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 December 31, 1997
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 of (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
6,049,799 (as of February 9, 1998) <PAGE>
<PAGE>
PIERCING PAGODA, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Consolidated balance sheets as of
December 31, 1997 (unaudited) and March 31, 1997 3
Unaudited consolidated statements of operations for the three
months ended December 31, 1997 and 1996 and nine months ended
December 31, 1997 and 1996 4
Unaudited consolidated statements of cash flows for
the nine months ended December 31, 1997 and 1996 5
Notes to consolidated financial statements 7
Item 2. Management's discussion and analysis of financial
condition and results of operations 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PIERCING PAGODA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
------------- -----------
Assets (Unaudited)
<S> <C> <C>
Current assets
Cash $ 5,135 $ 4,119
Accounts receivable 1,677 2,233
Inventory 63,132 43,109
Deposits for inventory purchases 651 850
Prepaid expenses and other current assets 391 757
Prepaid income taxes - 1,494
Deferred tax assets 1,887 1,530
------------- -----------
Total current assets 72,873 54,092
Property, fixtures and equipment, net 25,535 22,572
Other assets 6,256 3,077
============= ===========
$ 104,664 $ 79,741
============= ===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 12,482 $ 3,668
Current installments of long-term debt 235 234
Income taxes payable 4,961 -
Accrued expenses and other current liabilities 17,092 9,541
------------- -----------
Total current liabilities 34,770 13,443
Long-term debt, less current installments 2,463 26,690
Deferred tax liabilities 864 1,550
Other liabilities 707 536
------------- -----------
Total liabilities 38,804 42,219
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
6,045,899 shares and 5,273,99 at December
31, 1997 and March 31, 1997, respectively. 61 53
Additional paid-in capital 40,192 22,588
Retained earnings 25,607 14,881
------------- -----------
Total stockholders' equity 65,860 37,522
------------- -----------
$ 104,664 $ 79,741
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
PIERCING PAGODA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1997 1996 1997 1996
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $ 89,915 $ 66,339 $ 175,665 $ 129,022
Cost of goods sold and occupancy
expenses (excluding depreciation on
kiosks) 44,684 34,459 93,549 70,645
---------- --------- -------- ---------
Gross profit 45,231 31,880 82,116 58,377
Selling, general and administrative
expenses (including depreciation on
kiosks) 26,672 18,477 62,971 44,375
---------- --------- -------- ---------
Income from operations 18,559 13,403 19,145 14,002
Interest and other income 165 110 373 244
Interest expense 897 747 2,422 1,595
---------- --------- -------- ---------
Income before income taxes 17,827 12,766 17,096 12,651
Income tax expense 6,651 4,942 6,370 4,897
========== ========= ======== =========
Net income $ 11,176 $ 7,824 $10,726 $ 7,754
========== ========= ======== =========
Basic earnings per share $ 1.85 $ 1.49 $ 1.85 $ 1.48
========== ========= ======== =========
Diluted earnings per share $ 1.80 $ 1.45 $ 1.80 $ 1.44
========== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
PIERCING PAGODA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
December 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,726 $ 7,754
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,927 2,580
Loss on disposal of property, fixtures and
equipment 48 62
Other changes in other assets (21) (122)
Deferred income taxes 809 47
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable 556 (209)
Inventory (17,656) (16,137)
Deposits for inventory purchases 199 (199)
Prepaid expenses and other current assets 366 155
Prepaid income taxes 1,494 883
Accounts payable 8,814 11,141
Accrued expenses and other current liabilities 7,551 4,709
Income taxes payable 5,048 3,619
Other liabilities (129) 93
------------ -----------
Net cash provided by operating activities 21,732 14,376
Cash flows from investing activities:
Additions to property, fixtures and equipment (6,070) (7,546)
Payments for purchase of businesses (7,950) -
Proceeds from disposal of property, fixtures and
equipment 68 19
Noncurrent deposits, net (44) (1,045)
------------ -----------
Net cash used in investing activities (13,996) (8,572)
Cash flows from financing activities:
Repayments of long-term debt (26) (18)
Revolving line of credit, net (24,200) (4,299)
Loan fees paid (19) -
Proceeds from issuance of long-term debt - 400
Net proceeds from issuance of common stock under
employee stock plans 336 331
Proceeds from issuance of common stock, net 17,189 -
------------ -----------
Net cash used in financing activities (6,720) (3,586)
------------ -----------
Net increase in cash 1,016 2,218
Cash at beginning of period 4,119 1,864
============ ===========
Cash at end of period $ 5,135 $ 4,082
============ ===========
</TABLE>
<PAGE>
<PAGE>
PIERCING PAGODA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
December 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,147 $ 1,464
============ ===========
Income taxes, net $ (981) $ 62
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<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, 1997. 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.
Operating results for the three-month and nine-month periods ended
December 31, 1997 are not necessarily indicative of the results that
may be expected for the entire fiscal year.
Note 2 Earnings per share
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings Per Share" during the third quarter of
fiscal 1998. SFAS No. 128 replaces the presentation of primary and
fully diluted earnings per share with a presentation of basic and
diluted earnings per share. All prior period earnings per share amounts
have been restated to conform with the provisions of SFAS No.
128.
The following weighted average number of shares of common stock were
used in the calculations for earnings 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:
Quarter 6,044,501 5,261,842
Year-to-date 5,793,189 5,253,146
Diluted:
Quarter 6,224,845 5,412,987
Year-to-date 5,974,304 5,380,671
Basic earnings 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 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.
<PAGE>
<PAGE>
Note 3 New Accounting Pronouncements
In June 1997, the FASB issued SFAS No.130 "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosure about Segments of an Enterprise
and Related Information." SFAS 130 establishes standards for the
reporting of comprehensive income and its components (revenues,
expenses, gains and losses) in the financial statements. SFAS No. 131
establishes standards for reporting selected financial data and
descriptive information about an enterprises reportable operating
segments (as defined). The adoption of these standards will not impact
the earnings, financial condition or liquidity of the Company.
Note 4 Property, Fixtures and Equipment
A summary of major classes of property, fixtures and equipment follows
(in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
---------------- -------------
<S> <C> <C>
Land $ 688 $ 688
Furniture and fixtures 3,764 3,054
Kiosks 23,664 19,832
Building and improvements 4,155 4,037
Computer equipment, software and 8,734 7,396
other equipment
---------------- -------------
41,005 35,007
Less accumulated depreciation and 15,470 12,435
amortization
================ =============
$ 25,535 $ 22,572
================ =============
</TABLE>
Note 5 Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
--------------- ------------
<S> <C> <C>
Accrued payroll, vacation and
related taxes $ 6,827 $ 4,160
Sales tax payable 3,205 704
Accrued rents payable 2,035 1,091
Liability under jewelry club
program 1,060 747
Liability under lifetime guarantee
program 1,411 1,211
Other accrued expenses 2,554 1,628
=============== ============
$ 17,092 $ 9,541
=============== ============
</TABLE>
<PAGE>
<PAGE>
Note 6 Purchase of businesses
In April 1997, the Company purchased substantially all the operations
of Silver and Gold Connection, Inc., an independent kiosk retailer
("Silver and Gold"). Silver and Gold had operated approximately 46
kiosk locations selling primarily gold and silver jewelry. The purchase
agreement provides for the payment of $4.7 million for the kiosk
locations, leases and store fixtures. The Company also acquired all of
Silver and Gold's inventory for approximately $2.8 million. The excess
of the net assets acquired over their fair value of approximately $3.0
million has been recorded as goodwill and is being amortized over 15
years. In connection with the acquisition, the Company entered into a
non-competition agreement with the principal stockholder of Silver &
Gold which provides for annual payments of $60,000 to be made over a
five year period.
Note 7 Secondary Offering
On June 30, 1997, the Company completed a secondary offering of 650,000
shares of its common stock. The transaction resulted in net proceeds
(after offering expenses) to the Company of approximately $14.9 million
which was used to repay indebtedness under the Company's revolving line
of credit. Subsequently, in July 1997, the underwriters of the offering
exercised their option to purchase an additional 97,500 shares of stock
from the Company resulting in additional proceeds (after underwriting
discounts and commissions) to the Company of approximately $2.3
million.
<PAGE>
<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 December 31, 1997 and 1996
Consolidated net sales increased $23.6 million, or 36%, from $66.3
million for the three months ended December 31, 1996 to $89.9 million
for the three months ended December 31, 1997. This increase was due
primarily to net sales generated by new stores opened or acquired by
the Company which were not in the Company's comparable store base.
Comparable store sales increased $1.8 million or 2.9%. There were a
total of 783 stores open at December 31, 1997 compared to 585 at
December 31, 1996, an increase of 34%. In addition, wholesale sales to
the Florida licensee increased to $1.9 million for the three months
ended December 31, 1997 from $1.1 million in the three months ended
December 31, 1996. This increase reflects increased sales volume at the
Florida Licensee's stores and the purchase of inventory for additional
locations operated by the Florida Licensee versus the prior year. The
average jewelry units sold per store decreased 4% to 4,300 for the
three months ended December 31, 1997 compared to 4,500 for the three
months ended December 31, 1996. The average price per jewelry unit sold
was relatively unchanged at $25.63 for the three months ended December
31, 1997 compared to $25.71 for the three months ended December 31,
1996.
Gross profit increased $13.3 million, or 42%, from $31.9 million for
the three months ended December 31, 1996 to $45.2 million for the three
months ended December 31, 1997. The Company's gross profit margin
improved to 50.3% for the three months ended December 31, 1997 versus
48.1% for the three months ended December 31, 1996. The increase in
gross profit dollars was attributable primarily to the Company's
increased net sales. The increase in gross profit margin is primarily
the result of lower merchandise costs to the Company, while at the same
time, the Company maintained consistent list prices charged to
consumers. This improvement was partially offset by increased
promotional activity at the Company's stores. A significant portion of
the Company's lower merchandise costs was due to lower market prices
for gold. There can be no assurance that the Company's gross profit
margin will not be adversely affected in the future should the price of
gold increase.
<PAGE>
<PAGE>
Selling, general and administrative expenses increased $8.2 million, or
44%, from $18.5 million for the three months ended December 31, 1996 to
$26.7 million for the three months ended December 31, 1997. As a
percentage of net sales, selling, general and administrative expenses
increased from 27.9% for the three months ended December 31, 1996 to
29.7% for the three months ended December 31, 1997. The increase in
dollars was attributable primarily to the increase in the number of new
and acquired stores and the pre-opening costs for new stores, as well
as higher supervisory and administrative expenses to support the
current and expected growth in stores. The increase in selling, general
and administrative expenses as a percentage of net sales primarily
reflects higher expenses associated with new stores opened and acquired
by the Company as well as higher regular and overtime payroll costs
incurred to adequately staff the Company's stores during the peak
holiday shopping season. 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 49% to $1.4 million in the three months ended December 31,
1997 from $941,000 in the three months ended December 31, 1996 due
primarily to capital expenditures for new stores and the upgrading of
kiosks in existing locations.
Interest expense increased $150,000, or 20%, from $747,000 for the
three months ended December 31, 1996 to $897,000 for the three months
ended December 31, 1997, and as a percentage of net sales decreased
from 1.1% for the three months ended December 31, 1996 to 1.0% for the
three months ended December 31, 1997. The increase in interest expense
was due primarily to higher average balances on the Company's revolving
line of credit and an increase in fees paid under the Company's gold
consignment arrangements. These were partially offset by lower interest
rates on the Company's current revolving line of credit agreement. The
decrease in interest expense as a percentage of net sales reflects the
spread of interest expense over a higher level of net sales.
Income tax expense increased $1.8 million to $6.7 million for the three
months ended December 31, 1997 from $4.9 million for the three months
ended December 31, 1996. As a percentage of earnings before income
taxes, income tax expense decreased to 37.3% in fiscal 1997 from 38.7%
in fiscal 1996. The increase in income tax expense is due to the
increase in the Company's earnings before income taxes. The decrease in
income taxes as a percentage of earnings before income taxes reflects a
shift in the distribution of the Company's earnings before income taxes
away from states with higher income tax rates.
As a result of the foregoing, the Company's net income increased from
$7.8 million for the three months ended December 31, 1996 to $11.2
million for the three months ended December 31, 1997.
Nine months ended December 31, 1997 and 1996
Consolidated net sales increased $46.7 million, or 36%, from $129.0
million for the nine months ended December 31, 1996 to $175.7 million
for the nine months ended December 31, 1997. This increase was
primarily due to an increase in the average number of stores open for
the nine months ended December 31, 1997, as compared to the nine months
ended December 31, 1996 and a $3.0 million, or 2.6%, increase in
comparable store net sales. There were a total of 783 stores open at
December 31, 1997 compared to 585 at December 31, 1996, an increase of
34%. The average jewelry units
<PAGE>
<PAGE>
sold per store increased 2% to 9,700 for the nine months ended December
31, 1997 compared to 9,500 for the nine months ended December 31, 1996.
The average price per jewelry unit sold was relatively unchanged at
$24.52 for the nine months ended December 31, 1997 compared to $24.63
for the nine months ended December 31, 1996.
Gross profit increased $23.7 million, or 41%, from $58.4 million for
the nine months ended December 31, 1996 to $82.1 million for the nine
months ended December 31, 1997. The Company's gross profit margin
improved from 45.2% for the nine months ended December 31, 1996 to
46.7% for the nine months ended December 31, 1997. The increase in
gross profit dollars was attributable to the Company's increase in net
sales. The increase in gross profit margin is primarily the result of
lower merchandise costs to the Company, while at the same time, the
Company maintained consistent list prices charged to consumers. This
was partially offset by increased promotional activity and increases in
rent and occupancy as a percentage of net sales due to the large number
of newer stores operated by the Company. A significant portion of the
Company's lower merchandise costs was due to lower market prices for
gold. There can be no assurance that the Company's gross profit margin
will not be adversely affected in the future should the price of gold
increase.
Selling, general and administrative expenses increased $18.6 million,
or 42%, from $44.4 million for the nine months ended December 31, 1996
to $63.0 million for the nine months ended December 31, 1997. As a
percentage of net sales, selling, general and administrative expenses
increased from 34.4% for the nine months ended December 31, 1996 to
35.8% for the nine months ended December 31, 1997. The increase in
dollars was attributable primarily to the increase in the number of new
and acquired stores and the pre-opening costs for new stores, as well
as higher supervisory and administrative expenses to support growth in
stores. The increase in selling, general and administrative expenses as
a percentage of net sales primarily reflects higher expenses associated
with new stores opened and acquired by the Company as well as higher
regular and overtime payroll costs incurred to staff the Company's
stores during the peak holiday shopping season. 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 50% to $3.9 million in the nine months
ended December 31, 1997 from $2.6 million in the nine months ended
December 31, 1996 due primarily to capital expenditures for new and
acquired stores and the upgrading of kiosks in existing locations.
Interest expense increased $800,000, or 50%, from $1.6 million for the
nine months ended December 31, 1996 to $2.4 million for the nine months
ended December 31, 1997, and as a percentage of net sales increased
from 1.2% for the nine months ended December 31, 1996 to 1.4% for the
nine months ended December 31, 1997. The increase in interest expense
was due primarily to higher average balances on the Company's revolving
line of credit agreement and an increase in fees paid under the
Company's gold consignment arrangements.
Income tax expense increased $1.5 million to $6.4 million for the nine
months ended December 31, 1997 from $4.9 million for the nine months
ended December 31, 1996. As a percentage of earnings before income
taxes, income tax expense decreased to 37.3% in fiscal 1997 from 38.7%
in fiscal 1996. The increase in income tax expense is due to the
increase in the Company's earnings before income taxes. The decrease in
<PAGE>
<PAGE>
income taxes as a percentage of earnings before income taxes reflects a
shift in the distribution of the Company's earnings before income taxes
away from states with higher income tax rates.
As a result of the foregoing, the Company's net income increased from
$7.8 million for the nine months ended December 31, 1996 to $10.7
million for the nine months ended December 31, 1997.
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 of 1997, an offering of the
Company's common stock. On June 30, 1997, the Company completed a
public offering of 650,000 shares of its common stock. Subsequently, in
July 1997, the underwriters of the offering exercised their option to
purchase an additional 97,500 shares of stock from the Company. The
total transaction resulted in net proceeds (after offering expenses) to
the Company of approximately $17.2 million which was used to repay
indebtedness under the Company's revolving line of credit. The
Company's working capital increased to $38.1 million at December 31,
1997 from $18.9 million at December 31, 1996. At December 31, 1997, the
Company had no outstanding borrowings under its revolving line of
credit and $2.7 million of long-term debt outstanding, including
$235,000 classified as a current liability. In addition, the Company
had consigned 103,274 ounces of gold under its gold consignment program
valued at approximately $30.0 million.
Net cash provided by operating activities was $21.7 million for the
nine months ended December 31, 1997 compared to $14.4 million for the
same period in the prior year. Net cash provided by operating
activities primarily reflects the results of the year-end holiday
shopping season, non-cash charges for depreciation and amortization as
well as increases in current liabilities. These were partially offset
by increases in inventory to support newly opened stores and future
scheduled store openings. A portion of the increase in inventory also
reflects pre-existing inventory from stores acquired by the Company in
the prior fiscal year.
Net cash used in investing activities was $14.0 million during the nine
months ended December 31, 1997 compared to $8.6 million during the nine
months ended December 31, 1996. Net cash used in investing activities
primarily reflects the purchase of substantially all the operations of
Silver and Gold Connection in April 1997 and the addition of property,
fixtures and equipment in connection with the opening of new stores and
the renovation of existing stores.
Net cash used in financing activities was $6.7 million for the nine
months ended December 31, 1997 versus $3.6 million during the nine
months ended December 31, 1996. Net cash used in financing activities
during the nine months ended December 31, 1997 primarily reflects a
reduction in borrowings under the Company's revolving line of credit
partially offset by the proceeds of a secondary offering of the
Company's common stock completed in June of 1997.
<PAGE>
<PAGE>
On November 21, 1997, the Company amended its revolving line of credit
agreement, increasing the maximum amount of borrowings available. The
Company's amended revolving credit facility provides for maximum
borrowings of $80 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 December 31, 1997, the Company had $47.8 million available
to be borrowed under its revolving credit facility and was in
compliance with covenants contained in the agreement. The Company
believes that the expected cash flows from operations, its gold
consignment program and bank borrowings will be sufficient to fund the
Company's currently anticipated capital and liquidity needs.
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 affect 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.
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, improve and maintain 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
<PAGE>
<PAGE>
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>
<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
10.43 First Amendment to Syndicated Loan Agreement dated
November 21, 1997 between the Registrant and Summit Bank
and CoreStates Bank, N.A.
10.44 Replacement Revolving Note dated November 21, 1997 between
the Registrant and Summit Bank.
10.45 Replacement Revolving Note dated November 21, 1997 between
the Registrant and First Union National Bank.
10.46 Replacement Revolving Note dated November 21, 1997 between
the Registrant and CoreStates Bank, N.A..
27.1 Financial Data Schedule.
b) Reports on Form 8-K
During the quarter ended December 31, 1997, no reports on Form
8-K were filed.
<PAGE>
<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: February 9, 1998 /s/ John F. Eureyecko
John F. Eureyecko
President,
Chief Operating Officer
(Principal Financial Officer)
Date: February 9, 1998 /s/ Brandon R. Lehman
Brandon R. Lehman
Treasurer
(Principal Accounting Officer)
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Page
10.43 First Amendment to Syndicated Loan Agreement dated
November 21, 1997 between the Registrant and Summit
Bank and CoreStates Bank, N.A. 20
10.44 Replacement Revolving Note dated November 21, 1997
between the Registrant and Summit Bank. 24
10.45 Replacement Revolving Note dated November 21, 1997
between the Registrant and First Union National Bank. 25
10.46 Replacement Revolving Note dated November 21, 1997
between the Registrant and CoreStates Bank, N.A.. 27
27.1 Financial Data Schedule 19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 5,135
<SECURITIES> 0
<RECEIVABLES> 1,677
<ALLOWANCES> 0
<INVENTORY> 63,132
<CURRENT-ASSETS> 72,873
<PP&E> 41,005
<DEPRECIATION> 15,470
<TOTAL-ASSETS> 104,664
<CURRENT-LIABILITIES> 34,770
<BONDS> 2,698
0
0
<COMMON> 61
<OTHER-SE> 65,799
<TOTAL-LIABILITY-AND-EQUITY> 104,664
<SALES> 175,665
<TOTAL-REVENUES> 175,665
<CGS> 93,549
<TOTAL-COSTS> 93,549
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,422
<INCOME-PRETAX> 17,096
<INCOME-TAX> 6,370
<INCOME-CONTINUING> 10,726
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,726
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 1.80
</TABLE>
FIRST AMENDMENT TO SYNDICATED LOAN AGREEMENT
This First Amendment to Syndicated Loan Agreement ("First
Amendment") is made this twenty-first day of November, 1997 by and
among Piercing Pagoda, Inc. ("Borrower"), a Delaware corporation having
its chief executive office at 3910 Adler Place, Bethlehem, Pennsylvania
18016, the financial institutions now or hereafter parties hereto and
their respective successors and assigns (each a "Lender" and
collectively, the "Lenders"), Summit Bank ("Summit"), a New Jersey bank
having offices at One Bethlehem Plaza, Bethlehem, Pennsylvania 18018,
and CoreStates Bank, N.A. ("CoreStates"), a national bank having
offices at 600 Penn Street, FC6-94-3-140, P.O. Box 1102, Reading,
Pennsylvania 19603. Summit and CoreStates are co-agent for Lenders (in
such capacity, each an "Agent" and collectively, the "Agents"), and
CoreStates as administrative agent and issuing bank for the Lenders (in
such capacity, the "Administrative Agent").
BACKGROUND
A. Pursuant to the terms and subject to the conditions set forth
in that certain Syndicated Loan Agreement dated March 27, 1997 by and
among Borrower, Lenders, Agents and Administrative Agent (the "Loan
Agreement"), Borrower is currently indebted to Lenders for repayment of
various loans, advances and extensions of credit made by Lenders to or
for the benefit of Borrower under a revolving credit facility in the
principal sum of up to Seventy-Five Million ($75,000,000.00) Dollars
(the "Revolving Loan"), which indebtedness is evidenced by those
certain Revolving Loan Notes dated the date of the Loan Agreement
executed and delivered by Borrower to each Lender (in the amount of
each such Lender's Commitment).
B. Borrower has requested that each Lender increase its
Commitment under the Revolving Loan, and the Cash Advance Sublimit
under the Revolving Loan, and the Lenders are willing to do so under
the terms and subject to the conditions set forth in this First
Amendment and the instruments, agreements and documents to be executed
and/or delivered pursuant to this First Amendment.
NOW, THEREFORE, with the foregoing Background deemed incorporated
hereinafter by this reference and hereby made a part hereof, the
parties hereto, intending to be legally bound, hereby covenant and
agree as follows:
SECTION 1. DEFINITIONS.
1.01 Capitalized Terms. All capitalized terms not otherwise
defined in this First Amendment shall have the meanings ascribed to
such terms in the Loan Agreement.
SECTION 2. CONFIRMATION OF EXISTING INDEBTEDNESS AND
RATIFICATION OF LOAN DOCUMENTS.
2.01 Confirmation of Existing Indebtedness. Borrower hereby
unconditionally acknowledges and confirms that: the aggregate
outstanding principal balance of Borrower to Lenders evidenced by the
Revolving Loan Notes is, as of the date hereof, Thirty-Two Million
Dollars ($32,000,000) Dollars; the aggregate face amount of Letters of
Credit issued by CoreStates Bank for the account of Borrower under the
Revolving Loan is, as of the date hereof, Thiry-Five Million Five
Hundred Ninety-Five Thousand Two Hundred Seventy-Seven and 87/100
($35,595,277.87) Dollars; interest on the Obligations has been paid
through October 31, 1997; and the foregoing indebtedness, together with
continually accruing interest and related costs, fees and expenses is,
as of the date hereof, owing without claim, counterclaim, right of
recoupment, defense or set-off of any kind or of any nature whatsoever.
<PAGE>
<PAGE>
2.02 Ratification of Loan Documents.
(A) Borrower hereby unconditionally ratifies and confirms
and reaffirms in all respects and without condition, all of the terms,
covenants and conditions set forth in the Loan Documents, and agrees
that it remains unconditionally liable to Bank in accordance with the
respective terms, covenants and conditions of such instruments,
agreements and documents.
(B) Without limiting the generality of the immediately
preceding Subparagraph 2.02(A), Borrower hereby unconditionally
ratifies and confirms and reaffirms in all respects and without
condition, the provisions of the Loan Documents permitting Lenders to
Confess Judgment against Borrower.
SECTION 3. AMENDMENTS TO FINANCING AGREEMENTS.
3.01 The Revolving Loan.
(A) Paragraph 1.15 of the Loan Agreement is hereby amended
to increase the Cash Advance Sublimit from Forty-Five Million
($45,000,000.00) Dollars to Fifty Million ($50,000,000.00) Dollars;
(B) Paragraph 1.17 of the Loan Agreement is hereby amended
to provide that the aggregate "Commitment" of the Lenders is hereby
increased by the sum of Five Million ($5,000,000.00) Dollars to the sum
of Eighty Million ($80,000,000.00) Dollars, each Lender agreeing to
participate in such increase in accordance with its Pro Rata Share;
(C) Paragraph 1.45 of the Loan Agreement is hereby amended
to increase the Line Limit by the sum of Five Million ($5,000,000.00)
Dollars to the sum of Eighty Million ($80,000,000.00) Dollars; and
(D) Paragraph 1.52 of the Loan Agreement is hereby amended
to redefine the term "Notes" to mean, collectively, the "Replacement
Revolving Loan Notes" (as hereinafter defined).
3.01 The Replacement Revolving Loan Notes. Contemporaneously
herewith, to evidence each Lender's increase in its Commitment (in
accordance with its Pro Rata Share), Borrower shall execute and deliver
to each Lender its Replacement Revolving Loan Note in an amount equal
to each Lender's Commitment (as hereby increased). Each Replacement
Revolving Loan Note shall replace and supersede (but not extinguish any
unpaid Obligations evidenced by) the Revolving Loan Note dated the date
of the Loan Agreement executed and delivered by Borrower to each
Lender.
SECTION 4. WARRANTIES AND REPRESENTATIONS.
4.01 Reaffirmation of Warranties and Representations. All
warranties and representations set forth in the Loan Agreement and the
other Loan Documents are hereby reasserted and restated by Borrower as
of the date hereof as if set forth at length herein. Borrower hereby
acknowledges that such warranties and representations, and the
warranties and representations set forth below, are being specifically
relied upon by Bank as a material inducement to Bank to enter into this
First Amendment and increase the Line Limit and the Cash Advance
Sublimit under the Revolving Loan.
4.02 Additional Warranties and Representations. To induce Bank to
enter into this First Amendment, Borrower represents and warrants to
Bank that:
<PAGE>
<PAGE>
(A) Borrower has the power, authority and capacity to enter
into and perform this First Amendment and all related instruments,
agreements and documents, and to incur the Obligations herein and
therein provided for, and Borrower has taken all proper and necessary
corporate action to authorize the execution, delivery and performance
of this First Amendment and related instruments, agreements and
documents;
(B) This First Amendment is valid, binding and enforceable
against Borrower in accordance with its terms; and
(C) No consent, approval or authorization of, or filing,
registration or qualification with, any Person is required to be
obtained by Borrower in connection with the execution and delivery of
this First Amendment or any related instrument, agreement or document,
or undertaking or performance of any Obligation hereunder or
thereunder.
SECTION 5. CONDITIONS PRECEDENT.
This First Amendment is subject to the following conditions
precedent (all instruments, agreements and documents to be in form and
substance satisfactory to Bank and its counsel):
5.01 Documents Required for Closing. Borrower shall have duly
executed and/or delivered (or caused to be duly executed and/or
delivered) to Bank the following:
(A) This First Amendment, the Replacement Revolving Loan
Notes, explanations and waivers of rights with respect to the
Replacement Revolving Loan Notes and each other instrument, agreement
and document to be executed and/or delivered pursuant to this First
Amendment and/or the instruments, agreements and documents referred to
in this First Amendment;
(B) A certified (as of the date of this First Amendment)
copy of resolutions of Borrower's Board of Directors authorizing the
execution, delivery and performance of this First Amendment and each
other document to be executed and/or delivered pursuant hereto and any
other instrument, agreement or document referred to herein;
(C) A certificate (dated the date of this First Amendment)
of Borrower's corporate secretary as to the incumbency and specimen
signatures of the officers of Borrower executing this First Amendment
and each other document to be executed and/or delivered pursuant
hereto;
(D) EARS, Inc., a Delaware corporation, a guarantor and
surety for the Obligations, shall unconditionally reaffirm in writing
its suretyship for the Obligations and consent to this First Amendment;
and
(E) Such other instruments, agreements and documents as may
be required by Bank and/or its counsel.
SECTION 6. MISCELLANEOUS.
6.01 Integrated Agreement. This First Amendment and all of the
instruments, agreements and documents executed and/or delivered in
conjunction with this First Amendment shall be effective upon the date
of execution hereof and thereof by all parties hereto and thereto, and
shall be deemed incorporated into and made a part of the Loan Agreement
and the other Loan Documents. All such instruments, agreements and
documents, and this First Amendment, shall be construed as integrated
and complementary of each other, and as augmenting and not restricting
Bank's rights, remedies, benefits and security. If, after applying the
foregoing, an inconsistency still exists, the provisions of this First
Amendment shall constitute an amendment thereto and shall govern and
control.
6.02 Expenses of Bank. Borrower will pay, on demand, all
reasonable out-of-pocket expenses, including the reasonable fees and
expenses of legal counsel for Bank, incurred in connection with this
First Amendment and all instruments, agreements and documents executed
and/or delivered in connection with this First Amendment. Subject to
Paragraph 2.07 of the Loan Agreement, Bank may charge any deposit
account of Borrower maintained at Bank for all or any part of any
amount due hereunder.
<PAGE>
<PAGE>
6.03 Counterpart Execution. This First Amendment may be executed
in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to Syndicated Loan Agreement to be duly executed and
exchanged as of the day and year first above written.
ATTEST: PIERCING PAGODA, INC.
By: /s/ Brandon R. Lehman____ By: /s/ John F. Eureyecko
Name: Brandon R. Lehman Name: John F. Eureyecko
Title: Treasurer Title:
President
[Corporate Seal]
Commitment: $26,665,000.00 SUMMIT BANK, for itself and
as Agent for the Lenders
By: /s/ Ammon J. Baus
Name: Ammon J. Baus
Title: Vice President
Commitment: $37,335,000.00 CORESTATES BANK, N.A., for
itself and as Agent and Administrative Agent for the Lenders
By: /s/ Lynn B. Eagleson
Name: Lynn B. Eagleson
Title: Vice President
Commitment: $16,000,000.00 FIRST UNION NATIONAL BANK
By: /s/ Lewis C. Cyr
Name: Lewis C. Cyr
Title: Assistant Vice
President
REPLACEMENT REVOLVING LOAN NOTE
$26,665,000.00 November 21, 1997
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, the
undersigned, Piercing Pagoda, Inc. ("Borrower"), a Delaware corporation,
promises to pay to the order of Summit Bank ("Lender"), at the offices of
CoreStates Bank, N.A. ("Administrative Agent"), a national bank with an
office at Broad and Chestnut Streets, Philadelphia, Pennsylvania, or at such
other location as Administrative Agent may designate from time to time, with
interest as set forth below, the principal sum of Twenty-Six Million Six
Hundred Sixty-Five Thousand ($26,665,000.00) Dollars or such lesser sum
which represents Lender's Pro Rata Share of the principal balance
outstanding under the Revolving Loan established pursuant to the provisions
of that certain Syndicated Loan Agreement dated March 27, 1997 among
Borrower, Administrative Agent, Lender and the other "Lenders" listed
therein, as amended pursuant to the provisions of that certain First
Amendment to Syndicated Loan Agreement of even date herewith among such
parties (as it may be supplemented, restated, superseded, further amended or
replaced from time to time, "Loan Agreement"). The outstanding principal
balance hereunder shall, absent earlier acceleration, be payable on the
Revolving Loan Termination Date. The actual amount due and owing from time
to time hereunder shall be evidenced by Administrative Agent's records of
receipts and disbursements with respect to the Revolving Loan, which shall
be prima facie evidence of the amount. All capitalized terms used herein
without further definition shall have the respective meanings ascribed
thereto in the Loan Agreement.
Borrower further agrees to pay interest on the outstanding principal
balance hereunder from time to time at one or more of the per annum Rates
set forth in Paragraph 2.8 of the Loan Agreement. Interest shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed, and shall be due and payable as set forth in the Loan Agreement.
The Revolving Loan shall continue to accrue interest at the applicable
Rates provided for in the Loan Agreement even after Default, an Event of
Default, maturity, acceleration, judgment, bankruptcy, insolvency
proceedings of any kind or the happening of any other event or occurrence,
whether similar or dissimilar.
If an Event of Default occurs and is continuing under the Loan
Agreement, the unpaid principal balance of this Replacement Revolving Loan
Note, together with all accrued and unpaid interest and other outstanding
Obligations shall become, or may be declared, immediately due and payable as
provided in the Loan Agreement.
This Replacement Revolving Loan Note may be prepaid only in accordance
with the terms and conditions of the Loan Agreement.
Any failure or delay of Administrative Agent, any Agent or Lender to
exercise any right hereunder shall not be construed as a waiver of the right
to exercise the same or any other right at any other time or times. The
waiver by Administrative Agent, any Agent or Lender of a breach or default
of any provision of this Replacement Revolving Loan Note shall not operate
or be construed as a waiver of any subsequent breach or default hereof.
Borrower agrees to reimburse Administrative Agent for all expenses incurred
by Administrative Agent, Lender or any other lender in accordance with the
provisions of the Loan Agreement.
This Replacement Revolving Loan Note shall be construed and governed
by the laws of the Commonwealth of Pennsylvania without regard to otherwise
applicable principles of conflicts of laws. The provisions of this
Replacement Revolving Loan Note are severable and the invalidity or
unenforceability of any provision shall not alter or impair the remaining
provisions of this Replacement Revolving Loan Note. No modification hereof
shall be binding or enforceable against Lender unless approved in writing by
Lender.
THE FOLLOWING SETS FORTH A WARRANT OF AUTHORITY FOR ANY ATTORNEY TO, AFTER
THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, CONFESS
JUDGMENT AGAINST BORROWER. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS
JUDGMENT AGAINST BORROWER, BORROWER, FOLLOWING CONSULTATION WITH (OR
DECISION NOT TO CONSULT WITH) SEPARATE COUNSEL FOR BORROWER, AND WITH
KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY WAIVES ANY AND ALL RIGHTS
<PAGE>
<PAGE>
BORROWER HAS, OR MAY HAVE, TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING
BEFORE ENTRY OF JUDGMENT, OR EXECUTION UPON ANY REAL OR PERSONAL PROPERTY OF
BORROWER UNDER THE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE
COMMONWEALTH OF PENNSYLVANIA. BORROWER SPECIFICALLY ACKNOWLEDGES THAT
ADMINISTRATIVE AGENT AND LENDERS HAVE RELIED ON THIS WARRANT OF ATTORNEY IN
GRANTING THE FINANCIAL ACCOMMODATIONS DESCRIBED HEREIN.
AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT,
BORROWER HEREBY EMPOWERS ANY PROTHONOTARY, CLERK, OR ATTORNEY OF ANY COURT
OF RECORD IN THE UNITED STATES, OR ELSEWHERE, TO APPEAR FOR BORROWER IN ANY
AND ALL ACTIONS WHICH MAY BE BROUGHT HEREUNDER IN THE COMMONWEALTH OF
PENNSYLVANIA OR ELSEWHERE AND CONFESS JUDGMENT AGAINST BORROWER FOR ALL, OR
ANY PART, OF THE UNPAID PRINCIPAL BALANCE HEREUNDER, AND ACCRUED INTEREST
TOGETHER WITH OTHER EXPENSES INCURRED IN CONNECTION THEREWITH AND ATTORNEYS'
FEES OF FIVE PERCENT (5%) OF THE TOTAL OF THE FOREGOING SUMS, BUT IN NO
EVENT LESS THAN FIVE THOUSAND ($5,000.00) DOLLARS, AND FOR SUCH PURPOSE, THE
ORIGINAL OR ANY PHOTOCOPY OF THIS REPLACEMENT REVOLVING LOAN NOTE SHALL BE A
GOOD AND SUFFICIENT WARRANT OF ATTORNEY. SUCH AUTHORITY SHALL NOT BE
EXHAUSTED BY ONE EXERCISE THEREOF BUT JUDGEMENT MAY BE CONFESSED AS
AFORESAID FROM TIME TO TIME. BORROWER WAIVES ALL ERRORS AND RIGHTS OF
APPEAL, AS WELL AS RIGHTS TO STAY OF EXECUTION AND EXEMPTION OF PROPERTY, IN
ANY ACTION TO ENFORCE ITS LIABILITY HEREON.
Except as expressly set forth in the Loan Agreement, Borrower hereby waives
protest, notice of protest, presentment, dishonor, notice of dishonor and
demand. To the extent permitted by law, Borrower hereby waives and releases
all errors, defects and imperfections in any proceedings instituted by
Administrative Agent or any Lender under the terms of this Replacement
Revolving Loan Note. The rights and privileges of Administrative Agent and
any Lender under this Replacement Revolving Loan Note shall inure to the
benefit of its successors and assigns. All representations, warranties and
agreements of Borrower made in connection with this Replacement Revolving
Loan Note shall bind Borrower's successors and assigns. The rights and
remedies of Administrative Agent or Lender under this Replacement Revolving
Loan Note shall be in addition to any other rights and remedies available to
Administrative Agent or Lender at law or in equity, all of which may be
exercised singly or concurrently. The parties agree to the exclusive
jurisdiction of the federal and state courts located in Pennsylvania in
connection with any matter arising hereunder, including the collection and
enforcement hereof, except as the Administrative Agent may otherwise elect.
Borrower (and Administrative Agent and Lender by their acceptance hereof)
each hereby waives any and all rights it may have to a jury trial in
connection with respect to rights any litigation arising with rights and
obligations of the parties hereto.
IN WITNESS WHEREOF, intending to be legally bound, Borrower has duly
executed this Replacement Revolving Loan Note the day and year first above
written and has hereunto set hand and seal.
ATTEST: PIERCING PAGODA, INC.
By: /s/ Brandon R. Lehman____ By: /s/ John F. Eureyecko
Name: Brandon R. Lehman Name: John F. Eureyecko
Title: Treasurer Title:
President
(Corporate Seal)
REPLACEMENT REVOLVING LOAN NOTE
$16,000,000.00 November 21, 1997
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, the
undersigned, Piercing Pagoda, Inc. ("Borrower"), a Delaware corporation,
promises to pay to the order of First Union National Bank ("Lender"), at the
offices of CoreStates Bank, N.A. ("Administrative Agent"), a national bank
with an office at Broad and Chestnut Streets, Philadelphia, Pennsylvania, or
at such other location as Administrative Agent may designate from time to
time, with interest as set forth below, the principal sum of Sixteen Million
($16,000,000.00) Dollars or such lesser sum which represents Lender's Pro
Rata Share of the principal balance outstanding under the Revolving Loan
established pursuant to the provisions of that certain Syndicated Loan
Agreement certain Syndicated Loan Agreement dated March 27, 1997 among
Borrower, Administrative Agent, Lender and the other "Lenders" listed
therein, as amended pursuant to the provisions of that certain First
Amendment to Syndicated Loan Agreement of even date herewith among such
parties (as it may be supplemented, restated, superseded, further amended or
replaced from time to time, "Loan Agreement"). The outstanding principal
balance hereunder shall, absent earlier acceleration, be payable on the
Revolving Loan Termination Date. The actual amount due and owing from time
to time hereunder shall be evidenced by Administrative Agent's records of
receipts and disbursements with respect to the Revolving Loan, which shall
be prima facie evidence of the amount. All capitalized terms used herein
without further definition shall have the respective meanings ascribed
thereto in the Loan Agreement.
Borrower further agrees to pay interest on the outstanding principal
balance hereunder from time to time at one or more of the per annum Rates
set forth in Paragraph 2.8 of the Loan Agreement. Interest shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed, and shall be due and payable as set forth in the Loan Agreement.
The Revolving Loan shall continue to accrue interest at the applicable
Rates provided for in the Loan Agreement even after Default, an Event of
Default, maturity, acceleration, judgment, bankruptcy, insolvency
proceedings of any kind or the happening of any other event or occurrence,
whether similar or dissimilar.
If an Event of Default occurs and is continuing under the Loan
Agreement, the unpaid principal balance of this Replacement Revolving Loan
Note, together with all accrued and unpaid interest and other outstanding
Obligations shall become, or may be declared, immediately due and payable as
provided in the Loan Agreement.
This Replacement Revolving Loan Note may be prepaid only in accordance
with the terms and conditions of the Loan Agreement.
Any failure or delay of Administrative Agent, any Agent or Lender to
exercise any right hereunder shall not be construed as a waiver of the right
to exercise the same or any other right at any other time or times. The
waiver by Administrative Agent, any Agent or Lender of a breach or default
of any provision of this Replacement Revolving Loan Note shall not operate
or be construed as a waiver of any subsequent breach or default hereof.
Borrower agrees to reimburse Administrative Agent for all expenses incurred
by Administrative Agent, Lender or any other lender in accordance with the
provisions of the Loan Agreement.
This Replacement Revolving Loan Note shall be construed and governed
by the laws of the Commonwealth of Pennsylvania without regard to otherwise
applicable principles of conflicts of laws. The provisions of this
Replacement Revolving Loan Note are severable and the invalidity or
unenforceability of any provision shall not alter or impair the remaining
provisions of this Replacement Revolving Loan Note. No modification hereof
shall be binding or enforceable against Lender unless approved in writing by
Lender.
THE FOLLOWING SETS FORTH A WARRANT OF AUTHORITY FOR ANY ATTORNEY TO, AFTER
THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, CONFESS
JUDGMENT AGAINST BORROWER. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS
JUDGMENT AGAINST BORROWER, BORROWER, FOLLOWING CONSULTATION WITH (OR
DECISION NOT TO CONSULT WITH) SEPARATE COUNSEL FOR BORROWER, AND WITH
KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY WAIVES ANY AND ALL RIGHTS
BORROWER HAS, OR MAY HAVE, TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING
<PAGE>
<PAGE>
BEFORE ENTRY OF JUDGMENT, OR EXECUTION UPON ANY REAL OR PERSONAL PROPERTY OF
BORROWER UNDER THE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE
COMMONWEALTH OF PENNSYLVANIA. BORROWER SPECIFICALLY ACKNOWLEDGES THAT
ADMINISTRATIVE AGENT AND LENDERS HAVE RELIED ON THIS WARRANT OF ATTORNEY IN
GRANTING THE FINANCIAL ACCOMMODATIONS DESCRIBED HEREIN.
AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT,
BORROWER HEREBY EMPOWERS ANY PROTHONOTARY, CLERK, OR ATTORNEY OF ANY COURT
OF RECORD IN THE UNITED STATES, OR ELSEWHERE, TO APPEAR FOR BORROWER IN ANY
AND ALL ACTIONS WHICH MAY BE BROUGHT HEREUNDER IN THE COMMONWEALTH OF
PENNSYLVANIA OR ELSEWHERE AND CONFESS JUDGMENT AGAINST BORROWER FOR ALL, OR
ANY PART, OF THE UNPAID PRINCIPAL BALANCE HEREUNDER, AND ACCRUED INTEREST
TOGETHER WITH OTHER EXPENSES INCURRED IN CONNECTION THEREWITH AND ATTORNEYS'
FEES OF FIVE PERCENT (5%) OF THE TOTAL OF THE FOREGOING SUMS, BUT IN NO
EVENT LESS THAN FIVE THOUSAND ($5,000.00) DOLLARS, AND FOR SUCH PURPOSE, THE
ORIGINAL OR ANY PHOTOCOPY OF THIS REPLACEMENT REVOLVING LOAN NOTE SHALL BE A
GOOD AND SUFFICIENT WARRANT OF ATTORNEY. SUCH AUTHORITY SHALL NOT BE
EXHAUSTED BY ONE EXERCISE THEREOF BUT JUDGEMENT MAY BE CONFESSED AS
AFORESAID FROM TIME TO TIME. BORROWER WAIVES ALL ERRORS AND RIGHTS OF
APPEAL, AS WELL AS RIGHTS TO STAY OF EXECUTION AND EXEMPTION OF PROPERTY, IN
ANY ACTION TO ENFORCE ITS LIABILITY HEREON.
Except as expressly set forth in the Loan Agreement, Borrower hereby waives
protest, notice of protest, presentment, dishonor, notice of dishonor and
demand. To the extent permitted by law, Borrower hereby waives and releases
all errors, defects and imperfections in any proceedings instituted by
Administrative Agent or any Lender under the terms of this Replacement
Revolving Loan Note. The rights and privileges of Administrative Agent and
any Lender under this Replacement Revolving Loan Note shall inure to the
benefit of its successors and assigns. All representations, warranties and
agreements of Borrower made in connection with this Replacement Revolving
Loan Note shall bind Borrower's successors and assigns. The rights and
remedies of Administrative Agent or Lender under this Replacement Revolving
Loan Note shall be in addition to any other rights and remedies available to
Administrative Agent or Lender at law or in equity, all of which may be
exercised singly or concurrently. The parties agree to the exclusive
jurisdiction of the federal and state courts located in Pennsylvania in
connection with any matter arising hereunder, including the collection and
enforcement hereof, except as the Administrative Agent may otherwise elect.
Borrower (and Administrative Agent and Lender by their acceptance hereof)
each hereby waives any and all rights it may have to a jury trial in
connection with respect to rights any litigation arising with rights and
obligations of the parties hereto.
IN WITNESS WHEREOF, intending to be legally bound, Borrower has duly
executed this Replacement Revolving Loan Note the day and year first above
written and has hereunto set hand and seal.
ATTEST: PIERCING PAGODA, INC.
By: /s/ Brandon R. Lehman____ By: /s/ John F. Eureyecko
Name: Brandon R. Lehman Name: John F. Eureyecko
Title: Treasurer Title:
President
(Corporate Seal)
REPLACEMENT REVOLVING LOAN NOTE
$37,335,000.00 November 21, 1997
FOR VALUE RECEIVED AND INTENDING TO BE LEGALLY BOUND HEREBY, the
undersigned, Piercing Pagoda, Inc. ("Borrower"), a Delaware corporation,
promises to pay to the order of CoreStates Bank, N.A. ("Lender"), at the
offices of CoreStates Bank, N.A. ("Administrative Agent"), a national bank
with an office at Broad and Chestnut Streets, Philadelphia, Pennsylvania, or
at such other location as Administrative Agent may designate from time to
time, with interest as set forth below, the principal sum of Thirty-Seven
Million Three Hundred Thirty-Five Thousand ($37,335,000.00) Dollars or such
lesser sum which represents Lender's Pro Rata Share of the principal balance
outstanding under the Revolving Loan established pursuant to the provisions
of that certain Syndicated Loan Agreement dated March 27, 1997 among
Borrower, Administrative Agent, Lender and the other "Lenders" listed
therein, as amended pursuant to the provisions of that certain First
Amendment to Syndicated Loan Agreement of even date herewith among such
parties (as it may be supplemented, restated, superseded, further amended or
replaced from time to time, "Loan Agreement"). The outstanding principal
balance hereunder shall, absent earlier acceleration, be payable on the
Revolving Loan Termination Date. The actual amount due and owing from time
to time hereunder shall be evidenced by Administrative Agent's records of
receipts and disbursements with respect to the Revolving Loan, which shall
be prima facie evidence of the amount. All capitalized terms used herein
without further definition shall have the respective meanings ascribed
thereto in the Loan Agreement.
Borrower further agrees to pay interest on the outstanding principal
balance hereunder from time to time at one or more of the per annum Rates
set forth in Paragraph 2.8 of the Loan Agreement. Interest shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed, and shall be due and payable as set forth in the Loan Agreement.
The Revolving Loan shall continue to accrue interest at the applicable
Rates provided for in the Loan Agreement even after Default, an Event of
Default, maturity, acceleration, judgment, bankruptcy, insolvency
proceedings of any kind or the happening of any other event or occurrence,
whether similar or dissimilar.
If an Event of Default occurs and is continuing under the Loan
Agreement, the unpaid principal balance of this Replacement Revolving Loan
Note, together with all accrued and unpaid interest and other outstanding
Obligations shall become, or may be declared, immediately due and payable as
provided in the Loan Agreement.
This Replacement Revolving Loan Note may be prepaid only in accordance
with the terms and conditions of the Loan Agreement.
Any failure or delay of Administrative Agent, any Agent or Lender to
exercise any right hereunder shall not be construed as a waiver of the right
to exercise the same or any other right at any other time or times. The
waiver by Administrative Agent, any Agent or Lender of a breach or default
of any provision of this Replacement Revolving Loan Note shall not operate
or be construed as a waiver of any subsequent breach or default hereof.
Borrower agrees to reimburse Administrative Agent for all expenses incurred
by Administrative Agent, Lender or any other lender in accordance with the
provisions of the Loan Agreement.
This Replacement Revolving Loan Note shall be construed and governed
by the laws of the Commonwealth of Pennsylvania without regard to otherwise
applicable principles of conflicts of laws. The provisions of this
Replacement Revolving Loan Note are severable and the invalidity or
unenforceability of any provision shall not alter or impair the remaining
provisions of this Replacement Revolving Loan Note. No modification hereof
shall be binding or enforceable against Lender unless approved in writing by
Lender.
THE FOLLOWING SETS FORTH A WARRANT OF AUTHORITY FOR ANY ATTORNEY TO, AFTER
THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, CONFESS
JUDGMENT AGAINST BORROWER. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS
JUDGMENT AGAINST BORROWER, BORROWER, FOLLOWING CONSULTATION WITH (OR
DECISION NOT TO CONSULT WITH) SEPARATE COUNSEL FOR BORROWER, AND WITH
KNOWLEDGE OF THE LEGAL EFFECT HEREOF, HEREBY WAIVES ANY AND ALL RIGHTS
BORROWER HAS, OR MAY HAVE, TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING
BEFORE ENTRY OF JUDGMENT, OR EXECUTION UPON ANY REAL OR PERSONAL PROPERTY OF
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BORROWER UNDER THE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE
COMMONWEALTH OF PENNSYLVANIA. BORROWER SPECIFICALLY ACKNOWLEDGES THAT
ADMINISTRATIVE AGENT AND LENDERS HAVE RELIED ON THIS WARRANT OF ATTORNEY IN
GRANTING THE FINANCIAL ACCOMMODATIONS DESCRIBED HEREIN.
AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT,
BORROWER HEREBY EMPOWERS ANY PROTHONOTARY, CLERK, OR ATTORNEY OF ANY COURT
OF RECORD IN THE UNITED STATES, OR ELSEWHERE, TO APPEAR FOR BORROWER IN ANY
AND ALL ACTIONS WHICH MAY BE BROUGHT HEREUNDER IN THE COMMONWEALTH OF
PENNSYLVANIA OR ELSEWHERE AND CONFESS JUDGMENT AGAINST BORROWER FOR ALL, OR
ANY PART, OF THE UNPAID PRINCIPAL BALANCE HEREUNDER, AND ACCRUED INTEREST
TOGETHER WITH OTHER EXPENSES INCURRED IN CONNECTION THEREWITH AND ATTORNEYS'
FEES OF FIVE PERCENT (5%) OF THE TOTAL OF THE FOREGOING SUMS, BUT IN NO
EVENT LESS THAN FIVE THOUSAND ($5,000.00) DOLLARS, AND FOR SUCH PURPOSE, THE
ORIGINAL OR ANY PHOTOCOPY OF THIS REPLACEMENT REVOLVING LOAN NOTE SHALL BE A
GOOD AND SUFFICIENT WARRANT OF ATTORNEY. SUCH AUTHORITY SHALL NOT BE
EXHAUSTED BY ONE EXERCISE THEREOF BUT JUDGEMENT MAY BE CONFESSED AS
AFORESAID FROM TIME TO TIME. BORROWER WAIVES ALL ERRORS AND RIGHTS OF
APPEAL, AS WELL AS RIGHTS TO STAY OF EXECUTION AND EXEMPTION OF PROPERTY, IN
ANY ACTION TO ENFORCE ITS LIABILITY HEREON.
Except as expressly set forth in the Loan Agreement, Borrower hereby waives
protest, notice of protest, presentment, dishonor, notice of dishonor and
demand. To the extent permitted by law, Borrower hereby waives and releases
all errors, defects and imperfections in any proceedings instituted by
Administrative Agent or any Lender under the terms of this Replacement
Revolving Loan Note. The rights and privileges of Administrative Agent and
any Lender under this Replacement Revolving Loan Note shall inure to the
benefit of its successors and assigns. All representations, warranties and
agreements of Borrower made in connection with this Replacement Revolving
Loan Note shall bind Borrower's successors and assigns. The rights and
remedies of Administrative Agent or Lender under this Replacement Revolving
Loan Note shall be in addition to any other rights and remedies available to
Administrative Agent or Lender at law or in equity, all of which may be
exercised singly or concurrently. The parties agree to the exclusive
jurisdiction of the federal and state courts located in Pennsylvania in
connection with any matter arising hereunder, including the collection and
enforcement hereof, except as the Administrative Agent may otherwise elect.
Borrower (and Administrative Agent and Lender by their acceptance hereof)
each hereby waives any and all rights it may have to a jury trial in
connection with respect to rights any litigation arising with rights and
obligations of the parties hereto.
IN WITNESS WHEREOF, intending to be legally bound, Borrower has duly
executed this Replacement Revolving Loan Note the day and year first above
written and has hereunto set hand and seal.
ATTEST: PIERCING PAGODA, INC.
By: /s/ Brandon R. Lehman____ By: /s/ John F. Eureyecko
Name: Brandon R. Lehman Name: John F. Eureyecko
Title: Treasurer Title:
President
(Corporate Seal)
