use strict;
use warnings;

my $item                  = "SeaMonkeys";
my $catNum                = "SMKY-1978";
my $remainingToReplace = 2;
my @lines;

local $/ = "\n\n";
while (defined (my $block = <DATA>)) {
    @lines = split "\n", $block;
    next unless $remainingToReplace;
    next unless $lines[0] =~ m/\Q$item\E/;

    # Replacement needed here
    print "***** Found $item, counter $remainingToReplace *****\n";
    --$remainingToReplace;

} continue {
    print join "\n", @lines, "\n";
}

__DATA__
Data per OP's node

##</code><code>##

    ELEMENT Kurt (Item := "BrightLite",
                  ItemID := 29,
                  CatalogNumber := "BTLT-9274",
                  Vendor := 100,
    END_ELEMENT

    ELEMENT Mick (Item := "PetRock",
                  ItemID := 36,
                  CatalogNumber := "PTRK-3475/A",
                  Vendor := 82,
    END_ELEMENT

***** Found SeaMonkeys, counter 2 *****
    ELEMENT Kurt (Item := "SeaMonkeys",
                  ItemID := 12,
                  CatalogNumber := "SMKY-1978/E",
                  Vendor := 77,
    END_ELEMENT

    ELEMENT Joe (Item := "Pong",
                 ItemID := 24,
                 CatalogNumber := "PONG-1482",
                 Vendor := 5,
    END_ELEMENT

***** Found SeaMonkeys, counter 1 *****
    ELEMENT Shane (Item := "SeaMonkeys",
                   ItemID := 1032,
                   CatalogNumber := "SMKY-1978/E",
                   Vendor := 77,
    END_ELEMENT

    ELEMENT Kurt (Item := "Battleship",
                  ItemID := 99,
                  CatalogNumber := "BTLS-5234",
                  Vendor := 529,
    END_ELEMENT

...