the basis of credible evidence] to
be the Treasurer, of MICHAEL ANTHONY JEWELERS, INC., a Delaware corporation, the
corporation that executed the within instrument, and known to me to be the
persons whose signature appears on the within instrument on behalf of such
corporation therein named, and acknowledged to me that he executed such
instrument as his own free act and deed and that such corporation executed the
within instrument as its own free act and deed, pursuant to its by-laws or a
resolution of its board of directors for the uses and purposes set forth
therein.

         WITNESS my hand and official seal this 10th day of February 1999.

                                      /s/ Daniel A. Ferrara
                                      ----------------------------------
                                      Notary Public

                                      My commission expires: 3/30/2000
                                                            ------------

[SEAL]                                       DANIEL A. FERRARA
                                      Notary Public, State of New York
                                               No.41-4518812
                                        Qualified in Queens County
                                        Term Expires March 30, 2000

<PAGE>   23

Loan No.: 001-0003346-001


                                   EXHIBIT A

             (50 South MacQuesten Parkway, Mount Vernon, New York)


Legal Description:
------------------

All that certain plot, piece or parcel of land with the buildings and
improvements thereon erected situate, lying and being in the City of Mount
Vernon, County of Westchester and State of New York being portions of Lots Nos.
286, 287, 288, 289 & 290 on a certain map entitled "Map of West Mount Vernon,
lying in the Town of Eastchester, County of Westchester and State of New York,"
made for the Teutonia Homestead Association by Gustavus A. Sacchi, filed in the
Office of the County Clerk Division of Land Records, formerly Register's Office,
Westchester County, New York, on May 1st, 1852, as Map No.151, and which
portions of lots taken together are bounded and described as follows:

BEGINNING at the corner formed by the Intersection of the northwesterly side of 
MacQuesten Parkway South (formerly South Railroad Avenue) and the southwesterly
side of South West Street;

RUNNING THENCE along the southwesterly side of South West Street and along the
Southerly line of Lot No.285, shown on said map, North 57 degrees 33 minutes 08
seconds West, 218.70 feet to the easterly line of land now or formerly of the
New York Central Railroad Company, and formerly being the land of New York State
Realty and Terminal Company;

THENCE along the easterly line of said Railroad Company land South 32 degrees 26
minutes 31 seconds West, 178.00 feet to a point;

THENCE South 57 degrees 33 minutes 08 seconds East 218.68 feet to the
northwesterly side of MacQuesten Parkway South (formerly South Railroad Avenue);
and


THENCE along the same, North 32 degrees 26 minutes 52 seconds East, 178.00 feet
to the point or place of BEGINNING. 




<PAGE>   24

                                                        Loan No: 001-0003346-001

                                   SCHEDULE 1

             (50 South MacQuesten Parkway, Mount Vernon, New York)


Permitted Exceptions:
---------------------

1.       Iron gates over vault adjoins easterly sides of premises in bed of
         MacQuesten Parkway.

2.       The following items located on southerly sides of premises project onto
         premises 

         2a) pipe - 6 feet 
         2b) ducts - 1.1 feet 
         2c) fence - 1 foot

3.       Variation between location of fences, gates and record lines