PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT (this "Agreement"), dated as of April 29, 1998,
between PIERCING PAGODA, INC., a Delaware corporation (the "Company" or the
"Pledgor") and CORESTATES BANK, N.A. (the "Bank").
WHEREAS, the Company has issued its $2,565,000 aggregate principal amount
Taxable Variable Rate Demand/Fixed Rate Bonds, Series of 1998 (the "Bonds")
under a Trust Indenture dated as of April 29, 1998 (the "Indenture"), by and
between the Company and Dauphin Deposit Bank and Trust Company, as trustee (the
"Trustee"); and
WHEREAS, Pledgor and the Bank have entered into a Reimbursement Agreement dated
as of April 29, 1998 (the "Reimbursement Agreement"), pursuant to which the Bank
has agreed, subject to the conditions precedent provided in the Reimbursement
Agreement, to issue an irrevocable direct pay letter of credit in favor of the
Trustee (the "Letter of Credit").
NOW, THEREFORE the parties, intending to be legally bound, agree as follows:
1. Defined Terms. As used in this Agreement, the terms defined in the preambles
to this Agreement shall have such meanings and the following terms have the
following meanings.
"Collateral" means all property at any time pledged to the Bank under this
Agreement (whether described in this Agreement or not) and all income therefrom
and proceeds thereof.
"Event of Default" has the meaning given to such term in the
Reimbursement Agreement.
"Obligations" has the meaning given to such term in the
Reimbursement.
"Pledged Bonds" has the meaning given to such term in Section 3
hereof.
"Pledged Bonds Custodian" means Dauphin Deposit Bank and Trust Company (or such
other successor to or substitute) in its capacity as collateral agent for the
Bank.
"Remarketing Agent" has the meaning given to such term in the
Indenture.
"Tender Agent" has the meaning given to such term in the
Indenture.
"Unremarketed Bonds" has the meaning given to such term in the
Indenture.
2. Interpretation. (a) Unless the context otherwise indicates, words expressed
in the singular shall include the plural and vice versa and the use of the
neuter, masculine or feminine gender is for convenience only and shall be deemed
to mean and include the neuter, masculine or feminine gender, as appropriate.
(b) Headings of articles and sections herein are solely for convenience of
reference, do not constitute a part hereof and shall not affect the meaning,
construction or effect hereof.
(c) All references herein to "Articles," "Sections," "Paragraphs" and other
subdivisions are to the corresponding Articles, Sections, Paragraphs or
subdivisions of this Agreement; the words "herein," "hereof," "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section, Paragraph or subdivision hereof.
3. Pledge. The Pledgor hereby pledges, assigns, hypothecates and transfers to
the Bank all of the Pledgor's right, title and interest to the Unremarketed
Bonds delivered from time to time to the Tender Agent by the owners thereof and
grants to the Bank a first lien on, and security interest in, all of its right,
title and interest in and to the Unremarketed Bonds, the interest thereon, and
all proceeds thereof, as collateral security for the prompt and complete payment
by the Pledgor (by acceleration, at stated maturity, or otherwise) of all
amounts payable from time to time by the Pledgor to the Bank in respect of the
Obligations. Unless all amounts drawn under the Letter of Credit with respect to
the payment of the Purchase Price (as defined in the Indenture) of the Bonds
pursuant to mandatory and optional tenders of the Bonds are reimbursed to the
Bank on the same day as such drawings, the Pledgor shall, no later than 5:00
p.m. (New York City time) on the same day, (a) deliver or use its best efforts
to cause to be delivered to the Pledged Bonds Custodian, Unremarketed Bonds in a
principal amount equal to the unreimbursed portion of such drawing (such
Unremarketed Bonds so delivered to and held by the Pledged Bonds Custodian from
time to time to be referred to as the "Pledged Bonds") and (b) give or use its
best efforts to cause to be given to the Bank notice of the number and principal
amount of each such Pledged Bond.
4. Registration of and Interest on Pledged Bonds. Upon delivery to the Pledged
Bonds Custodian, Pledged Bonds shall be registered in the name of the Pledged
Bonds Custodian and shall be duly endorsed for transfer by the Pledged Bonds
Custodian in blank or by appropriate instruments of transfer duly executed in
blank. The Bank may, but shall not be obligated to, request that Pledged Bonds
be registered in its name at any time or from time to time. Any interest on
Pledged Bonds shall be paid to or upon the order of the Bank and shall be
applied as a credit against the Obligations with respect to the related
Principal and Interest Drawings under the Letter of Credit in accordance with
the terms of the Reimbursement Agreement.
5. Release of Pledged Bonds. Upon payment to the Bank of the proceeds of
remarketed Pledged Bonds in an amount sufficient to cover the principal of and
accrued interest, if any, on the Unremarketed Bonds, the Bank shall (i)
reinstate the Letter of Credit to an amount equal to the principal amount of
such Bonds together with an amount equal to forty-five (45) days interest
thereon calculated at an interest rate (based on a 365/366 day year for the
actual number of days elapsed) of seventeen percent (17%) to pay interest on the
Bonds; (ii) notify the Trustee of the amount of such reinstatement; and (iii)
release or instruct the Pledged Bonds Custodian to release Pledged Bonds in a
principal amount equal to the principal amount of such payment to the Bank from
the pledge and security interest created by this Agreement for resale in
accordance with Section 5.01, 5.04 or 5.05 of the Indenture. Such Pledged Bonds
shall be delivered to or upon the order of the Tender Agent only after payment
to the Bank as aforesaid.
6. Redemption of Pledged Bonds. In the event any Pledged Bond is called for
redemption under the Indenture, Pledgor shall use its best efforts to cause the
Pledged Bonds Custodian to take all such actions as shall be required under the
Indenture to effect the redemption and shall pay or cause to be paid the
redemption price to or to the order of the Bank as a credit against the
Obligations.
7. Rights of the Bank. The Bank shall not be liable, except in the case of its
willful misconduct or gross negligence, for failure to collect or realize upon
the Obligations or the Collateral or any part thereof, or for any delay in so
doing, nor shall the Bank be under any obligation to take any action whatsoever
with regard thereto. If an Event of Default has occurred and is continuing, the
Bank, with or without notice, shall have the right to exercise all rights,
privileges or options pertaining to any Pledged Bonds, as if it were the
absolute owner thereof, upon such terms and conditions as it may, in its sole
discretion determine, all without liability except to account to the Pledgor for
property actually received by it. The Bank shall have no duty to exercise any of
the aforesaid rights, privileges or options and shall not be responsible for any
failure to do so or delay in so doing.
8. Remedies. In the event that any portion of the Obligations has been declared
due and payable (upon scheduled maturity, acceleration or otherwise), the Bank,
without demand for performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale) to the Pledgor or any other person (all and each of which demands,
advertisements and/or notices are expressly waived by the Pledgor), may
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give an option or options to
purchase, contract to sell, or otherwise dispose of and deliver the Collateral,
or any part thereof, in one or more parcels or portions at public or private
sale or sales, at any exchange, broker's board or at any of the Bank's offices
or elsewhere upon such terms and conditions as it may, in its sole discretion,
deem advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk, with the right to the
Bank, upon any such sale or sales, public or private, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption in
the Pledgor, which right or equity is hereby expressly waived or released by
Pledgor. The net proceeds of any such collection, recovery, receipts,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care, safekeeping,
or otherwise of any and all of the Collateral or in any way relating to the
rights of the Bank under this Agreement, including, but not limited to,
reasonable attorneys' fees and legal expenses, shall be applied first to the
satisfaction of the Obligations in such order as the Bank may elect, the Pledgor
remaining liable for any deficiency remaining unpaid after such application, and
only after so paying over such net proceeds and after the payment by the Bank of
any other amount required by any provision of law, including, without
limitation. Section 9-504(i)(c) of the Uniform Commercial Code of the
Commonwealth of Pennsylvania, need the Bank account for the surplus, if any, to
the Pledgor. The Pledgor agrees that the Bank or the Pledged Bonds Custodian
need not give more than thirty (30) days' notice of the time and place of any
public sale or of the time after which a private sale or other intended
disposition is to take place and that such notice is reasonable notification of
such matters. In addition to the rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to any of the Obligations, the Bank or the Pledged Bonds Custodian
shall have the authority to exercise all the rights and remedies of a secured
party under the Uniform Commercial Code of the Commonwealth of Pennsylvania.
Notwithstanding anything contained herein to the contrary, the Bank may not
sell, assign, give an option or options to purchase, contract to sell or
otherwise dispose of and deliver the Collateral unless it shall reinstate the
Letter of Credit in full as to principal and interest with respect to such
Bonds, except this shall not apply in the case of a conversion of the Bonds to a
Fixed Rate in accordance with the terms of the Indenture.
9. Representations, Warranties and Covenants of the Pledgor. The Pledgor
represents and warrants that: (a) on the date of delivery to the Bank or the
Pledged Bonds Custodian of any Pledged Bonds, none of the Authority, the
Remarketing Agent, the Tender Agent, the Trustee nor any other person, firm or
corporation (other than the Pledgor or the Bank or the Pledged Bonds Custodian)
will have any right, title or interest in and to the Pledged Bonds; (b) it has,
and on the date of delivery to the Bank or the Pledged Bonds Custodian of any
Pledged Bonds will have, full power, authority and legal right to pledge all of
its right, title and interest in and to the Pledged Bonds pursuant to this
Agreement; (c) the Pledged Bonds and the proceeds thereof, are not subject to
any pledge, lien, mortgage, hypothecation, security interest, charge, option or
encumbrance or to any agreement purporting to grant to any third party a
security interest in the property or assets of the Pledgor which would include
the Pledged Bonds. The Pledgor covenants and agrees that it will defend the
Bank's and the Pledged Bonds Custodian's right, title and security interest in
and to the Pledged Bonds and the proceeds thereof against the claims and demands
of all persons at the Pledgor's sole cost and expense.
10. No Disposition, etc. Except as contemplated in this Agreement, without the
prior written consent of the Bank, the Pledgor agrees that it will not sell,
assign, transfer, exchange or otherwise dispose of or grant any option with
respect to, the Collateral, nor will it create, incur or permit to exist any
pledge, lien, mortgage, hypothecation, security interest, charge, option or any
other encumbrance with respect to any of the Collateral, or any interest
therein, or any proceeds thereof, except for the lien and security interest
provided for by this Agreement and sale of the Pledged Bonds pursuant to Section
5.01, 5.04 or 5.05 of the Indenture.
11. Sale of Collateral. (a) The Pledgor recognizes that the Bank may be unable
to effect a public sale of any or all of the Pledged Bonds by reason of certain
prohibitions contained in the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state securities laws, but may be compelled to
resort to one or more private sales thereof to a restricted group of purchasers
who may be obliged to agree, among other things, to acquire such securities for
their own account for investment and not with a view to the distribution or
resale thereof. The Pledgor acknowledges and agrees that any such private sale
may result in prices and other terms less favorable to the seller than if such
sale were a public sale and, notwithstanding such circumstances, agrees that any
such private sale shall be deemed to have been made in a commercially reasonable
manner. The Bank shall be under no obligation to delay a sale of any of the
Pledged Bonds for the period of time necessary to permit the Pledgor to register
such securities for public sale under the Securities Act, or under applicable
state securities laws, even if the Pledgor would agree to do so.
(b) The Pledgor further agrees to promptly do or cause to be done all such other
reasonable acts and things as may be necessary to make any sale or sales of all
or any portion of the Pledged Bonds valid and binding and in compliance with any
and all applicable laws, regulations, orders, writs, injunctions, decrees or
awards of any and all courts, arbitrators or governmental instrumentalities,
domestic or foreign, having jurisdiction over any such sale or sales, all at the
Pledgor's cost and expense.
12. Further Assurances. The Pledgor agrees that at any time and from time to
time upon the written request of the Bank or the Pledged Bonds Custodian, the
Pledgor will execute and deliver such further documents and do such further acts
and things as the Bank or the Pledged Bonds Custodian may reasonably request in
order to effect the purposes of this Agreement.
13. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provision of this Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14. No Waiver; Cumulative Remedies. No act, delay or omission of the Bank or the
Pledged Bonds Custodian shall be deemed to be a waiver of any rights or remedies
granted under this Agreement and no waiver shall be valid unless in writing,
signed by the Bank, and then only to the extent set forth in such waiver. A
waiver of any right or remedy under this Agreement on any one occasion shall not
be construed as a bar to any right or remedy which the Bank would otherwise have
on any future occasion. No failure to exercise and no delay in exercising on the
part of the Bank or the Pledged Bonds Custodian any right, power or privilege
under this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under this Agreement preclude
any other right, power or privilege. The rights and remedies provided in this
Agreement are cumulative and may be exercised singly or concurrently, and are
not exclusive of any rights or remedies provided by law or equity.
15. Waivers, Amendments; Applicable Law. None of the terms or provision of this
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by the Pledgor and the Bank. This Agreement and all
obligations of the Pledgor under this Agreement shall be binding upon the
successors and assigns of the Pledgor, and shall, together with the rights and
remedies of the Bank or the Pledged Bonds Custodian under this Agreement, inure
to the benefit of the Bank and its successors and assigns.
16. Fees and Expenses of the Pledged Bonds Custodian. The Pledgor agrees that it
will pay or reimburse the Bank for (i) all fees charged and expenses incurred by
the Pledged Bonds Custodian for and in connection with its acting as such for
the purposes of this Agreement and (ii) all costs and other expenses incurred by
the Bank or the Pledged Bonds Custodian in connection with the transfer,
registration or exchange of the Pledged Bonds.
17. Governing Law. This Agreement shall be governed by and be
construed and interpreted in accordance with the laws of the
Commonwealth of Pennsylvania.
18. Counterparts. This Agreement may be executed in several counterparts, each
of which shall be an original and all of which shall constitute but one and the
same instrument.
IN WITNESS WHEREOF, the Pledgor and the Bank have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the day and
year first above written.
Attest: PIERCING PAGODA, INC.
-------------------------- -----------------------------
Authorized Officer Chief Financial Officer
Attest: CORESTATES BANK, N.A.
------------------------- -----------------------------
Authorized Officer Vice President
CORESTATES BANK, N.A.
000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Ladies and Gentlemen:
We refer to the Pledge and Security Agreement dated as of April 29, 1998 (the
"Agreement"), between PIERCING PAGODA, INC., a Delaware corporation (the
"Pledgor") and you. All terms used in this letter and not otherwise defined
shall have the meanings given to such terms in the Agreement.
We accept our appointment as Pledged Bonds Custodian under the Agreement and
undertake to hold any Pledged Bonds which the Pledgor shall deliver or cause to
be delivered to us in such capacity as your collateral agent until otherwise
directed by you and to otherwise perform the duties of the Pledged Bonds
Custodian under the Agreement.
The Pledgor by its signature to this letter agrees to indemnify and hold us
harmless against any loss, liability or expense incurred by us without gross
negligence or bad faith on our part and arising out of or in connection with any
of our duties as Pledged Bonds Custodian, including the reasonable costs and
expense of defending ourselves against any claim or liability in connection with
the exercise or performance of any of our powers or duties in such capacity. The
provisions of the preceding sentence shall survive the termination of the
Agreement.
Very truly yours,
DAUPHIN DEPOSIT BANK AND TRUST COMPANY,
By:
Vice President
Acknowledged and AGREED
PIERCING PAGODA, INC.
By:
EXHIBIT A
to UCC-1 Financing Statement
1. A security interest in all of the following:
(a) All right, title and interest of the Debtor in and to all moneys and
securities from time to time held by the Trustee under the terms of that certain
Trust Indenture, dated as of April 29, 1998 (the "Indenture"), by and between
the Debtor and the Secured Party.
(b) Any and all other property rights and interests of every kind and nature
from time to time hereafter by delivery or by writing of any kind granted,
bargained, sold, alienated, demised, released, conveyed, assigned, transferred,
mortgaged, pledged, hypothecated or otherwise subjected to the lien of the
Indenture, as and for additional security therewith, by the Debtor or any other
person on its behalf or with its written consent.
2. Piercing Pagoda, Inc. is the Debtor and Dauphin Deposit Bank
and Trust Company, is the Secured Party in the UCC-I financing
statement to which this Exhibit A is attached.
