UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-24860
PIERCING PAGODA, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 23-1894725
(State or Other Jurisdiction (I.R.S. Employer
Incorporation or Organization) Identification Number)
3910 Adler Place
Bethlehem, PA 18017
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (610) 691-0437
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report.)
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 [ ]
The number of shares outstanding of the registrant's common stock is
9,107,256 (as of August 13, 1998)
<PAGE>
PIERCING PAGODA, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Consolidated balance sheets as of
June 30, 1998 (unaudited) and March 31, 1998 3
Consolidated statements of operations for the three
months 4
ended June 30, 1998 and 1997(unaudited)
Consolidated statements of cash flows for the three
months ended June 30, 1998 and 1997(unaudited) 5
Notes to consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PIERCING PAGODA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
------------ -----------
Assets (Unaudited)
Current assets
<S> <C> <C>
Cash $ 1,876 $ 2,699
Accounts receivable 1,244 1,454
Inventory 58,085 53,149
Deposits for inventory purchases 962 546
Prepaid expenses and other current assets 1,139 1,058
Prepaid income taxes 459 215
Deferred tax assets 2,055 1,972
------------ -----------
Total current assets 65,820 61,093
Property, fixtures and equipment, net 29,604 27,215
Other assets 7,918 7,791
============ ===========
$ 103,342 $ 96,099
============ ===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable 5,194 3,232
Current installments of long-term debt 375 247
Income taxes payable 532 889
Accrued expenses and other current liabilities 11,431 12,423
------------ -----------
Total current liabilities 17,532 16,791
Long-term debt, less current installments 15,870 9,742
Deferred tax liabilities 2,663 2,535
Other liabilities 657 703
------------ -----------
Total liabilities 36,722 29,771
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $.01 per share,
authorized 3,000,000 shares. None issued. - -
Common stock, par value $.01 per share,
authorized
15,000,000 shares. Issued 9,103,305 shares and 91 91
9,087,616
at June 30, 1998 and March 31, 1998,
respectively.
Additional paid-in capital 40,577 40,387
Retained earnings 25,952 25,850
------------ -----------
Total stockholders' equity 66,620 66,328
------------ -----------
$ 103,342 $ 96,099
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PIERCING PAGODA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
June 30,
-------------------
1998 1997
-------- ---------
<S> <C> <C>
Net sales $48,018 $ 42,873
Cost of goods sold and occupancy expenses
(excluding depreciation on kiosks) 26,633 24,766
-------- ---------
Gross profit 21,385 18,107
Selling, general and administrative
expenses, 20,755 17,854
(including depreciation on
kiosks)
-------- ---------
Income from operations 630 253
Interest and other income 96 103
Interest expense 563 843
-------- ---------
Earnings (loss) before income taxes 163 (487)
Income tax expense (benefit) 61 (190)
======== =========
Net (loss) income $ 102 $ (297)
======== =========
Basic earnings (loss) per share $ 0.01 $ (0.04)
======== =========
Diluted earnings (loss) per share $ 0.01 $(0.04)
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PIERCING PAGODA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
June 30,
-------------------------
1998 1997
------------ -----------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 102 $ (297)
Adjustments to reconcile net income (loss) to net
cash provide by (used in) operating activities:
Depreciation and amortization 1,483 1,221
Gain on disposal of property, fixtures and
equipment - (10)
Other changes in other assets 15 (32)
Deferred income taxes 45 318
Change in operating assets and liabilities
net of effects of acquisitions:
Accounts receivable 210 822
Inventory (4,936) (3,393)
Deposits for inventory purchases (416) 466
Prepaid expenses and other current assets (81) (106)
Prepaid income taxes (244) (552)
Accounts payable 1,962 2,841
Accrued expenses and other current liabilities (992) (255)
Income taxes payable (296) -
Other liabilities (46) (115)
------------ -----------
Net cash provided by (used in) operating activities (3,194) 908
Cash flows from investing activities:
Additions to property, fixtures and equipment (3,693) (2,284)
Payments for purchase of businesses (135) (7,904)
Proceeds from disposal of property, fixtures and
equipment - 38
Noncurrent deposits, net (88) (17)
------------ -----------
Net cash used in investing activities (3,916) (10,167)
Cash flows from financing activities:
Repayments of long-term debt (9) (9)
Revolving line of credit, net 3,700 (7,200)
Loan fees paid (98) -
Proceeds from issuance of long-term debt 2,565 -
Net proceeds from issuance of common stock under
employee share plans 129 128
Proceeds from issuance of common stock, net - 14,902
------------ -----------
Net cash provided by financing activities 6,287 7,821
------------ -----------
Net decrease in cash (823) (1,438)
Cash at beginning of period 2,699 4,119
============ ===========
Cash at end of period $1,876 $2,681
============ ===========
</TABLE>
<PAGE>
PIERCING PAGODA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
June 30,
-------------------------
1998 1997
------------ -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
<S> <C> <C>
Interest $ 505 $ 677
============ ===========
Income taxes, net $ 617 $ 80
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of significant accounting policies
The accompanying consolidated financial statements of Piercing Pagoda,
Inc. and subsidiary (the "Company") have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. These consolidated
financial statements include the results of operations for Piercing
Pagoda, Inc. and a wholly owned subsidiary. All intercompany
transactions have been eliminated in consolidation. These consolidated
financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto for the year ended
March 31, 1998. The financial information included herein is unaudited;
however, the information reflects all adjustments (consisting solely of
normal recurring adjustments) that are, in the opinion of management,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods.
In June 1998, the Company's Board of Directors authorized a
three-for-two stock split effected in the form of a stock dividend
payable to shareholders of record on July 31, 1998, payable on August
13, 1998. Stockholders' equity has been restated to give retroactive
recognition to the stock split for all periods presented by
reclassifying from additional paid-in capital to common stock the par
value of the additional shares arising from the split. In addition, all
share and per share amounts have been restated to reflect the stock
split.
Operating results for the three-month period ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the
entire fiscal year.
Note 2 Earnings Per Share
The following weighted average number of shares of common stock were
used in the calculations for earnings (loss) per share. The diluted
weighted average number of shares includes the net shares that would be
issued upon the exercise of outstanding stock options, using the
treasury stock method.
1998 1997
Basic 9,088,398 7,981,585
Dilutive effect of
outstanding stock options,
using the treasury stok method 367,098 256,769
Diluted 9,455,496 8,238,354
<PAGE>
Basic earnings (loss) per share is computed by dividing income
available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings (loss)
per share is computed by dividing income available to common
stockholders by the weighted average number of common shares
outstanding during the period increased to include the number of
additional common shares that would have been outstanding if the
dilutive potential common shares had been issued.
Note 3 Property, Fixtures and Equipment
A summary of major classes of property, fixtures and equipment follows
(in thousands):
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
-------------- -----------
<S> <C> <C>
Land $ 688 $ 688
Furniture and fixtures 4,162 3,881
Kiosks 25,259 24,043
Buildings and improvements 6,728 5,413
Computer equipment, software and other
equipment 10,181 9,326
-------------- -----------
47,018 43,351
Less accumulated depreciation and
amortization 17,414 16,136
============== ===========
$ 29,604 $ 27,215
============== ===========
</TABLE>
Note 4 Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
-------------- -----------
<S> <C> <C>
Accrued payroll, vacation and related
taxes $ 3,854 $ 5,230
Sales tax payable 842 794
Accrued rents payable 865 938
Liability under jewelry club program 1,109 1,109
Liability under lifetime guarantee
program 1,411 1,411
Other accrued expenses 3,350 2,941
============== ===========
$ 11,431 $ 12,423
============== ===========
</TABLE>
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Background
The Company's consolidated net sales are comprised primarily of sales
generated by the Company's stores and, to a much lesser extent,
wholesale sales primarily to an independent store operator in Florida
to which the Company licenses the use of its store name and concept
(the "Florida Licensee"). Cost of goods sold and occupancy expenses
include the cost of merchandise, rent and occupancy, and the cost of
preparing merchandise for sale. Selling, general and administrative
expenses include store and supervisory payroll, corporate overhead and
non-occupancy store expenses including depreciation of kiosks.
Results of operations
Three months ended June 30, 1998 and 1997
Consolidated net sales increased $5.1 million, or 12% from $42.9
million for the three months ended June 30, 1997 to $48.0 million for
the three months ended June 30, 1998. This increase was due primarily
to net sales generated by new stores opened or acquired by the Company
and a $1.3 million, or 3%, increase in comparable store net sales.
There were a total of 812 stores open at June 30, 1998 compared to 749
at June 30, 1997, an increase of 8%. Wholesale sales to the Florida
licensee decreased to $571,000 for the three months ended June 30, 1998
from $878,000 in the three months ended June 30, 1997. This change
reflects the impact in the quarter ended June 30, 1997 of initial
inventory sales made for locations purchased by the Florida Licensee
from the Company during that period.
The average jewelry units sold per store decreased 17% to 2,400 for the
three months ended June 30, 1998 compared to 2,900 at June 30, 1997.
The average price per jewelry unit sold increased to $24.78 for the
three months ended June 30, 1998 compared to $23.96 for the three
months ended June 30, 1997. The decrease in average jewelry units sold
primarily reflects the impact of lower unit sales at newly opened and
acquired stores. These stores generally have lower unit and dollar
sales volume than the Company's more mature stores. The increase in the
average price per jewelry unit sold reflects higher selling prices
across all store types.
<PAGE>
Gross profit increased $3.3 million, or 18%, from $18.1 million for the
three months ended June 30, 1997 to $21.4 million for the three months
ended June 30, 1998. The Company's gross profit margin improved from
42.2% for the three months ended June 30, 1997 to 44.5% for the three
months ended June 30, 1998. This improvement is primarily due to lower
merchandise costs and promotional activity, partially offset by
increased rent and occupancy costs as a percentage of net sales as well
as lower wholesale sales to the Florida Licensee. Wholesale sales to
the Florida Licensee produce a lower gross margin than the Company's
own retail net sales.
Selling, general and administrative expenses increased $2.9 million, or
16%, from $17.9 million for the three months ended June 30, 1997 to
$20.8 million for the three months ended June 30, 1998. As a percentage
of net sales, selling, general and administrative expenses increased
from 41.6% for the three months ended June 30, 1997 to 43.2% for the
three months ended June 30, 1998. The increase in selling, general and
administrative expenses as a percentage of net sales reflects higher
expenses associated with new stores opened and acquired by the Company,
primarily store payroll. This was partially offset by improvements in
corporate overhead as a percentage of net sales, reflecting leverage
over a larger sales base. Depreciation and amortization expense
increased 25% to $1.5 million in the three months ended June 30, 1998
from $1.2 million in the three months ended June 30, 1997 due primarily
to capital expenditures for new stores and the upgrading of kiosks in
existing locations.
Interest expense decreased $280,000, or 33%, from $843,000 for the
three months ended June 30, 1997 to $563,000 for the three months ended
June 30, 1998, and as a percentage of net sales decreased from 2.0% for
the three months ended June 30, 1997 to 1.2% for the three months ended
June 30, 1998. The decrease in interest expense reflects lower average
balances on the Company's revolving line of credit agreement partially
offset by an increase in the number of ounces consigned under the
Company's gold consignment arrangements.
As a result of the foregoing, the Company's net income increased from a
loss of $297,000 for the three months ended June 30, 1997 to net income
of $102,000 for the three months ended June 30, 1998.
<PAGE>
Liquidity and capital resources
The Company's primary ongoing short-term capital requirements have been
to fund an increase in inventory and to fund capital expenditures and
working capital (mostly inventory) for new and acquired stores. The
Company's long-term liquidity requirements relate principally to the
maturity of its long-term debt in July of 2000, operating lease
commitments and store expansion. The Company's primary sources of
liquidity have been funds provided from operations, a gold consignment
program, bank borrowings and, in June 1997, an offering of the
Company's common stock. The Company's working capital increased to
$48.4 million at June 30, 1998 from $41.9 million at June 30, 1997. At
June 30, 1998, the Company had outstanding borrowings of $11.2 million
under its revolving line of credit and $5.0 million of long-term debt
outstanding, including $250,000 classified as a current liability. In
addition, the Company had consigned 133,919 ounces of gold under its
gold consignment program valued at approximately $39.7 million.
Net cash used in operating activities was $3.2 million for the three
months ended June 30, 1998 compared to net cash provided by operating
activities of $908,000 for the same period in the prior year. Net cash
used in operating activities primarily reflects increases in inventory
to stock newly acquired and opened stores as well as to provide initial
inventory for the anticipated opening of 104 locations acquired from
Sedgwick Sales, Inc. ("Sedgwick"). The acquisition of the Sedgwick
locations was completed in July, 1998.
Net cash used in investing activities was $3.9 million during the three
months ended June 30, 1998 compared to $10.2 million during the three
months ended June 30, 1997. Net cash used in investing activities
primarily reflects the addition of property, fixtures and equipment in
connection with the opening of new stores, the renovation of existing
stores and the construction of an additional warehouse and distribution
center on land adjacent to the Company's current facility.
Net cash provided by financing activities was $6.3 million for the
three months ended June 30, 1998 versus $7.8 million during the three
months ended June 30, 1997. Net cash provided by financing activities
during the three months ended June 30, 1998 primarily reflect increased
borrowings under the Company's existing line of credit and the proceeds
of $2.6 million in Industrial Development Authority financing.
The Company's revolving credit facility provides for maximum borrowings
of $80.0 million through a combination of cash advances (which may not
exceed $50 million) and letters of credit (which may not exceed $55
million) to support the Company's gold consignment financing program.
At June 30, 1998, the Company had $25.4 million available to be
borrowed under its revolving credit facility and was in compliance with
covenants contained in the agreement. In May of 1998, the Company
amended its existing gold consignment agreements to increase the
maximum amount of gold available to be consigned under these agreements
to a total of $58.0 million or the maximum amount permitted under the
Company's existing line of credit agreement, whichever is lower. The
Company believes that the expected cash flows from
<PAGE>
operations, its gold consignment program and bank borrowings will be
sufficient to fund the Company's currently anticipated capital and
liquidity needs.
Year 2000 compliance
The Company is aware of "Year 2000" issues existing in the programming
code of some existing computer systems. The Company is currently
working to identify, correct or reprogram, and test its systems for
Year 2000 compliance. The Company expects its Year 2000 project to be
completed on a timely basis. However, there can be no assurance that
the systems of other companies on which the Company's systems also rely
will be timely converted or that any such failure to convert by another
company would not have an adverse effect on the Company's systems.
Seasonality
The Company's business is highly seasonal. Due to the impact of the
year-end holiday shopping season, the Company experiences a substantial
portion of its annual net sales and profitability in its third fiscal
quarter (ending December 31st). The Company has generally experienced
lower net sales in each of the first, second and fourth quarters and
lower net income or net losses in each of those quarters.
The Company's results of operations may fluctuate significantly from
quarter to quarter as a result of a variety of factors, including
fluctuations in the price of gold, the amount and timing of
acquisitions and new store openings, the integration of recently
acquired and newly opened stores into the operations of the Company,
the timing of promotions, and changes in national and regional economic
conditions.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Management believes the
effect on the Company of the adoption of this standard will be limited
to changes in financial statement disclosure and will not have a
material impact on financial condition or results of operations.
In March 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1
requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated
useful life of the software. The SOP also requires that costs related
to the preliminary stage and the post-implementation/operations stage
of an internal-use computer software development project be expensed as
incurred. This statement is effective for fiscal years beginning after
December 15, 1998. The Company has adopted this standard effective
<PAGE>
April 1, 1998. Adoption of this standard did not have a material impact
on the Company's financial condition or results of operation for the
first quarter of fiscal 1999.
Forward-looking statements
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. A number of the matters and
subject areas discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," are not limited to
historical or current facts and deal with potential future
circumstances and developments. Prospective investors are cautioned
that such forward-looking statements are only predictions and that
actual events or results may differ materially. A variety of factors
could cause the Company's actual results to differ materially from the
expected results expressed in the Company's forward-looking statements,
including, without limitation: the Company's ability to secure suitable
store sites on a timely basis and on satisfactory terms; the Company's
ability to hire, train and retain qualified personnel, the availability
of adequate capital resources and the successful integration of new
stores into the Company's existing operations; the Company's ability to
successfully implement and improve management information systems,
procedures and controls on a timely basis and in such a manner as is
necessary to accommodate the increased number of transactions and
customers and the increased size of the Company's operations;
fluctuations in quarterly net sales, and, in particular, third quarter
net sales; fluctuations in gold prices; competitive conditions;
economic conditions affecting disposable consumer income, such as
employment, business conditions, interest rates and taxation, as well
as trends with respect to mall shopping generally and the ability of
mall anchor tenants and other attractions to generate customer traffic
in the vicinity of the Company's stores; and the possibility of the
enactment of legislation, or the modification of existing or pending
legislation, in jurisdictions in which the Company operates, that would
adversely affect the Company's ear piercing or other activities.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings against the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.50 Eighth Amendment and Agreement to Consignment Agreement
Dated May 5, 1998, Between the Registrant and Fleet
Precious Metals Inc.
10.51 Fourth Amendment To Amended And Restated Consignment
Agreement Dated May 15, 1998 Between The Registrant And
Rhode Island Hospital Trust National Bank.
27 Financial Data Schedule.
b) Reports on Form 8-K
During the quarter ended June 30, 1998, no reports on Form 8-K
were filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PIERCING PAGODA, INC.
(Registrant)
Date: August 13, 1998 /s/ John F. Eureyecko
John F. Eureyecko
President,
Chief Operating Officer
(Principal Financial Officer)
Date: August 13, 1998 /s/ Brandon R. Lehman
Brandon R. Lehman
Treasurer
(Principal Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Page
10.50 Eighth Amendment and Agreement to Consignment
Agreement Dated May 5, 1998, Between the Registrant
and Fleet Precious Metals Inc. 17
10.51 Fourth Amendment To Amended And Restated Consignment
Agreement Dated May 15, 1998 Between The Registrant
And Rhode Island Hospital Trust National Bank. 19
27 Financial Data Schedule 22
27.1 Financial Data Schedule 23
EIGHTH AMENDMENT AND AGREEMENT
TO
CONSIGNMENT AGREEMENT
THIS EIGHTH AMENDMENT AND AGREEMENT TO CONSIGNMENT AGREEMENT is
made as of the fifth day of May, 1998, 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
PIERCING PAGODA, INC., a Delaware corporation, with its principal office at
3910 Adler Place, Bethlehem, Pennsylvania 18017 and with a mailing address
of P.O. Box 25007, Lehigh Valley, Pennsylvania 18002-5007 (the "Customer").
WITNESSETH THAT:
WHEREAS, the Consignor and the Customer are parties to a certain
Consignment Agreement dated as of November 30, 1990, as previously amended
(as amended, the "Consignment Agreement") pursuant to which the Consignor
agreed to consign precious metals to the Customer for use in its operations;
WHEREAS, the Consignor and the Customer desire to amend the
Consignment Agreement on the terms and conditions hereinafter contained;
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.
2. Effective the date hereof, the third sentence of Section 1(b)
of the Consignment Agreement is amended to read in its entirety as follows:
"It is understood that at no time shall the value of commodities
on consignment to the Customer exceed:
(i) the least of:
(x) Twenty-Eight Million Dollars ($28,000,000); or
(y) the value (as determined pursuant to Paragraph 2
hereof) of up to Seventy Thousand (70,000) troy ounces of
gold; or
(z) an amount equal to one hundred percent (100%) of
the stated amount of the irrevocable standby letter of
credit (the "Letter of Credit") described in Section 12
hereof; or
(ii) such limit as the Consignor and the Customer may
agree upon from time to time as evidenced by an amendment in
substantially the form of Exhibit B
<PAGE>
attached hereto and made a part hereof or in such other form as the
Consignor shall require (collectively, the "Consignment
Limit")."
3. All references to the "Consignment Agreement" in any
documents or agreements by and between the parties hereto, shall from and
after the effective date hereof refer to the Consignment Agreement, as
amended hereby, and all obligations of the Customer under the Consignment
Agreement, as amended hereby, shall be secured by and entitled to the
benefits of the Letter of Credit hereinabove referred to.
4. Except as amended hereby, the Consignment Agreement shall
remain in full force and effect and is in all respects hereby ratified and
affirmed.
5. The Customer covenants and agrees to pay all out-of-pocket
expenses, fees and charges incurred by the Consignor (including reasonable
fees and disbursements of outside counsel) in connection with the
preparation and implementation of this Eighth Amendment and Agreement to
Consignment Agreement.
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.
WITNESS: PIERCING PAGODA, INC.
By:____________________________
John Eureyecko
Executive Vice President
- ------------------------------
By:____________________________
(as to both) Brandon Lehman
Treasurer
FLEET PRECIOUS METALS INC.
By:____________________________
Title:
- ------------------------------
By:____________________________
(as to both) Title:
FOURTH AMENDMENT TO AMENDED AND
RESTATED CONSIGNMENT AGREEMENT
DATED AS OF JULY 26, 1994
THIS FOURTH AMENDMENT is made as of the fifteenth day of May, 1998,
between RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, a national banking
association with its principal office at One Hospital Trust Plaza,
Providence, Rhode Island 02903 ("Bank"), and PIERCING PAGODA, INC., a
Delaware corporation with its address at 3910 Adler Place, P.O. Box 25007,
Lehigh Valley, Pennsylvania 18002-5007 ("Buyer").
W I T N E S S E T H T H A T:
WHEREAS, Bank and Buyer are parties to a certain Amended and Restated
Consignment Agreement dated as of July 26, 1994, as amended by a certain
First Amendment dated as of December 22, 1994, a certain Second Amendment
dated as of September 11, 1995, and a certain Third Amendment dated as of
December 24, 1996 (as amend and as otherwise amended or modified from time
to time, the "Consignment Agreement"), relating to the consignment by Bank
to Buyer of Precious Metal (as defined therein); and
WHEREAS, Bank and Buyer desire to further amend and modify the
Consignment Agreement in certain respects;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. The definition of "Consignment Limit" in Section 1 of the
Consignment Agreement is hereby amended to read in its entirety as follows:
"`Consignment Limit' shall mean 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 Bank) equal to
Thirty Million Dollars ($30,000,000)."
2. Section 6 of the Consignment Agreement is hereinafter amended to
read in its entirety as follows:
"6. Commingling; Redelivery of Precious Metal. Buyer may use the
Consigned Precious Metal only in the ordinary course of its
business as now conducted; provided that no Consigned Precious
Metal shall be removed from Buyer's Principal Office or the
retail locations operated by Buyer prior to the fixing of the
Purchase Price for such Consigned Precious Metal.
Notwithstanding contrary provisions in this Section, Buyer shall
have the right:
<PAGE>
(i) On terms and conditions approved in writing by Bank, to
remove scrap from its Principal Office for refining in the
ordinary course of its business and to deliver products
containing Consigned Precious Metal to retail locations
operated by Buyer and to vendor locations of Buyer ("Vendor
Locations"), it being agreed that all such scrap and other
Consigned Precious Metal shall be and remain the property of
Bank until purchased and paid for pursuant to Section 5
hereof; and
(ii) As long as (A) Buyer maintains an aggregate Precious
Metal inventory at its Principal Office, the retail locations
operated by Buyer and Vendor Locations which exceeds the
amount of Precious Metal on consignment to Buyer from Bank,
Fleet Precious Metals Inc. and any other Precious Metal
consignors (the "Minimum Precious Metal") and (B) this
Agreement has not been terminated due to the occurrence of an
Event of Default, pursuant to the provisions of Section 14 of
this Agreement or otherwise, then Buyer shall not be required
to purchase Consigned Precious Metal from Bank and withdraw
it from consignment and, upon the sale of inventory
containing Precious Metal by Buyer to its customers in the
ordinary course of business, it shall be deemed that Buyer is
selling Precious Metal it owns and not Consigned Precious
Metal provided that, after giving effect to such sale, Buyer
retains the Minimum Precious Metal in its inventory.
At any time prior to termination of this Agreement, any or all
of the amount of the Consigned Precious Metal may be Redelivered
by Buyer to Bank."
3. Buyer and Bank each agree that, except as expressly provided
herein, the terms and provisions of the Consignment Agreement remain
unchanged and the Consignment Agreement remains in full force and effect in
accordance with its terms. The term "Agreement" as used in the Consignment
Agreement and all references to the Consignment Agreement in any other
documents or agreements by and between any of the parties hereto which
relate to Buyer shall refer, from and after the date hereof, to the
Consignment Agreement as amended and supplemented by this Fourth Amendment.
4. Buyer hereby ratifies and reaffirms that (i) the representations
and warranties contained in the Consignment Agreement, as amended by the
terms hereof, are true and correct as of the date hereof, except that
references to financial statements shall refer to the latest financial
statements furnished pursuant to the Consignment Agreement, and (ii) no
Event of
<PAGE>
Default (as defined in the Consignment Agreement) nor any event which with
notice or the lapse of time, or both, would constitute an Event of Default
exists as of the date hereof.
Buyer represents and warrants to Bank that it has taken all necessary
and appropriate corporate action to approve the terms of this Fourth
Amendment and that the undersigned has been duly authorized to execute and
deliver to the Bank this Fourth Amendment and any and all other documents
incidental hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this
instrument to be executed in several counterparts, each of which shall be
deemed to be an original as of the day and year first above written.
WITNESS: Bank:
RHODE ISLAND HOSPITAL TRUST NATIONAL BANK
_____________________________ By:__________________________________
Michael E. Smith, First Vice President
Buyer:
PIERCING PAGODA, INC.
______________________________ By: _________________________________
Print Name: __________________________
Title: ________________________________
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