THIS TRUST INDENTURE, made and entered into as of April 29, 1998, by and between
PIERCING PAGODA, INC., a Delaware corporation  (together with its successors and
assigns,  the  "Company") and DAUPHIN  DEPOSIT BANK AND TRUST  COMPANY,  a state
banking  corporation  duly  organized,  existing  and  authorized  to accept and
execute  trusts of the character  herein set out under and by virtue of the laws
of the  Commonwealth  of  Pennsylvania,  with its  principal  office  located in
Harrisburg,  Pennsylvania,  as trustee  (the  "Trustee")  and tender  agent (the
"Tender Agent");

      W I T N E S S E T H:

Certain  of the terms and words  used in these  Recitals,  and in the  following
Granting Clauses, are defined in Section 1.01 of this Indenture.

WHEREAS, the Company has heretofore  authorized and directed the issuance of its
$2,565,000  aggregate  principal amount Taxable Variable Rate  Demand/Fixed Rate
Bonds,  Series of 1998 (the "Bonds") for the purpose of financing a project (the
"Project")  consisting  of (i) the  construction  of a new  70,655  square  feet
building on 5.3 acres of land at the Company  headquarters in Hanover  Township,
Northampton  County,  Pennsylvania  for the purpose of expanding  the  Company's
capabilities to distribute, assemble and warehouse their products and to provide
for office  space to carry out the  administrative  functions  of the  Company's
business;  and (ii) the payment of fees and expenses relating to the issuance of
the Bonds; and

WHEREAS,  the Company has caused to be delivered  to the Trustee an  irrevocable
direct pay Letter of Credit (the "Letter of Credit") issued by CoreStates  Bank,
N.A. (the "Bank") providing for the payment of the aggregate principal amount of
the Bonds,  due and payable upon  maturity,  optional  redemption,  sinking fund
redemption  or  acceleration  upon an event of default  hereunder  plus interest
calculated  for a period  up to  forty-five  (45)  days at an  interest  rate of
seventeen percent (17%) per annum; and

WHEREAS,  the Bank shall be  entitled  to  reimbursement  by the Company for all
amounts  drawn  under such  Letter of Credit  pursuant  to a  reimbursement  and
security agreement between the Bank and the Company; and

WHEREAS,  execution and delivery of this Indenture and the issuance of the Bonds
hereunder  have been duly and validly  authorized  by  resolution of the Company
duly adopted prior to such execution and delivery; and

WHEREAS,  all acts and things necessary to make the Bonds, when authenticated by
the Trustee and issued as in this  Indenture  provided,  the valid,  binding and
legal  obligations  of the  Company  in  accordance  with  their  terms,  and to
constitute  this  Indenture the valid and binding  agreement for the security of
the Bonds, have been done and performed.
      GRANTING CLAUSE AND AGREEMENTS

NOW,  THEREFORE,  in  consideration  of the premises and the  acceptance  by the
Trustee of the trusts hereby  created and of the purchase and  acceptance of the
Bonds issued and sold by the Company under this Indenture by those who shall own
the same from time to time,  and of the sum of one dollar,  lawful  money of the
United  States of America,  duly paid to the Company by the Trustee at or before
the  execution and delivery of this  Indenture,  and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
for the purpose of fixing and declaring the terms and conditions  upon which the
Bonds are to be executed,  authenticated,  issued, delivered and accepted by all
persons who shall from time to time be or become owners thereto, and in order to
secure the payment of the principal of and premium (if any) and interest on, and
purchase  price of,  the Bonds  according  to their  tenor  and  effect  and the
performance  and  observance  by the Company of all the  covenants  expressed or
implied herein and in the Bonds and the payment and  performance of all other of
the Company's obligations, the Company does hereby grant, bargain, sell, convey,
pledge and assign, without recourse, unto the Trustee and unto its successors in
the trust forever, and grants to the Trustee and to its successors in the trust,
a security interest in all of the following:

All right, title and interest of the Company in and to all moneys and securities
from  time to time  held by the  Trustee  under  the  terms  of this  Indenture;
provided, however, that in consideration of the issuance by the Letter of Credit
Bank of the Letter of Credit,  the Company hereby grants a security  interest in
the Project Fund first,  to the Trustee in order to secure  payment of principal
of the Bonds  issued  hereunder  and the premium (if any) and interest due or to
become due thereon and the purchase price thereto,  and second, to the Letter of
Credit Bank in order to secure  payment of the  obligations of the Company under
the  Reimbursement  Agreement,  the rights of the Letter of Credit Bank  therein
being subject and subordinate to the rights of the Trustee so long as any amount
due in respect of the Bonds remains unpaid.

TO HAVE AND TO HOLD all and singular the Trust  Estate with all  privileges  and
appurtenances  hereby  conveyed and assigned,  or agreed or intended so to be to
the Trustee and its successors in trust forever.

IN TRUST NEVERTHELESS, under and subject to the terms and conditions hereinafter
set forth,  (a) for the equal benefit,  protection and security of the Owners of
any and all of the Bonds,  all of which regardless of the time or times of their
issuance or maturity  shall be of equal rank,  without  preference,  priority or
distinction  of any of the Bonds  over any other  thereto,  except as  otherwise
provided in or pursuant to this  Indenture,  (b) for securing the observance and
performance of the Company's  obligations  and of all others of the  conditions,
promises,  stipulations,  agreements  and terms and provisions of this Indenture
and the uses and purposes herein expressed and declared, and (c) for the benefit
of the Letter of Credit Bank, on a basis subject and subordinate to the interest
granted to the Trustee to secure  payment of  principal of the Bonds and premium
(if any) and  interest  due or to become  due  thereon  and the  purchase  price
thereof.

PROVIDED,  HOWEVER,  that if the Company,  its  successors or assigns,  well and
truly pays, or causes to be paid,  the  principal of the Bonds issued  hereunder
and the  premium (if any) and  interest  due or to become due  thereon,  and the
purchase  price thereto,  at the times and in the manner  mentioned in the Bonds
and as provided herein,  according to the true intent and meaning  thereof,  and
shall cause the payments to be made into the Bond Fund as required under Article
VI hereto,  or shall  provide,  as permitted  hereby,  for payment  thereto,  in
accordance  with Article XI hereto,  and shall well and truly keep,  perform and
observe  all of the  covenants  and  conditions  pursuant  to the  terms of this
Indenture and all other of the Company's  obligations to be kept,  performed and
observed  by it,  and shall pay or cause to be paid to the  Trustee  all sums of
money due or to become due in accordance  with the terms and provisions  hereof,
then upon such final payments or deposits as provided in Article XI hereto,  the
right, title and interest of the Trustee in and to the Trust Estate shall cease,
terminate and be void, and the Trustee shall  thereupon  assign,  transfer,  and
turn over the Trust Estate to the Letter of Credit Bank;  provided,  that if the
Trustee shall have received written evidence from the Letter of Credit Bank that
all  obligations  of the Company  under the  Reimbursement  Agreement  have been
satisfied and that the  Reimbursement  Agreement has been  terminated,  or if no
Letter of Credit  Bank shall then exist,  the Trust  Estate  shall be  assigned,
transferred  and turned over to the Company;  and the Trustee  shall execute and
deliver to the  Letter of Credit  Bank and the  Company,  as  appropriate,  such
instruments  in writing as shall be requisite to evidence  such  transfer of the
Trust  Estate Upon the  Trustee's  assignment,  transfer and turning over to the
Letter  of Credit  Bank or the  Company,  as  appropriate,  of the Trust  Estate
pursuant  to the  provisions  of Article XI hereto,  the  Trustee  shall have no
further  duties,  responsibilities  or  obligations  under and  pursuant to this
Indenture.

AND IT IS EXPRESSLY  DECLARED that all Bonds issued and secured hereunder are to
be  issued,  authenticated  and  delivered  and all of the Trust  Estate  hereby
pledged  is to be dealt  with and  disposed  of under,  upon and  subject to the
terms,  conditions,  stipulations,   covenants,  agreements,  trusts,  uses  and
purposes  hereinafter  expressed,  and the Company has agreed and covenanted and
intending to be legally  bound does hereby  agree and covenant  with the Trustee
and with the  respective  Owners  from  time to time of the  Bonds,  or any part
thereof as follows:

      ARTICLE I

      DEFINITIONS: CONTENT OF CERTIFICATES AND OPINIONS

SECTION 1.01.  Definitions.  Unless the context  otherwise  requires,  the terms
defined in this Section  shall,  for all purposes of the recitals  hereto,  this
Indenture  and of any  indenture  supplemental  hereto  and of any  certificate,
opinion or other document herein mentioned,  have the meanings herein specified,
to be equally  applicable  to both the  singular  and plural forms of any of the
terms herein defined. Unless otherwise defined in this Indenture, all terms used
herein shall have the meanings assigned to such terms in the Act.

"Accountant" means any firm of independent  certified public accountants (not an
individual) selected by the Company and acceptable to the Letter of Credit Bank.

"Administrative  Expenses"  means those  expenses of the Bank which are properly
chargeable  to the  Company on account  of the Bonds and the Bond  Documents  as
administrative  expenses  under  Generally  Accepted  Accounting  Principles and
include,  without limiting the generality of the foregoing,  the following:  (a)
fees and expenses of the Trustee,  the Tender  Agent,  the Letter of Credit Bank
and the Placement Agent; and (b) reasonable fees and expenses of the Bank's, the
Trustee's,  the Tender Agent's and the Placement Agent's  professional  advisors
reasonably   necessary  and  fairly  attributable  to  the  Project  Facilities,
including without limiting the generality of the foregoing,  reasonable fees and
expenses of the Trustee's, the Bank's and the Placement Agent's counsel.

"Authorized Newspaper" shall mean a newspaper printed in English and customarily
published at least once a day, five days a week and generally  circulated in the
County.  When successive  publications in an Authorized  Newspaper are required,
they may be made in the same or different Authorized Newspaper

"Authorized  Representative"  means with respect to the Company,  the President,
Vice President,  Secretary,  Assistant  Secretary or Treasurer  thereto,  or any
other person  designated  as an  Authorized  Representative  of the Company by a
Certificate of the Company signed by the President,  Vice President,  Secretary,
Assistant Secretary or Treasurer of the Company and filed with the Trustee.

"Available  Moneys" means (i) moneys  derived from drawings  under the Letter of
Credit, (ii) moneys held by the Trustee in funds and accounts  established under
this Indenture for a period of at least three hundred sixty-seven (367) days and
not commingled with any moneys so held for less than said three hundred sixty-



seven  (367) day period and during and prior to which  period,  no  petition  in
bankruptcy was filed by or against the Company under the Bankruptcy  Code or any
applicable  state  bankruptcy  or  insolvency  law,  unless  such  petition  was
dismissed  and all  applicable  appeal  periods have  expired  without an appeal
having been filed, (iii) investment income derived from the investment of moneys
described in clauses (i) or (ii) above, or (iv) any other moneys, if the Trustee
and the Letter of Credit Bank have received an opinion of nationally  recognized
counsel  acceptable to Moody's  experienced in bankruptcy  matters to the effect
that payment of the principal or purchase price of or interest on the Bonds with
such moneys would not, in the event of bankruptcy of the Company,  any affiliate
of the  Company  or other  payor,  constitute  a voidable  preference  under the
Bankruptcy Code or any applicable state bankruptcy or insolvency law.

"Bank" shall have the meaning set forth in the Recitals.

"Bankruptcy Code" means the Federal Bankruptcy Code, 11 U.S.C.
ss.101 et seq., as amended and supplemented from time to time.

"Bond Documents" means any or all of this Indenture, the Tender Agent Agreement,
the  Remarketing  Agreement  and all  documents,  certificates  and  instruments
executed in connection therewith.

"Bond Fund" means the fund created in Section 6.01 hereof.

"Bond Registrar" means any bank,  national banking  association or trust company
designated as registrar for the Bonds,  and its  successor  appointed  under the
Indenture.

"Bonds" shall have the meaning set forth in the Recitals.

"Business  Day" means a day which is not a Saturday,  Sunday or legal holiday on
which banking  institutions  in the State of New York, the City of New York, the
City of  Philadelphia,  City of Harrisburg,  or the Commonwealth of Pennsylvania
are  authorized  to remain  closed or on which the New York  Stock  Exchange  is
closed.

"Certificate,"  "Statement,"  "Request,"  "Requisition"  and "Order"  means with
respect to the Company, a written certificate,  statement,  request, requisition
or order  signed  by its  Authorized  Representative.  Any such  instrument  and
supporting opinions or  representations,  if any, may, but need not, be combined
in a single instrument with any other instrument, opinion or representation, and
the two or more so combined shall be read and construed as a single  instrument.
If and to the extent required by Section 1.02 hereof, each such instrument shall
include the statements provided for, in, such Section 1.02.




"Certified  Resolution  of the Company"  means a copy of the  resolution  of the
Company  duly  adopted  and in  full  force  and  effect  as of the  date of the
execution and delivery of the Bonds and the Letter of Credit.

"Clearing Fund" means the fund established by that name pursuant to Section 3.03
hereof.

"Closing Date" April 29, 1998, or such other date which shall be the date of the
execution  and delivery of the Bond  Documents  and the issuance and delivery of
the Bonds.

      "Conversion Date" means the Optional conversion date.

"Conversion  Option"  means the option  granted to the  Company in Section  5.01
hereof  pursuant to which the interest  rate on the Bonds is converted  from the
Floating Rate to the Fixed Rate as of the Optional Conversion Date.

"Cost" or "Costs," means any cost in respect of the Project Facilities permitted
under the Code.

"Counsel" means an attorney-at-law or law firm (who may be
counsel for the Company) not unsatisfactory to the Trustee.

"Demand Purchase  Notice" means a notice delivered  pursuant to paragraph (i) of
Section 5.05 hereof.

"Demand  Purchase Option" means the option granted to Owners of Bonds to require
that Bonds be purchased  prior to the  Conversion  Date pursuant to Section 5.05
hereof.

"Determination  Date"  means  with  respect to any  Floating  Rate  Bonds,  each
Wednesday  or if such  Wednesday is not a Business  Day, on the next  succeeding
Business Day.

"Event of Default" means any of the events specified in Section
8.01 of this Indenture.

"Fiscal  Year"  means the period of twelve  (12)  consecutive  months  beginning
January 1 of each  year,  or such  other  period of  twelve  consecutive  months
established by the Company as its new Fiscal Year.

"Fixed Rate" means the  interest  rate in effect on any Bonds from and after the
Conversion  Date, as said rate is determined in accordance  with Section 2.02(d)
hereof.

"Fixed Rate Bonds"  means any Bonds which shall be  converted to a Fixed Rate in
accordance with the provisions of this Indenture.

"Fixed Rate  Period"  means,  with respect to any Bonds,  a period  during which
interest on such Bonds accrues at a Fixed Rate.

"Floating  Rate" means a variable rate of interest  equal to the minimum rate of
interest  necessary,  in the sole judgment of the Remarketing Agent, to sell the
Bonds at a price equal to the  principal  amount  thereto,  exclusive of accrued
interest,  if any, thereon, said interest rate to be in effect on the Bonds from
the date of issuance of the Bonds until (but not including) the Conversion Date,
as said rate is determined in accordance with Section 2.02(c) hereof.

"Floating Rate Bonds" means any Bonds which bear interest at the Floating Rate.

"Generally  Accepted  Accounting  Principles" means those accounting  principles
applicable in the preparation of financial  statements of business  institutions
as promulgated by the Financial  Accounting  Standards  Board or such other body
recognized  as  authoritative  by the American  Institute  of  Certified  Public
Accountants or any successor body.

"Government  Obligations"  means direct  obligations  of (including  obligations
issued or held in book entry form), or obligations the principal of and interest
on which are  unconditionally  guaranteed  as to full and timely  payment by the
United States of America.

"Holder," "Owner" or "Bondholders"  whenever used herein with respect to a Bond,
means the person in whose name such Bond is registered on the registration books
maintained by the Trustee.

"Indenture" means this Indenture,  as originally executed or as it may from time
to time be supplemented, modified or amended by any Supplemental Indenture.

"Interest Payment Date" means, (i) prior to the Conversion Date, the first (1st)
Wednesday of each  calendar  month,  or if such date is not a Business  Day, the
next succeeding Business Day, commencing June 3, 1998; (ii) the Conversion Date;
and (iii) from and after the Conversion Date, May 1 and November 1 of each year,
commencing on May 1 or November 1 next following the Conversion Date.

"Investment  Securities"  means any of the following which at the time are legal
investments  under the laws of the  State for  moneys  held  hereunder  and then
proposed to be invested therein:

(i)   Government Obligations;
(ii) bonds,  debentures,  notes or other evidences of indebtedness issued by any
agency or other governmental body of the United States, provided,  however, that
the full and timely  payment  of the  securities  issued by each such  agency or
government  sponsored  agency is  secured  by the full  faith and  credit of the
United States;

(iii)  certificates  of deposit of, or time deposits in, any bank (including the
Trustee) or savings and loan association  having securities rated at the time of
purchase in one of the three highest rating categories of Moody's or S&P;

(iv)  certificates  which evidence  ownership of the right to the payment of the
principal  of and interest on  obligations  described in clauses (i) and (ii) of
this  definition,  provided that such  obligations  are held in the custody of a
bank or trust company  acceptable to the Trustee in a special  account  separate
from the general assets of such custodian,

(v)  obligations  which  are  rated  at the time of  purchase  in one of the two
highest rating categories of Moody's and the interest on which is not includable
in gross income for federal  income tax  purposes and the timely  payment of the
principal of and interest on which is fully provided for by the deposit in trust
or  escrow  of cash or  obligations  described  in  clauses  (i) or (ii) of this
definition;

(vi) guaranteed investment contracts or other similar financial instruments with
a commercial bank,  insurance company or other financial  institution whose long
term debt  obligations are rated in one of the two highest rating  categories by
Moody's;

(vii) any  investment  approved in writing by the Bank and with respect to which
the Rating Agency has provided a certificate to the effect that such  investment
will not affect the rating on the Bonds;

(viii) repurchase agreements issued by financial institutions (i) insured by the
Federal Deposit  Insurance  Corporation or (ii) whose senior debt obligations at
the time of purchase are rated in any of the three highest rating  categories by
Moody's;  provided, such repurchase agreements are subject to perfected security
interests in the  Investment  Securities of the kind specified in paragraphs (i)
or (ii) above;  and  provided  further (1) the  Trustee  has  possession  of the
collateral,  (2) the  Trustee  has a perfected  first  security  interest in the
Collateral,  (3) the Collateral is free and clear of any  third-party  liens and
(4) failure to maintain the  requisite  collateral  percentage  will require the
Trustee to liquidate the Collateral, and



(ix) money  market  mutual  funds  investing  in  Government  Obligations  or in
repurchase  agreements  backed by Government  Obligations and rated in either of
the two highest  rating  categories  by  Standard & Poors or Moody's,  including
mutual funds for which the Trustee or any of its affiliates  provide  investment
advisory,  custodial,  transfer agency,  shareholder servicing or other services
and are separately and additionally compensated therefor, and

(x) any other  security or  obligation,  provided  that the Bank consents to the
investment  of  funds in such  security  or  obligation  and the  Rating  Agency
provides a  certificate  to the effect that the  investment  in such security or
obligation will not affect the rating on the Bonds.

"Issue Date" means the date on which the Trustee  authenticates the Bonds and on
which the Bonds are delivered to the purchasers thereof upon original issuance.

"Letter of Credit" means the  Irrevocable  Direct Pay Letter of Credit issued by
the Bank pursuant to the provisions of the Reimbursement  Agreement,  or, in the
event of delivery of a Substitute  Letter of Credit,  such Substitute  Letter of
Credit.

"Letter of Credit Bank" means the Bank, as issuer of the Letter of Credit and to
the extent applicable, the issuer of any Substitute Letter of Credit.

"Letter of Credit  Termination Date" means the later of (i) that date upon which
the Letter of Credit shall expire or  terminate  pursuant to its terms,  or (ii)
that date to which the  expiration or termination of the Letter of Credit may be
extended,  from time to time,  either by  extension  or renewal of the  existing
Letter of Credit or the issuance of a Substitute Letter of Credit.

"Moody's" means Moody's Investors Service, a corporation  organized and existing
under the laws of the State of Delaware,  its successors and their assigns,  or,
if such corporation  shall be dissolved or liquidated or shall no longer perform
the functions of a securities  rating agency,  any other  nationally  recognized
securities rating agency designated by the Company.

"Net  Proceeds"  when  used  with  respect  to  any  insurance  proceeds  or any
condemnation  award,  means the amount  remaining  after  deducting all expenses
(including attorneys' fees and disbursements) incurred in the collection of such
proceeds or award from the gross proceeds thereof

"Obligation  Termination  Date" means the date on which the Bank delivers to the
Trustee a certificate to the effect that all obligations owing to the Bank under
the  Reimbursement  Agreement  have been paid in full.  "Officers'  Certificate"
means,  with  respect  to  the  Company,  a  certificate  duly  executed  by its
Authorized Representative, under the seal of the Company.

"Opinion of Counsel" means a written  opinion of counsel (who may be counsel for
the Company)  selected by the Company and  acceptable to the Trustee.  If and to
the extent  required by the  provisions of Section 1.02 hereof,  each Opinion of
Counsel shall include in substance the  statements  provided for in such Section
1.02.

"Optional Conversion Date" means a date on or after June 3, 1998, which shall be
a Business Day, from and after which the interest rate on the Bonds is converted
from the  Floating  Rate to the Fixed  Rate as a result of the  exercise  by the
Company of the Conversion Option in accordance with the terms of this Indenture.

"Outstanding" when used as of any particular time with reference to Bonds, means
(subject to the provisions of Section 12.10) all Bonds theretofore, or thereupon
being,  authenticated and delivered by the Trustee under this Indenture,  except
(1) Bonds theretofore  canceled by the Trustee or surrendered to the Trustee for
cancellation; (2) Bonds with respect to which all liability of the Company shall
have been  discharged  in accordance  with Section  11.02,  including  Bonds (or
portions of Bonds) referred to in Section 12.10;  and (3) Bonds for the transfer
or exchange of or in lieu of or in substitution for which other Bonds shall have
been authenticated and delivered by the Trustee pursuant to this Indenture.

"Permitted  Encumbrances"  means any liens or  encumbrances  permitted under the
Reimbursement Agreement or otherwise permitted by the Bank.

"Person"  means an  individual,  corporation,  firm,  association,  partnership,
trust,  or other legal  entity or group of  entities,  including a  governmental
entity or any agency or political subdivision thereof

"Placement Agent" means CoreStates Securities, Corp.

"Pledge Agreement" means (i) the Pledge and Security Agreement dated as of April
29,  1998,  by and  between  the  Bank and the  Company  and any  amendments  or
supplements  thereof;  and (ii) the Pledge and  Security  Agreement  made by the
Company to any Substitute Bank and any amendments or supplements thereto.

"Pledged  Bonds"  means  any Bonds  which  shall,  at the time of  determination
thereof,  beheld in pledge  for the  benefit  of the Bank by the  Pledged  Bonds
Custodian pursuant to the Pledge Agreement.

"Pledged Bonds Custodian" means that banking corporation which
serves as the custodian for the Pledged Bonds under the terms and
conditions of the Reimbursement Agreement.  The initial Pledged
Bonds Custodian shall be the Trustee.

"Prime  Rate" shall mean the  fluctuating  interest  rate per annum equal to the
rate of interest publicly  announced from time to time by the Bank as its "prime
rate" or "prime lending rate" as a means of pricing some loans to its customers,
adjusted on and as of the  announced  effective  date of any change in the Prime
Rate.  The Prime Rate does not  necessarily  reflect the lowest rate of interest
actually  charged  to any  particular  class  or  category  of  customers  or in
connection with extensions of credit.

"Principal Corporate Trust Office" means the principal corporate trust office of
the Trustee,  which at the date of the  execution of the Indenture is located at
213 Market Street, Harrisburg, Pennsylvania 17101.

"Project" shall have the meaning set forth in the Recitals.

"Project Facilities" shall mean the real property,  improvements,  equipment and
machinery  purchased,  financed  or  refinanced,  in whole or in part,  with the
proceeds of the Bonds.

"Project Fund" means the fund established by that name pursuant
to Section 6.05 hereof

"Purchase Date" means the date determined pursuant to Section
5.06(b)(i) hereof

"Purchase  Price" means an amount equal to 100% of the  principal  amount of any
Bond tendered or deemed tendered pursuant to Sections 5.01, 5.04 or 5.05 hereof,
plus accrued and unpaid interest thereon to the date of purchase.

"Rating  Agency"  means Moody's when the Bonds are rated by Moody's and S&P when
the Bonds are rated by S&P.

"Rating  Category" means one of the general rating categories of Moody's or S&P,
without  regard to any  refinement  or  gradation  of such rating  category by a
numerical modifier or otherwise.

"Record Date" means, prior to the Conversion Date, that day which is the seventh
calendar day next preceding any Interest Payment Date and thereafter,  that date
which is the  fifteenth  day of the month next  preceding  any Interest  Payment
Date.

"Reimbursement  Agreement"  means the Letter of Credit  Reimbursement  Agreement
dated as of April 29, 1998 by and  between  the  Company  and the Bank,  and any
other  similar  agreement  entered into in  connection  with the issuance of any
Substitute  Letter  of  Credit  and  any  and  all  modifications,  alterations,
amendments and supplements thereto.

"Remarketing  Agent"  means  (singly  or  collectively,  as the case may be) the
remarketing agent(s) appointed in writing by the Company and at the time serving
as such under the Remarketing Agreement.

"Remarketing  Agreement" means the Remarketing Agreement,  dated as of April 29,
1998, by and between the Company and CoreStates  Securities,  Corp and any other
similar agreements between the Company and the Remarketing Agent and any and all
modifications, alterations, amendments and supplements thereto.

      "S&P" means Standard & Poor's Ratings Group, a division of the McGraw-Hill
Company,  Inc., a corporation organized and existing under the laws of the State
of Delaware,  its successors and their assigns, or, if such corporation shall be
dissolved or liquidated or shall no longer perform the functions of a securities
rating agency designated by the Company.

"Substitute  Bank" means a  commercial  bank,  savings and loan  association  or
savings bank which has issued a Substitute Letter of Credit.

"Substitute Letter of Credit" means an irrevocable,  direct pay letter of credit
delivered  to the Trustee in  accordance  with Section 6.13 hereof (i) issued by
the Bank or a Substitute  Bank,  (ii)  replacing any existing  Letter of Credit,
(iii) dated no later than the date of the expiration or replacement  date of the
Letter of  Credit  for which the same is to be  substituted,  (iv)  which  shall
expire on a date which is fifteen  (15) days after an Interest  Payment Date for
the Bonds,  (v)  having a term of at least one year and (vi) if issued  prior to
the Conversion Date,  issued on substantially  identical terms and conditions as
the then  existing  Letter  of  Credit  except  that the  stated  amount  of the
Substitute  Letter of Credit shall equal the sum of (A) the aggregate  principal
amount of Bonds at the time Outstanding,  plus (B) an amount equal to forty-five
(45) days  interest  (computed at a maximum rate of seventeen  percent (17%) per
annum on all Bonds at the time Outstanding).

"Supplemental  Indenture"  means any indenture  hereafter  duly  authorized  and
entered into between the Company and the  Trustee,  supplementing,  modifying or
amending this  Indenture,  but only if and to the extent that such  Supplemental
Indenture is specifically authorized hereunder.

"Tender  Agent"  means  the  Trustee  and its  successors  and  any  corporation
resulting  from or  surviving  any  consolidation  or  merger to which it or its
successors may be a party and any successor  Tender Agent at the time serving as
successor Tender Agent hereunder and under the Tender Agent Agreement. "Delivery
Office" and  "Principal  Office" of the Tender  Agent  means 213 Market  Street,
Harrisburg,  Pennsylvania  17101, or such other addresss as may be designated in
writing to the Company, the Trustee and the Remarketing Agent.

"Tender Agent  Agreement" means the Tender Agent Agreement dated as of April 29,
1998,  among the Company and the Trustee,  and any  amendments  and  supplements
thereto.

"Trust Estate" means all property rights and interests transferred, assigned, or
otherwise  pledged first to the Trustee and second, to the Letter of Credit Bank
pursuant to the Granting Clauses hereof

"Trustee"  means Dauphin  Deposit Bank and Trust Company,  and its successor and
any corporation resulting from or surviving any consolidation or merger to which
it or its  successors  may be a party  and any  successor  trustee  at the  time
serving as successor trustee hereunder.

"Unremarketed  Bonds" means Bonds which have been purchased  pursuant to Section
5.01, 5.04 or 5.05 hereof but which have not been remarketed.

"Weekly Period" shall mean,  while the Bonds bear interest at the Floating Rate,
the weekly  period that begins on and includes  Wednesday of each  calendar week
and ends at the close of business on Tuesday of the next succeeding week.

SECTION 1.02.  Content of Certificates and Opinions.  The Trustee may, but shall
not be obligated to, require that every  certificate or opinion  provided for in
this  Indenture  with  respect to  compliance  with any  provision  hereof shall
include  (1) a  statement  to the effect  that the Person  making or giving such
certificate  or  opinion  has read such  provision  and the  definitions  herein
relating  thereto,  (2) a brief  statement  as to the  nature  and  scope of the
examination or investigation upon which the certificate or opinion is based; (3)
a statement  to the effect that in the  opinion of such  person,  he has made or
caused to be made such  examination or  investigation  as is necessary to enable
him to express an informed  opinion with respect to the subject matter  referred
to in the  instrument to which his signature is affixed;  (4) a statement of the
assumptions  upon which  such  certificate  or  opinion is based,  and that such
assumptions are reasonable; and (5) a statement as to whether, in the opinion of
such person, such provision has been complied with.

Any such  certificate  or opinion made or given by an officer of the Company may
be  based,  insofar  as it  relates  to  legal  or  accounting  matters,  upon a
certificate or opinion of or representation by counsel or an accountant,  unless
such officer  knows,  or in the exercise of  reasonable  care should have known,
that the certificate, opinion or representation with respect to the matters upon
which such  certificate or statement may be based,  as aforesaid,  is erroneous.
Any such certificate or opinion made or given by counsel or an accountant may be
based,  insofar  as it  relates  to  factual  matters  (with  respect  to  which
information  is in the  possession of the Company) upon a certificate or opinion
of or  representation  by an  officer of the  Company,  unless  such  counsel or
accountant knows that the certificate or opinion or representation  with respect
to the matters upon which such person's certificate or opinion or representation
may be based, as aforesaid,  is erroneous.  The same officer of the Company,  or
the same counsel or  accountant,  as the case may be, need not certify to all of
the matters required to be certified under any provision of this Indenture,  but
different  officers,  counsel or accountants  may certify to different  matters,
respectively.

SECTION 1.03. 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 and the table of contents  hereof
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" and other  subdivisions are
to the corresponding Articles,  Sections or subdivisions of this Indenture,  the
words  "herein,"  "hereof,"  "hereby,"  "hereunder"  and other  words of similar
import  refer to this  Indenture as a whole and not to any  particular  Article,
Section or subdivision hereof.

(d)  Whenever in this  Indenture  it is required  that notice be provided to the
Bank or that consent of the Bank be obtained, such provisions shall be effective
only when (i) the  Letter  of  Credit  is in  effect  or (ii) the  Bank,  in its
capacity as provider of the Letter of Credit, is the Holder of any Bonds.

      ARTICLE II

      THE BONDS

SECTION 2.01.  Authorization  of Bonds.  The Bonds shall be issued  hereunder in
order to obtain  moneys to finance the  Project for the benefit of the  Company.
The Bonds shall be  comprised  of one series of bonds  designated  as  "Piercing
Pagoda,  Inc.,  Taxable Variable Rate Demand/Fixed Rate Bonds,  Series of 1998."
The  aggregate  principal  amount of Bonds  which may be issued and  Outstanding
under this  Indenture  shall not  exceed Two  Million  Five  Hundred  Sixty-Five
Thousand  Dollars  ($2,565,000).  No  additional  Bonds may be issued under this
Indenture.  This Indenture constitutes a continuing agreement by the Company for
the  benefit  of the  Holders  from time to time of the Bonds to secure the full
payment  of the  principal  of and  interest  on all such  Bonds  subject to the
covenants, provisions and conditions herein contained.

     SECTION 2.02. Terms of Bonds; Interest on the Bonds. (a) The Bonds shall be
issued in fully  registered  form.  Prior to the Conversion Date, (i) such Bonds
shall be Outstanding in  denominations  of $100,000 or any integral  multiple of
$5,000 in excess  thereof;  and (ii) such Bonds may not be issued,  exchanged or
transferred  except in the authorized  denominations of $100,000 or any integral
multiple of $5,000 in excess  thereof.  From and after the Conversion  Date, (i)
such Bonds  shall be  Outstanding  in  denominations  of $5,000 or any  integral
multiple  of  $5,000  and  (ii)  such  Bonds  may not be  issued,  exchanged  or
transferred  except in the  authorized  denominations  of $5,000 or any integral
multiple of $5,000 in excess thereof. The Bonds shall be dated as of the date of
delivery and shall  mature,  subject to prior  redemption,  as provided  herein.
Unless the Company shall  otherwise  direct,  prior to the  Conversion  Date the
Bonds shall be lettered "VR" and shall be numbered  consecutively  from 1 upward
and after the  Conversion  Date the Bonds  shall be  lettered  "FR" and shall be
numbered consecutively from 1 upward.

(b) Each of the Bonds  shall be dated the Issue  Date and shall  bear  interest,
payable  (i)  prior to the  Conversion  Date,  on the  first  Wednesday  of each
calendar  month,  or if such date is not a  Business  Day,  the next  succeeding
Business Day commencing  June 3, 1998,  (ii) on the  Conversion  Date; and (iii)
from and  after the  Conversion  Date,  on May 1 and  November  1 of each  year,
commencing on May 1 or November 1 next  following the  Conversion  Date, in each
case from the Interest  Payment Date next  preceding the date of  authentication
thereof to which interest has been paid or duly provided for, unless the date of
authentication  thereof is an Interest  Payment Date to which  interest has been
paid or duly  provided  for,  in which  case  from  the  date of  authentication
thereof,  or unless no interest has been paid or duly provided for on the Bonds,
in which case from the Issue Date,  until payment of the  principal  thereof has
been made or duly provided for.

Notwithstanding the foregoing,  any Bond authenticated after any Record Date and
before  the  following  Interest  Payment  Date shall  bear  interest  from such
Interest Payment Date, provided,  however,  that if the Company shall default in
the payment of interest from the next preceding  Interest  Payment Date to which
interest has been paid or duly provided for, or, if no interest has been paid or
duly provided for on the Bonds, from the Issue Date.

The Bonds shall mature on May 1, 2013 as provided in Section 4.01(d) herein.

(c) (i) From the  Issue  Date to the  Conversion  Date,  the  Bonds  shall  bear
interest at the Floating Rate.  The Floating Rate  applicable to the Bonds shall
be determined by the Remarketing Agent by 9.30 a. m. on each  Determination Date
and shall be effective on such Determination Date for the immediately  following
Weekly Period.

(ii) The  Remarketing  Agent  shall  advise  the  Trustee of the  Floating  Rate
applicable  to the Bonds by telephone  (confirmed by telecopy to the Trustee) at
or before the close of business on each Determination Date. Upon written request
of any  Bondholder,  the  Remarketing  Agent shall notify such Bondholder of the
Floating Rate then borne by the Bonds.

(iii) If for any reason the interest rate on a Bond for any Weekly Period is not
determined by the  Remarketing  Agent pursuant to (c)(i) above, or a court holds
that the Floating Rate, set as provided  pursuant to (c)(i) above, is invalid or
unenforceable,  the Floating  Rate for the Bonds shall be for (a) the first such
week that the  applicable  Floating Rate is not  determined  by the  Remarketing
Agent or has been determined invalid or unenforceable, a rate per annum equal to
the Floating Rate for the Bonds established by the Remarketing Agent pursuant to
(c)(i)  on  the  immediately  preceding  Determination  Date  and  (b)  on  each
Determination  Date  thereafter,  shall be a rate per annum equal to one hundred
twenty percent (120%) of the interest rate per annum for 30 day commercial paper
having a rating of  A-2/P-2  as  reported  in The Wall  Street  Journal  on each
Determination Date.

(iv) The  determination  of the Floating Rate by the Remarketing  Agent shall be
conclusive and binding upon the Company,  the Trustee, the Bank, the Remarketing
Agent, the Tender Agent and the Owners of the Bonds.

Anything herein to the contrary  notwithstanding,  the Floating Rate shall in no
event exceed seventeen percent (17%) per annum.

(d) The  Bonds  shall  bear  interest  at the  Fixed  Rate  from and  after  the
Conversion Date until the maturity of the Bonds. The Fixed Rate shall be a fixed
annual  interest  rate on the Bonds  such Fixed  Rate to be  established  by the
Remarketing  Agent as the rate of interest for which the  Remarketing  Agent has
received  commitments  from  purchasers  on or  prior  to the  fifth  (5th)  day
preceding  the  Conversion  Date to purchase  all the  Outstanding  Bonds on the
Conversion Date at a price of par.

(e) Prior to the Conversion Date, interest on the Bonds shall be computed on the
basis of a 365/366-day year, for the actual number of days elapsed. On and after
the Conversion  Date,  interest on the Bonds shall be computed on the basis of a
360-day year of twelve 30-day months.  The principal of and premium,  if any, on
the Bonds  shall be payable in lawful  money of the United  States of America at
the Principal  Corporate Trust Office of the Trustee.  The Purchase Price of the
Bonds  shall be payable in lawful  money of the United  States of America by the
Tender Agent to the Owner of Bonds entitled to receive such Purchase Price.

Interest  on the Bonds  shall be payable on each  Interest  Payment  Date to the
persons in whose name the Bonds are  registered  at the close of business on the
Record Date for the respective  Interest Payment Date. Interest shall be paid by
check  mailed to each Owner at the  addresses  shown on the  registration  books
maintained by the Trustee,  provided  that such  interest  shall be paid by wire
transfer to (i) the Bank and (ii) any Holder of at least $1,000,000 in aggregate
principal  amount of Bonds, if the Holder makes a written request to the Trustee
at least fifteen (15) days before a Record Date  specifying the account  address
(which  shall be an  account at a bank in the  continental  United  States)  and
wiring  instructions.  Such a request may provide  that it will remain in effect
for subsequent  interest  payments until changed or revoked by written notice to
the Trustee or upon the transfer or reregistration of the Bond.

The principal of the Bonds shall be payable in lawful money of the United States
of America at the Principal Corporate Trust Office of the Trustee. No payment of
principal  shall be made on any  Bond  until  such  Bond is  surrendered  to the
Trustee at its Principal Corporate Trust Office.

SECTION 2.03 Execution of Bonds.  The Bonds shall be executed in the name and on
behalf of the Company with the manual or facsimile  signature of its  President,
under  its seal  and  attested  by the  manual  or  facsimile  signature  of its
Secretary.  The seal of the Company  will be impressed or imprinted on the Bonds
by facsimile or otherwise.  The Bonds shall then be delivered to the Trustee for
authentication  by it.  In case any of the  officers  who shall  have  signed or
attested  any of the Bonds  shall  cease to be such  officer or  officers of the
Company before the Bonds so signed or attested shall have been  authenticated or
delivered by the Trustee or issued by the Company,  such Bonds may  nevertheless
be authenticated,  delivered and issued and, upon such authentication,  delivery
and issue,  shall be as binding  upon the Company as though those who signed and
attested the same had continued to be such officers of the Company.

SECTION 2.04  Authentication (a) The Company hereby appoints the Tender Agent as
a co-authenticating agent for the Bonds.

(b) No Bond shall be valid or  obligatory  for any  purpose or  entitled  to any
security  or benefit  under this  Indenture  unless and until a  certificate  of
authentication on such Bond, substantially in the form set forth in Exhibit A or
B attached hereto, shall have been duly executed by the Trustee or by the Tender
Agent and such executed  certificate of authentication  upon any such Bond shall
be conclusive evidence that such Bond has been authenticated and delivered under
this Indenture. The certificate of authentication on any Bond shall be deemed to
have been executed by the Trustee or the Tender Agent if signed by an authorized
signatory of the Trustee or the Tender  Agent,  as the case may be, but it shall
not  be  necessary   that  the  same  signatory   execute  the   certificate  of
authentication on all of the Bonds.

(c) In the event the Bond is deemed  tendered to the Tender Agent as provided in
Section 5.01, 5.04 or 5.05 hereof but is not physically  delivered to the Tender
Agent,  the Company  shall  execute  and the  Trustee or the Tender  Agent shall
authenticate a new Bond of like denomination as that deemed tendered.

SECTION  2.05.  Form of Bonds.  The Floating Rate Bonds and the  certificate  of
authentication  to be endorsed  thereon prior to the  Conversion  Date are to be
substantially  in the  form  set  forth  in  Exhibit  A  attached  hereto,  with
appropriate  variations,  omissions  and  insertions as permitted or required by
this Indenture and applicable  law. The Fixed Rate Bonds and the  certificate of
authentication  to be endorsed thereon are to be in  substantially  the form set
forth in Exhibit B attached hereto, with appropriate  variations,  omissions and
insertions as permitted or required by this Indenture and applicable law.

SECTION 2.06.  Transfer of Bonds. Any Bond may be transferred in accordance with
its terms upon the books  required  to be kept  pursuant  to the  provisions  of
Section  2.08  hereof.  Such  transfer  shall be made,  in  accordance  with the
requirements  of  Section  2.02  hereof,  by the  person  in  whose  name  it is
registered, in person or by his duly authorized attorney, upon surrender of such
registered  Bond  for  cancellation,   accompanied  by  delivery  of  a  written
instrument of transfer duly executed in a form approved by the Trustee.

Whenever any Bond or Bonds shall be surrendered for transfer,  the Company shall
execute  and the  Trustee  or the  Tender  Agent,  as the  case  may  be,  shall
authenticate  and  deliver  a new Bond or Bonds for a like  aggregate  principal
amount. The Trustee shall require the Bondholder requesting such transfer to pay
any tax or other  governmental  charge  required to be paid with respect to such
transfer,  and may in addition  require the payment of a reasonable sum to cover
expenses  incurred  by the  Company  or the  Trustee  in  connection  with  such
transfer.  No transfer of any Bond shall be valid unless made in accordance with
such requirements and similarly noted by endorsement of the Trustee on such Bond
or unless, at the expense of the registered owner of the Bond, the Company shall
execute,  and the Trustee shall  authenticate a new Bond or Bonds  registered in
the name of the transferee.

     The Trustee  shall not be  required to transfer  any Bond during the period
beginning  fifteen (15) days before the mailing of notice of redemption  calling
the Bond or any portion of the Bond for  redemption and ending on the redemption
date.

SECTION  2.07.  Exchange  of Bonds.  Bonds  may be  exchanged  at the  Principal
Corporate Trust Office of the Trustee for a like aggregate  principal  amount of
Bonds of other  authorized  denominations in accordance with the requirements of
Section 2.02 hereof.  The Trustee shall require the Bondholder  requesting  such
exchange to pay any tax or other  governmental  charge  required to be paid with
respect  to  such  exchange,  and  may in  addition  require  the  payment  of a
reasonable  sum to cover  expenses  incurred  by the  Company or the  Trustee in
connection with such exchange.

     The Trustee  shall not be  required to exchange  any Bond during the period
beginning  fifteen (15) days before the mailing of notice of redemption  calling
the Bonds or any portion of the Bond for redemption and ending on the redemption
date.

     SECTION  2.08.  Bond  Registrar.  The Trustee is hereby  appointed the Bond
Registrar  of the Company and the Tender Agent is hereby  appointed  the Co-Bond
Registrar of the Company.  The Trustee or the Tender Agent,  as the case may be,
will keep or cause to be kept sufficient books for the registration and transfer
of the Bonds,  which  shall at all times be open to  inspection  during  regular
business  hours by any Bondholder or his agent duly  authorized in writing,  the
Company,  the Bank and the Remarketing  Agent;  and, upon  presentation for such
purpose,  the Trustee or the Tender Agent, as the case may be, shall, under such
reasonable  regulations  as they  or the  Company  may  prescribe,  register  or
transfer or cause to be  registered  or  transferred,  on such  books,  Bonds as
hereinbefore provided.

     SECTION 2.09.  Temporary  Bonds.  The Bonds may be issued in temporary form
exchangeable  for definitive  Bonds when ready for delivery.  Any temporary Bond
may be printed,  lithographed or typewritten,  shall be of such  denomination as
may be  determined  by the Company,  shall be in fully  registered  form without
coupons  and  may  contain  such  reference  to any of the  provisions  of  this
Indenture as may be  appropriate.  Every temporary Bond shall be executed by the
Company and be authenticated by the Trustee or Tender Agent, as the case may be,
upon the same conditions and in substantially  the same manner as the definitive
Bonds.  If the  Company  issues  temporary  Bonds it will  execute  and  deliver
definitive  Bonds as promptly  thereafter  as  practicable,  and  thereupon  the
temporary Bonds may be surrendered for cancellation, in exchange therefor at the
Principal  Corporate  Trust  Office of the Trustee and the Trustee or the Tender
Agent, as the case may be, shall  authenticate  and deliver in exchange for such
temporary  Bonds an equal  aggregate  principal  amount of  definitive  Bonds of
authorized  denominations.  Until so  exchanged,  the  temporary  Bonds shall be
entitled  to  the  same  benefits  under  this  Indenture  as  definitive  Bonds
authenticated and delivered hereunder.
     SECTION 2.10. Bond Mutilated,  Lost, Destroyed or Stolen. If any Bond shall
become mutilated,  the Company, at the expense of the Holder of said Bond, shall
execute and the Trustee shall thereupon  authenticate and deliver, a new Bond of
like tenor and number in exchange and  substitution  for the Bond so  mutilated,
but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated
Bond so  surrendered to the Trustee shall be canceled by it and delivered to, or
upon the order of, the Company. If any Bond shall be lost,  destroyed or stolen,
evidence of such loss,  destruction or theft may be submitted to the Company and
the  Trustee  and,  if such  evidence  be  satisfactory  to both  and  indemnity
satisfactory  to them both shall be given,  the  Company,  at the expense of the
Holder, shall execute, and the Trustee shall thereupon authenticate and deliver,
a new Bond of like tenor and number in lieu of and in substitution  for the Bond
so lost, destroyed or stolen (or if any such Bond shall have matured or shall be
about to mature  instead of issuing a substitute  Bond,  the Trustee may pay the
same without surrender  thereof).  The Company may require payment by the Holder
of a sum not exceeding  the actual cost of preparing  each new Bond issued under
this  Section and of the  expenses  which may be incurred by the Company and the
Trustee in connection  therewith.  Any Bond issued under the  provisions of this
Section  in lieu of any Bond  alleged  to be lost,  destroyed  or  stolen  shall
constitute  an original  additional  contractual  obligation  on the part of the
Company whether or not the Bond so alleged to be lost, destroyed or stolen be at
any time  enforceable  by anyone,  and shall be entitled to the benefits of this
Indenture with all other Bonds secured by this Indenture.

SECTION 2.11.  Cancellation  and  Destruction  of Surrendered  Bonds.  All Bonds
surrendered  for  payment or  redemption  and all Bonds  purchased  with  moneys
available for that purpose in any funds established under this Indenture, shall,
at the time of such  payment or  redemption,  be canceled  and  destroyed by the
Trustee.  The Trustee shall deliver to the Company  certificates  of destruction
with respect to all Bonds destroyed in accordance with this Section.

SECTION 2.12. Acts of Bondholders; Evidence of Ownership. Any action to be taken
by Bondholders may be evidenced by one or more concurrent written instruments of
similar  tenor  signed or  executed by such  Bondholders  in person or by agents
appointed  in writing.  The fact and date of the  execution by any person of any
such instrument may be proved by acknowledgment  before a notary public or other
officer  empowered to take  acknowledgements  or by an affidavit of a witness to
such  execution.  Any  action by the  Holder of any Bond  shall  bind all future
Holders of the same Bond in respect of any thing done or suffered by the Company
or the Trustee in pursuance thereof.

SECTION  2.13   Book-Entry-Only   System.  (a)   Notwithstanding  the  foregoing
provisions  of this Article II, the Bonds shall  initially be issued in the form
of one fully registered Bond for the aggregate  principal amount of the Bonds of
each  maturity,  which Bonds shall be  registered  in the name of CEDE & Co., as
nominee of The Depository Trust Company ("DTC"). Except as provided in paragraph
(g) below, all of the Bonds shall be registered in the  registration  books kept
by the  Trustee in the name of CEDE & Co., as nominee of DTC,  provided  that if
DTC  shall  request  that the  Bonds be  registered  in the name of a  different
nominee, the Trustee shall exchange all or any portion of the Bonds for an equal
aggregate  principal  amount of Bonds  registered in the name of such nominee or
nominees  of DTC. No person  other than DTC or its nominee  shall be entitled to
receive from the Company or the Trustee  either a Bond or any other  evidence of
ownership of the Bonds,  or any right to receive any payment in respect  thereof
unless DTC or its nominee shall transfer record  ownership of all or any portion
of the Bonds on the registration books maintained by the Trustee,  in connection
with  discontinuing  the book entry system as provided in paragraph (g) below or
otherwise.

(b) So long as the Bonds or any portion  thereof are  registered  in the name of
DTC or its nominee,  the principal or  redemption  price of and interest on such
Bond shall be made to DTC or its nominee in same day funds on the dates provided
for such payments under this Indenture.  Each such payment to DTC or its nominee
shall be valid and effective to discharge  fully all liability of the Company or
the Trustee with respect to the principal or redemption  price of or interest on
the  Bonds  to the  extent  of the sum or  sums so  paid.  In the  event  of the
redemption  of less  than all of the  Bonds  Outstanding  of any  maturity,  the
Trustee  shall  not  require  surrender  by DTC or its  nominee  of the Bonds so
redeemed, but DTC (or its nominee) may retain such Bonds and make an appropriate
notation on the Bonds  certificate as to the amount of such partial  redemption;
provided  that DTC  shall  deliver  to the  Trustee,  in each  case,  a  written
confirmation of such partial redemption and thereafter the records maintained by
the Trustee  shall be  conclusive as to the amount of the Bonds of such maturity
which have been redeemed.

(c) The Company and the Trustee shall treat DTC (or its nominee) as the sole and
exclusive Owner of the Bonds  registered in its name for the purposes of payment
of the principal or redemption price of or interest on the Bonds,  selecting the
Bonds or  portions  thereof  to be  redeemed,  giving any  notice  permitted  or
required to be given to Owners of Bonds under this  Indenture,  registering  the
transfer of Bonds,  obtaining  any consent or other action to be taken by Owners
of Bonds and for all other purposes whatsoever;  and neither the Company nor the
Trustee shall be affected by any notice to the contrary. Neither the Company nor
the Trustee shall have any  responsibility  or obligation to any  participant in
DTC, any person claiming a beneficial  ownership  interest in the Bonds under or
through DTC or any such  participant,  or any other person which is not shown on
the registration  books of the Trustee as being an owner of Bonds,  with respect
to either (1) the Bonds; or (2) the accuracy of any records maintained by DTC or
any such participants;  or (3) the payment by DTC or any such participant of any
amount in respect of the  principal  or  redemption  price of or interest on the
Bonds; or (4) any notice which is permitted or required to be given to Owners of
Bonds under this Indenture;  or (5) the selection by DTC or any such participant
of any person to receive  payment  in the event of a partial  redemption  of the
Bonds;  or (6) any  consent  given or other  action  taken by DTC as an Owner of
Bonds.

(d) So long as the Bonds or any portion  thereof are  registered  in the name of
DTC or any nominee thereof, all notices required or permitted to be given to the
Owners of Bonds  under this  Indenture  shall be given to DTC as provided in the
Letter of Representation, the form of which is attached hereto as Exhibit D.

(e) In  connection  with any notice or other  communication  to be  provided  to
Owners of Bonds  pursuant to this  Indenture  by the Company or the Trustee with
respect to any consent or other action to be taken by Owners of Bonds, DTC shall
consider the date of receipt of notice  requesting  such consent or other action
as the Record Date for such consent or other  action,  provided that the Company
or the Trustee may  establish  a special  Record Date for such  consent or other
action.  The Company or the Trustee shall give DTC notice of such special Record
Date not less than fifteen (15) calendar days in advance of such special  Record
Date to the extent possible.

(f) At or prior to settlement  for the Bonds,  the Company and the Trustee shall
execute  or  signify  their  approval  of  the  Letter  of   Representation   in
substantially  the form  attached  hereto as  Exhibit D. Any  successor  Trustee
shall, in its written  acceptance of its duties under this  Indenture,  agree to
take any actions  necessary from time to time to comply with the requirements of
the Letter of Representation.

(g) The  book-entry-only  system for  registration of the ownership of the Bonds
may be discontinued  at any time if either;  (1) after notice to the Company and
the Trustee, DTC determines to resign as securities depository for the Bonds, or
(2)  after  notice  to  DTC  and  the  Trustee,   the  Company  determines  that
continuation of the system of book-entry-only  transfers through DTC (or through
a successor  securities  depository) is not in the best interest of the Company.
In either of such  events,  unless the Company  appoints a successor  securities
depository,  the Bonds shall be delivered in registered certificate form to such
persons,  and in such maturities and principal amounts,  as may be designated in
writing by DTC,  but  without  any  liability  on the part of the Company or the
Trustee for the accuracy of such designation.  Whenever DTC requests the Company
and the Trustee to do so, the Company and the Trustee shall  cooperate  with DTC
in taking  appropriate  action after  reasonable  written  notice to arrange for
another securities depository to maintain custody of certificates evidencing the
Bonds.

      ARTICLE III

      ISSUANCE OF BONDS; APPLICATION OF PROCEEDS

SECTION  3.01  Issuance of the Bonds.  At any time after the  execution  of this
Indenture,  the Company may execute and the Trustee or the Tender Agent,  as the
case may be, shall  authenticate  and, upon request of the Company,  deliver the
Bonds in the aggregate  principal amount of Two Million Five Hundred  Sixty-Five
Thousand Dollars ($2,565,000).

SECTION  3.02.  Validity of Bonds.  The recital  contained in the Bonds that the
same are issued  pursuant  to the  Constitution  and laws of the State  shall be
conclusive  evidence of their validity and of compliance  with all provisions of
law in their issuance.

SECTION  3.03.  Disposition  of  Proceeds  of the Bonds and Other  Amounts.  The
Company  shall  deposit or cause to be deposited  with the Trustee,  immediately
upon  receipt  thereof,  all proceeds  derived  from the sale of the Bonds.  The
Trustee  shall  deposit all such  amounts in a special fund which the Trustee is
hereby  directed to  establish,  to be known as the  Clearing  Fund,  and in the
following order, the Trustee shall:

(a) Transfer to the Company,  upon receipt of a duly executed requisition in the
form attached hereto as Exhibit C, funds sufficient to reimburse the Company for
costs of the Project incurred and paid prior to the Closing Date;

(b) Transfer to the Persons identified on the Closing Statement delivered to the
Trustee on the  Closing  Date to pay or reserve for payment any and all costs of
issuance incurred in connection with the Bonds; and

(c) Transfer to the credit of the Project Fund the balance of the Clearing  Fund
not otherwise  reserved for payment of the items described in Subsection 3.03(a)
and (b) above.

      ARTICLE IV

      REDEMPTION AND PURCHASE OF BONDS BEFORE MATURITY

SECTION  4.01.  (a)  Extraordinary  Redemption.   The  Bonds  are  callable  for
redemption in the event the Project Facilities or any portion thereof is damaged
or destroyed or taken in a  condemnation  proceeding  as provided in Article XII
hereof.  If called for redemption at any time pursuant to this Section  4.01(a),
the Bonds shall be subject to redemption by the Company on any Interest  Payment
Date, in whole or in part, at a redemption  price equal to 100% of the principal
amount thereof being  redeemed,  plus accrued  interest to the redemption  date,
from the  proceeds of any  casualty  insurance  coverage or  condemnation  award
resulting  from the  damage or  destruction  of the  Project  Facilities  or any
portion thereof if the Company in its discretion so elects.

(b) The Bonds will be redeemable  in whole on any Interest  Payment Date at 100%
of the principal  amount thereof plus accrued  interest to the  redemption  date
upon the exercise by the Company of its option to cause the Bonds to be redeemed
if any of the following events shall have occurred:

(1) the Project  Facilities  or any portion  thereof  shall have been damaged or
destroyed  (A) to such  extent  that it  cannot  in the  Company's  judgment  be
reasonably  restored within a period of six (6) months to the condition  thereof
immediately  preceding such damage or destruction or (B) to such extent that the
Company is thereby  prevented,  in its  judgment,  from  carrying  on the normal
operations at the Project Facilities for a period of six (6) months or more;

(2) title to, or the  temporary  use for a period of six (6)  months or more of,
all or  substantially  all of the Project  Facilities,  or such part  thereof as
shall  materially  interfere,  in the Company's  reasonable  judgment,  with the
operation of the Project  Facilities  for the purpose for which the operation of
the Project Facilities are designed, shall have been taken under the exercise of
the power of eminent domain by any governmental  body or by any person,  firm or
corporation  acting under  governmental  authority  (including  such a taking or
takings as results in the Company being thereby  prevented  from carrying on its
normal  operations at the Project  Facilities  for a period of six (6) months or
more);

(3)  changes  which the  Company  cannot  reasonably  control or overcome in the
economic  availability  of  materials,  supplies,  labor,  equipment  and  other
properties  and things  necessary  for the  efficient  operation  of the Project
Facilities for the purpose contemplated shall have occurred, or technological or
other changes shall have  occurred  which in the judgment of the Company  render
the  continued  operation  of  the  Project  Facilities  uneconomical  for  such
purposes; or

(4) as a result  of any  changes  in the  Constitution  of the  Commonwealth  of
Pennsylvania  or  the  Constitution  of  the  United  States  of  America  or of
legislative  or  administrative  action  (whether  state or federal) or by final
decree,  judgment or order of any court or administrative body (whether state or
federal)  entered  after the  contest  thereof  by the  Company  in good  faith,
unreasonable  burdens or  excessive  liabilities  shall have been imposed on the
Company in respect to the Project  Facilities,  including,  without  limitation,
federal,  state or other ad valorem,  property,  income or other taxes not being
imposed on the date of the Indenture.

(c)   Mandatory Redemption. The Bonds are subject to mandatory
redemption:

(i) fifteen (15) days prior to the Letter of Credit  Termination Date, in whole,
at a  redemption  price equal to one  hundred  percent  (100%) of the  principal
amount thereof being redeemed plus accrued  interest to the redemption  date if,
on the thirtieth  (30th) Business Day prior to the Letter of Credit  Termination
Date,  the Trustee shall not have  received a Substitute  Letter of Credit which
will be effective on or before the Letter of Credit Termination Date.

(ii) on any Interest  Payment Date,  in whole or in part, at a redemption  price
equal to one  hundred  percent  (100%) of the  principal  amount  thereof  being
redeemed plus accrued  interest to the  redemption  date, if any proceeds of the
sale of the Bonds  remain on deposit in the Project Fund  established  hereunder
upon completion of the Project, as set forth in Section 6.08 hereof.

(d)  Mandatory  Sinking  Fund  Redemption.  The Bonds are  subject to  mandatory
redemption on the Interest Payment Date occurring in the month of May in each of
the years set forth below  commencing on the Interest  Payment Date occurring on
June 3 of  1998  (each,  a  "Mandatory  Sinking  Account  Payment  Date"),  at a
redemption  price equal to 100% of the  principal  amount  thereof  plus accrued
interest as follows:

      BONDS
Mandatory Sinking
Year                                Account Payments

1999                                $125,000.00
2000                                $120,000.00
2001                                $125,000.00
2002                                $130,000.00
2003                                $140,000.00
2004                                $150,000.00
2005                                $155,000.00
2006                                $165,000.00
2007                                $175,000.00
2008                                $185,000.00
2009                                $195,000.00
2010                                $205,000.00
2011                                $220,000.00
2012                                $230,000.00
          *2013                                $245,000.00

*Final maturity


SECTION 4.02. Optional Redemption. On or prior to the Conversion Date, the Bonds
are subject to redemption by the Company,  at any time, subject to provisions of
Section 4.03 hereof,  in whole or in part at the redemption price of 100% of the
principal  amount thereof being redeemed plus accrued interest to the redemption
date.

SECTION  4.03.  Notice  of  Redemption.  Notice  of  the  call  for  redemption,
identifying  the Bonds or  portions  thereof to be redeemed  and the  redemption
price (including the premium,  if any), shall be given by the Trustee by mailing
a copy of the  redemption  notice by first class mail at least (i) ten (10) days
prior to the date fixed for mandatory  redemption pursuant to Section 4.01(c)(i)
hereof, and (ii) thirty (30) days but not more than sixty (60) days prior to the
date fixed for redemption in all other instances to the Owner of each Bond to be
redeemed in whole or in part at the  address  shown on the  registration  books.
Such notice shall contain such matters specified in the Bonds for the redemption
thereof  and, in the case of any  extraordinary  or optional  redemption,  shall
state that such  redemption  is  conditional  upon the  receipt of monies by the
Trustee for such purpose on or prior to the  redemption  date. Any notice mailed
as provided in this  Section  shall be  conclusively  presumed to have been duly
given, whether or not the Owner receives the notice. The Trustee shall deliver a
copy of any such  redemption  notice to the Tender Agent,  the Bank, the Company
and to the Remarketing Agent.

SECTION 4.04. Interest on Bonds Called for Redemption. Upon the giving of notice
and the deposit of Available  Moneys for  redemption at the required times on or
prior to the date fixed for redemption, as provided in this Article, interest on
the Bonds or portions  thereof thus called shall no longer accrue after the date
fixed for redemption.

SECTION  4.05  Cancellation.  All Bonds  which have been  redeemed  shall not be
reissued but shall be canceled and destroyed by the Trustee in  accordance  with
Section 2.11 thereof.

SECTION 4.06. Partial Redemption of Bonds. (a) If less than all the Bonds are to
be redeemed,  the particular  Bonds or portions  thereof to be redeemed shall be
selected by the Trustee at random or in such other  manner as the Trustee in its
discretion shall deem fair and appropriate.

(b) Upon  surrender of any Bond for  redemption in part only,  the Company shall
execute and the Trustee  shall  authenticate  and deliver to the Owner thereof a
new Bond or Bonds of authorized denominations,  in an aggregate principal amount
equal to the unredeemed portion of the Bond surrendered.  If all or a portion of
Bonds tendered for purchase pursuant to hereof have been selected by the Trustee
for redemption,  the Tender Agent,  upon receipt of such tendered  Bonds,  shall
authenticate  and redeliver  only such portion of tendered  Bonds not subject to
redemption. The Tender Agent shall deliver to the tendering Bondholder a copy of
the notice of redemption,  indicating the portion of the Bonds subject  thereto,
and upon  receipt  of funds as  provided  herein,  an  amount  representing  the
principal of and interest on the Bonds not called for redemption.  The principal
of and interest accrued on the Bonds called for redemption shall be paid to such
Bondholder  on the  redemption  date.  The Tender Agent shall cancel the Bond or
such portion thereof tendered for purchase and subject to redemption,  and shall
deliver a certificate  evidencing such cancellation and the canceled Bond to the
Trustee.

(c) (i) Prior to the Conversion Date, in case a Bond is of a denomination larger
than  $100,000,  a portion of such Bond  ($100,000 or any  integral  multiple of
$5,000 in excess  thereof) may be redeemed,  but Bonds shall be redeemed only if
the  remaining  unredeemed  portion of such Bond is in the  principal  amount of
$100,000 or any integral multiple of $5,000 in excess of $100,000.

(ii) After the Conversion Date, in case a Bond is of a denomination  larger than
$5,000, a portion of such Bond ($5,000 or any integral  multiple thereof) may be
redeemed,  but Bonds shall be redeemed only if the remaining  unredeemed portion
of such Bond is in the  principal  amount of $5,000 or any integral  multiple of
$5,000.

(d)  Notwithstanding  anything  to the  contrary  contained  in this  Indenture,
whenever the Bonds are to be redeemed in part,  Bonds which are Pledged Bonds at
the time of selection of Bonds for  redemption  shall be selected for redemption
prior to the selection of any other Bonds. If the aggregate  principal amount of
Pledged Bonds at the time of selection is less than the amount available for the
partial  redemption of the Bonds, the Trustee may select for redemption Bonds in
an aggregate principal amount equal to such excess in such manner as the Trustee
in its discretion shall deem fair and appropriate.

SECTION 4.07. Payment of Redemption Price with Available Moneys. Notwithstanding
any provision to the contrary  contained in this  Indenture,  the payment of the
redemption  price of bonds shall be made only from funds described in clause (i)
of the definition of Available  Moneys.  On each date that the Bonds are subject
to  redemption,  the  Trustee  shall  draw on the  Letter of Credit in an amount
sufficient  to pay the  full  redemption  price of the  Bonds  then  subject  to
redemption from the sources and in the order provided in Section 6.03 hereof.






      ARTICLE V

      CONVERSION OF INTEREST RATE; DEMAND PURCHASE OPTION

SECTION 5.01.Conversion of Interest Rate on Conversion Date; Mandatory Tender of
Bonds.  (a) The interest rate on the Bonds shall be converted  from the Floating
Rate to the Fixed  Rate  upon the  exercise  by the  Company  of the  Conversion
Option,  and the Bonds shall be subject to mandatory  tender for purchase by the
Owners thereof on the Conversion  Date. To exercise the Conversion  Option,  the
Company shall notify the Trustee, the Tender Agent, the Bank and the Remarketing
Agent at least  thirty-five  (35)  days  prior  to the  Conversion  Date of such
exercise,  cause the Remarketing Agent to furnish to the Trustee the information
set forth in  paragraphs 1, 2 and 6 below and,  thereafter  cause the Trustee to
deliver or mail by first  class mail a notice at least  twenty (20) days but not
more than  thirty  (30) days prior to the  Conversion  Date to the Owner of each
Bond at the address shown on the  registration  books of the Bond Registrar.  No
such notice may be given unless the Trustee first receives (i) a commitment from
the Bank or a  Substitute  Bank to issue a  Substitute  Letter of Credit to take
effect on the Conversion Date, together with a form of such Substitute Letter of
Credit,  and (ii) a  certificate  from  Company to the  effect  that each of the
Company's  representations and warranties made in any agreements or certificates
given by the Company in  connection  with the  issuance of the Bonds remain true
and correct in all material  respects as of the proposed  Conversion  Date.  Any
notice given as provided in this Section shall be conclusively  presumed to have
been duly given, whether or not the Owner receives the notice. Said notice shall
state in substance the following:

1.    The Conversion Date.

2. The method of  computation  of the Fixed  Rate which will take  effect on the
Conversion Date.

3. That from and after the Conversion  Date the Demand  Purchase  Option will no
longer be available to Owners of Bonds.

4. That the existing  Letter of Credit will expire two (2)  Business  Days after
the Conversion Date and that the Bonds are to be secured by a Substitute  Letter
of Credit after the  Conversion  Date, and stating the identity of the issuer of
such Substitute Letter of Credit.

5. That unless firm  commitments for the purchase of all Outstanding  Bonds have
been received on or prior to the fifth (5th)  Business Day prior to the proposed
Conversion Date, the Company has the option to rescind an optional conversion of
the Bonds.

6. That in the event the Company  elects not to rescind the optional  conversion
of the Bonds,  although firm commitments have not been received for the purchase
of all Outstanding  Bonds,  all Bonds which have not been remarketed on or prior
to the  Conversion  Date shall be subject to mandatory  tender on the Conversion
Date pursuant to this Section 5.01.

7. That from and after the  Conversion  Date,  the rating  then in effect on the
Bonds may be reduced or may no longer be maintained.

(b) On or prior to the  Conversion  Date,  Owners of Bonds  shall be required to
deliver their Bonds to the Tender Agent for purchase at the Purchase Price,  and
any such Bonds not  delivered to the Tender Agent on or prior to the  Conversion
Date ("Undelivered  Bonds"),  for which there has been irrevocably  deposited in
trust with the Trustee or the Tender Agent an amount of money  sufficient to pay
the  Purchase  Price of the  Undelivered  Bonds,  shall be  deemed  to have been
purchased  pursuant  to  this  Section  5.01  and  are  deemed  to be no  longer
Outstanding  with respect to such prior Owners.  IN THE EVENT OF A FAILURE BY AN
OWNER OF BONDS TO DELIVER  ITS BONDS ON OR PRIOR TO THE  CONVERSION  DATE,  SAID
OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT  (INCLUDING ANY INTEREST TO ACCRUE ON
OR SUBSEQUENT TO THE OPTIONAL CONVERSION DATE) OTHER THAN THE PURCHASE PRICE FOR
SUCH UNDELIVERED BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO
THE  BENEFITS  OF THIS  INDENTURE,  EXCEPT  FOR THE  PURPOSE  OF  PAYMENT OF THE
PURCHASE PRICE THEREFOR.

(c) Notwithstanding the foregoing provisions, to the extent that at the close of
the fifth Business Day prior to the proposed  Conversion  Date, the  Remarketing
Agent has not presented to the Company firm  commitments for the purchase of all
of the Bonds, the Company,  at its option may rescind an optional  conversion of
the Bonds.  Any such election to rescind must be made by the close of the fourth
Business Day prior to the proposed  Conversion  Date and the Company  shall give
written notice to the Trustee,  the Tender Agent and the Bank of its decision to
rescind by such time. The Company shall cause the Trustee to notify  immediately
the Owners of such  rescission  and  thereafter the Bonds shall bear interest at
the Floating  Rate in effect for the current  Weekly Period and  thereafter  the
Bonds shall bear  interest at the Floating  Rate  applicable to such Bonds until
any subsequent Conversion Date effected in accordance with this indenture.

           (d)  In  the  event  the  Company  rescinds  the  proposed   optional
conversion in accordance with the terms of the foregoing  paragraph,  the Letter
of Credit then in effect will remain in effect in accordance with its terms.

           (e) The  Bonds  are  subject  to  mandatory  tender  in  whole on the
Conversion  Date,  at a purchase  price  equal to 100% of the  principal  amount
thereof being purchased,  plus accrued interest to the purchase date;  provided,
however,  that (i) all Pledged  Bonds for which a commitment to purchase has not
been  received in  connection  with a conversion  of the Bonds to the Fixed Rate
shall be redeemed or otherwise  paid by the Company on or before the  Conversion
Date;  and (ii) no such  mandatory  tender  shall  take  place in the  event the
Company exercises its right to rescind the conversion.

SECTION 5.02. Delivery of Bonds After Conversion Date. Upon the Conversion Date,
the Trustee or the Tender Agent,  as the case may be, shall deliver Bonds in the
form of Exhibit B hereto.  Prior to the  delivery  by the Trustee of such Bonds,
there shall be filed with the Trustee a request and authorization to the Trustee
on behalf of the  Company  and  signed by an  Authorized  Representative  of the
Company to authenticate  and deliver the Bonds,  as executed by the Company,  to
the purchasers thereof. Such delivery shall be made by the Trustee or the Tender
Agent,  as the case may be, without  making any charge  therefor to the Owner of
such Bonds.

SECTION 5.03. Condition to Conversion. As a condition to the giving of notice as
provided in Section  5.01 above,  the  Company  shall  provide the Trustee (a) a
commitment  from the Bank or a Substitute  Bank to issue a Substitute  Letter of
Credit  to take  effect on the  Conversion  Date,  together  with a form of such
Substitute  Letter of Credit;  and (b) a certificate  to the effect that each of
the  representations  and warranties  made by the Company herein remain true and
correct in all material respects as of the proposed Conversion Date.

SECTION 5.04.  Mandatory Tender Upon Provision of Substitute Letter of Credit by
Substitute Bank. The Bonds are subject to mandatory tender in whole at least two
business days prior to the effective  date (the "Tender Date") of any Substitute
Letter of Credit  provided by a Substitute  Bank,  at a purchase  price equal to
100% of the  principal  amount  thereof,  plus accrued  interest to the purchase
date. The Company shall notify the Trustee,  the Tender Agent,  the Bank and the
Remarketing  Agent at least  thirty-five (35) days prior to the Tender Date, and
thereafter  cause the Trustee to deliver or mail by first class mail a notice at
least  twenty  (20) days but not more than  thirty (30) days prior to the Tender
Date to the Owner of each Bond at the address shown on the registration books of
the Bond  Registrar.  Such notice shall state the Tender Date and that the Bonds
are subject to  mandatory  tender on such date.  IN THE EVENT OF A FAILURE BY AN
OWNER OF BONDS TO DELIVER  ITS BONDS IN  RESPONSE  TO SUCH NOTICE OF A MANDATORY
TENDER,  SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING  INTEREST TO
ACCRUE ON OR SUBSEQUENT TO THE TENDER DATE IN THE APPLICABLE  NOTICE) OTHER THAN
THE PURCHASE PRICE FOR SUCH UNDELIVERED  BONDS, AND ANY UNDELIVERED  BONDS SHALL
NO LONGER BE ENTITLED TO THE BENEFITS OF THE  INDENTURE,  EXCEPT FOR THE PAYMENT
OF THE  PURCHASE  PRICE  THEREFOR.  Any notice given as provided in this Section
shall be conclusively presumed to have been duly given, whether or not the Owner
receives the notice.

SECTION 5.05. Demand Purchase Option. Prior to the Conversion
Date, any Bond shall be purchased at the Purchase Price from the
Owner thereof upon:

(i)  delivery  by such  Owner  to the  Trustee  and the  Tender  Agent  at their
Principal Office and Delivery Office, respectively, and to the Remarketing Agent
at its Principal Office, of a notice (the "Demand Purchase Notice") (said notice
to be  irrevocable  and effective  upon receipt)  which states (1) the aggregate
principal amount and bond numbers of the Bonds to be purchased; and (2) the date
on which such Bonds are to be purchased,  which date shall be a Business Day not
prior to the  seventh  (7th) day next  succeeding  the date of  delivery of such
notice and which date shall be prior to the Conversion Date;

(ii) if such Bonds are to be  purchased  prior to an Interest  Payment  Date and
after the Record Date in respect thereof,  delivery to the Tender Agent together
with the  Demand  Purchase  Notice  described  in (i) above,  of a  non-recourse
due-bill, payable to bearer, for interest due on such Interest Payment Date; and

(iii)  delivery to the Tender Agent at its Delivery  Office at or prior to 10:00
a.m., New York City time, on the date  designated for purchase in the applicable
Demand  Purchase  Notice  of such  Bonds to be  purchased,  with an  appropriate
endorsement for transfer or accompanied by a bond power endorsed in blank.

Any Bond, as to which a Demand  Purchase  Notice has been delivered  pursuant to
paragraph  (i) above,  must be  delivered  to the Tender  Agent,  as provided in
paragraph (iii) above, and any such Bond not so delivered ("Undelivered Bonds"),
for which there has been irrevocably  deposited in trust with the Trustee or the
Tender Agent an amount of money  sufficient to pay the Purchase  Price  thereof,
shall be deemed to have been  purchased at the Purchase  Price  pursuant to this
Section  5.05 and are deemed to be no longer  Outstanding  with  respect to such
tendering  Owner.  IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER ITS
BONDS AS  SPECIFIED  ABOVE,  SAID OWNER  SHALL NOT BE  ENTITLED  TO ANY  PAYMENT
(INCLUDING  INTEREST  TO  ACCRUE ON OR  SUBSEQUENT  TO THE DATE  DESIGNATED  FOR
PURCHASE IN THE APPLICABLE DEMAND PURCHASE NOTICE) OTHER THAN THE PURCHASE PRICE
FOR SUCH  UNDELIVERED  BONDS,  AND ANY  UNDELIVERED  BONDS  SHALL NO  LONGER  BE
ENTITLED  TO THE  BENEFITS  OF THE  INDENTURE,  EXCEPT  FOR THE  PAYMENT  OF THE
PURCHASE PRICE THEREFOR.

Notwithstanding the foregoing provisions, in the event any Bonds as to which the
Owner  thereof has exercised  the Demand  Purchase  Option is remarketed to such
Owner pursuant to the  Remarketing  Agreement,  such Owner need not deliver such
Bond to the Tender Agent as provided in paragraph  (iii)  above,  although  such
Bonds shall be deemed to have been delivered to the Tender Agent, redelivered to
such Owner,  and remarketed for purposes of this Indenture,  including,  without
limitation,  for purposes of adjusting the Floating Rate applicable to such Bond
as provided in Section 2.02(c) hereof.

SECTION  5.06.  Funds for  Purchase  of Bonds.  (a) On the date  Bonds are to be
purchased  pursuant to Sections 5.01,  5.04 or 5.05 hereof,  such Bonds shall be
purchased at the Purchase Price only from the funds listed below. Subject to the
provisions of Section 6.12(b), funds for the payment of the Purchase Price shall
be derived from the following sources in the order of priority indicated:

(i)   moneys drawn by the Trustee under the Letter of Credit, and

(ii) any  other  moneys  furnished  to the  Trustee,  or the  Tender  Agent  and
available for such purpose.

(b) Payment for the Bonds  purchased  pursuant  to Sections  5.01,  5.04 or 5.05
shall be made as follows:

(i) On the date on which such Bonds are to be purchased (the  "Purchase  Date"),
the Trustee shall make a drawing  pursuant to the Letter of Credit in respect of
the Purchase  Price of such Bonds.  In connection  therewith,  the Trustee shall
prepare and present to the Bank the appropriate  certificates required under the
Letter  of  Credit  by 12:00  noon,  New York City  time,  on the  Business  Day
immediately preceding the Purchase Date.

(ii) By not later than 10:00 a.m., New York City time, on the Purchase Date, the
Remarketing Agent shall give telephonic notice promptly  confirmed in writing to
the Bank, the Trustee and the Tender Agent, specifying:

(1) The total principal amount of Bonds, if any, remarketed by it.

(2) The  names  of the  persons  to whom  such  Bonds  were  sold  and are to be
registered,  each such person's  address and social  security number or taxpayer
identification  number,  the  denominations in which replacement Bonds are to be
prepared, and any other appropriate registration and transfer instructions.

(iii) There is hereby  established  with the Tender  Agent a special  fund to be
designated  the "Bond  Purchase  Fund" and therein two separate  and  segregated
accounts to be designated the  "Remarketing  Account" and the "Bank Account." An
amount  equal to the proceeds  received by the Trustee  pursuant to a draw under
the  Letter  of  Credit  shall be  transferred  by the  Trustee  in  immediately
available  funds to the Tender  Agent for  deposit in the Bank  Account no later
than 12:30 p.m., New York City time, on the applicable Purchase Date.

(iv) No later than 1:00  p.m.,  New York City time,  on each  Purchase  Date the
Tender Agent shall give telephonic  notice  (promptly  confirmed by telecopy) to
the Remarketing  Agent of the amount deposited in the Bank Account on such date.
No later  than  2:00  p.m.,  New  York  City  time,  on each  Purchase  Date the
Remarketing  Agent shall  transfer to the Bank an amount of the  proceeds of the
remarketing  of the Bonds  equal to the amount of the  Remarketed  Bonds on such
Purchase Date and shall give telephonic notice (promptly  confirmed by telecopy)
to the Tender Agent of the amount of such proceeds transferred to the Bank.

(v) The Bank  shall give  telephonic  confirmation  to the Tender  Agent and the
Trustee by 4:00 p.m., New York City time, on the applicable Purchase Date of its
receipt of the remarketing proceeds described in Section 5.06(b)(iv) hereof.

SECTION 5.07. Delivery of Purchased Bonds. (a) Remarketed Bonds
shall be delivered by the Tender Agent, at its Delivery Office,
to or upon the order of the purchasers thereof.

(b)  Unremarketed  Bonds  purchased  with funds drawn under the Letter of Credit
shall be  delivered  by the  Tender  Agent to the  Pledged  Bonds  Custodian  or
otherwise upon the order of the Bank pursuant to the Reimbursement Agreement.

(c) Unremarketed  Bonds purchased with moneys  described in Section  5.06(a)(ii)
hereof shall, at the direction of the Company, be (i) delivered as instructed by
the  Company,  or (ii)  delivered  to the  Trustee for  cancellation;  provided,
however,  that any Bonds so purchased after the selection thereof by the Trustee
for redemption shall be delivered to the Trustee for cancellation.

(d) The Tender Agent shall  deliver to the person to whom the Tender Agent is to
deliver such Bonds, the nonrecourse  due-bills,  if any, delivered to the Tender
Agent with respect to such Bonds in accordance with Section 5.05 hereof.

Bonds  delivered as provided in this Section  shall be  registered in the manner
directed by the recipient thereof.

SECTION 5.08. Sale of Bonds by Remarketing Agent. (a) On each Purchase Date, the
Remarketing  Agent  shall  offer for sale and use its best  efforts to sell,  as
agent of the Company, all Bonds tendered or deemed tendered for purchase on such
Purchase  Date at the Purchase  Price thereof and, if such Bonds are not sold on
such date, the Remarketing  Agent shall continue,  for a period not in excess of
thirty (30) days  thereafter,  to use its best efforts to sell such Bonds. In no
event  shall the Bonds be  remarketed  to the Company or any  affiliates  of the
Company.

(b) Notwithstanding anything to the contrary herein, the Remarketing Agent shall
use its best  efforts to  remarket  any Bonds  tendered or deemed  tendered  for
purchase in such a manner that,  immediately  following the  remarketing  of any
Bonds, at least one (1) Holder will own at least $200,000 in aggregate principal
amount of Bonds.

SECTION 5.09. Delivery of Proceeds of Sale of Purchased Bonds. (a) Except in the
case of the sale of any  Pledged  Bonds,  the  proceeds of the sale of any Bonds
delivered or deemed delivered to the Tender Agent pursuant to Section 5.01, 5.04
or 5.05  hereof,  to the extent not  required  to  reimburse  the Bank under the
Reimbursement   Agreement  or  to  pay  the  Purchase  Price  to  the  tendering
Bondholder, shall be paid to or upon the order of the Trustee.

(b) In the event the  Remarketing  Agent shall have remarketed any Pledged Bonds
and the Company or the  Remarketing  Agent shall have directed the Bank to cause
the Pledged Bond  Custodian  to deliver  such Pledged  Bonds to the Tender Agent
pursuant to the  Reimbursement  Agreement,  such Bonds shall be delivered to the
Tender  Agent and the  proceeds of sale of such Bonds shall be  delivered to the
Principal  Corporate  Trust  Office of the Tender  Agent and shall be paid to or
upon the  order of the  Bank;  provided  that any  amounts  so paid in excess of
amounts  then due to the Bank in respect of drawings  under the Letter of Credit
shall be  delivered  by the Bank to or upon the order of the  Company;  provided
further that Pledged  Bonds shall not be delivered to the Tender Agent until the
Letter  of  Credit  has been  reinstated  in  accordance  with the  terms of the
Reimbursement Agreement and the Letter of Credit.

SECTION  5.10.  Duties of Trustee and Tender  Agent with  Respect to Purchase of
Bonds.  (a) The Tender  Agent shall hold all Bonds  delivered  to it pursuant to
Sections  5.01,  5.04 or 5.05 hereof in trust for the benefit of the  respective
Owners  of  Bonds  which  shall  have  so  delivered  such  Bonds  until  moneys
representing  the Purchase  Price of such Bonds shall have been  delivered to or
for the  account of or to the order of such  Owners of Bonds.  Upon  delivery of
moneys representing the Purchase Price of such Bonds to or for the account of or
to the order of such Owners of Bonds,  the Tender  Agent shall  deliver all such
Unremarketed Bonds, the funds for the purchase of which shall have been obtained
by a drawing under the Letter of Credit, to the Pledged Bonds Custodian pursuant
to Section  5.07(b)  hereof for the purpose of  perfecting  the Bank's  security
interest therein under the Reimbursement  Agreement unless the Bank shall direct
the  Tender  Agent to  deliver  such  Bonds to or upon the  order of the Bank in
accordance with Section 5.07 hereof.

(b) The Trustee and the Tender  Agent  shall hold all moneys  delivered  to them
pursuant to this Indenture for the purchase of Bonds in a separate  account,  in
trust for the  benefit  of the Bank or,  in the case of  Remarketed  Bonds,  the
purchasers of such Bonds,  until the Bonds purchased with such moneys shall have
been delivered to or for the account of the Pledged Bond Custodian,  the Bank or
to such other purchaser, as appropriate.

(c) The Trustee  shall deliver to the Company and the Bank a copy of each notice
delivered  to it in  accordance  with  Section  5.05  within two (2) days of the
receipt thereof.

(d) As soon as  possible,  but not later than the close of  business on any date
designated  for purchase of Bonds in accordance  with Section  5.05,  the Tender
Agent shall give telephonic or telegraphic  notice to the Remarketing  Agent and
the  Trustee  specifying  the  principal  amount  of Bonds  delivered  or deemed
delivered for purchase on such date.

(e) The Trustee shall draw moneys under the Letter of Credit in accordance  with
the terms  thereof to the extent  required by  Sections  5.06 and 6.12 hereof to
provide for timely payment of the Purchase Price of Bonds.

SECTION  5.11. No Purchases or Sales After  Certain  Defaults.  Anything in this
Indenture to the contrary  notwithstanding,  there shall be no purchases (in the
case of (i),  below) or sales (in the case of (ii),  below) of Bonds pursuant to
Section 5.05 (i) if there shall have occurred any Event of Default in respect of
which  the  principal  of  all  Bonds   Outstanding  shall  have  been  declared
immediately due and payable pursuant to Section 8.02 and such declaration  shall
not have been  annulled or (ii) if the Trustee shall have given notice of a call
for  redemption  pursuant to Section  4.03 hereof and such notice shall not have
been rescinded.  Nothing in this Section is intended to limit secondary  trading
or transfer of the Bonds.

      ARTICLE VI

      REVENUES AND FUNDS

SECTION 6.01. Creation of the Bond Fund. There is hereby created and established
with the Trustee a trust fund to be  designated  "Bond  Fund."  Upon  receipt of
moneys  pursuant to Section 6.02 hereof,  the Trustee  shall deposit such moneys
into the Bond Fund,  which  amounts  shall be used to pay when due the principal
and premium, if any, and interest on the Bonds.

SECTION 6.02. Payments into the Bond Fund. There shall be
deposited into the Bond Fund from time to time the following:
(a)   any amount in the Project Fund directed to be paid into the
Bond Fund in accordance with the provisions of Section 6.07
hereof,

(b)   any amount deposited into the Bond Fund pursuant to Section
6.04 hereof,

(c) any moneys  drawn  under the Letter of Credit to be used for the  payment of
redemption  price and principal of, premium,  if any, and interest on the Bonds,
which moneys shall be  deposited in a separate  subaccount  of the Bond Fund and
shall not be commingled with any other moneys held by the Trustee, and

(d) any moneys  drawn under the Letter of Credit which moneys shall be deposited
in a separate  subaccount of the Bond Fund and shall not be commingled  with any
other moneys held by the Trustees, and

(e) amounts, if any, held by the Trustee pursuant to Section 5.10 hereof.

SECTION  6.03.  Use of Moneys in the Bond Fund.  Except as  provided  in Section
5.06, 5.10 and 6.11 hereof, moneys in the Bond Fund shall be used solely for the
payment of the principal of, premium, if any, and interest on the Bonds, for the
redemption  of the Bonds prior to maturity  and for payment of the  Acceleration
Price as defined in Section 8.02 hereof.  Subject to the  provisions  of Section
6.12(b) hereof, funds for such payments of redemption price and principal of and
premium,  if any, and interest on the Bonds shall be derived from the  following
sources in the order of priority indicated:

 (i) moneys drawn by the Trustee  under the Letter of Credit (and in  connection
with all such  draws the  Trustee  shall  prepare  and  present  to the Bank the
appropriate  certificates required under the Letter of Credit by 12:00 noon, New
York City time, on the Business Day immediately preceding the payment date),

(ii) amounts  deposited  into the Bond Fund which  constitute  Available  Moneys
(other than moneys drawn by the Trustee under the Letter of Credit), and

    (iii) any other  moneys  furnished  to the  Trustee and  available  for such
purpose.

SECTION 6.04.  Custody of Separate  Trust Fund.  The Trustee is  authorized  and
directed to hold all Net Proceeds  from any insurance  proceeds or  condemnation
award and disburse such proceeds in accordance  with Article XII hereof.  If the
Company  directs  that any  portion  of such Net  Proceeds  be applied to redeem
Bonds,  the Trustee shall deposit such Net Proceeds in a separate  subaccount of
the Bond  Fund,  and the  Company  shall  take and cause to be taken any  action
necessary to redeem on the earliest possible redemption date the amount of Bonds
so specified.

SECTION 6.05.  Project Fund.  There is hereby created and  established  with the
Trustee a trust fund to be designated "Project Fund," which shall be expended in
accordance with the provisions hereof.

SECTION 6.06.  Payments into the Project Fund;  Disbursements.  The Project Fund
shall initially  consist of those monies  deposited  therein pursuant to Section
3.03(c)  hereof.  Proceeds of the Bonds  deposited  in the Project Fund shall be
applied  to pay a portion  of the costs of the  Project.  The  Trustee is hereby
authorized  and  directed to make  disbursements  from the Project Fund upon the
receipt of a  requisition  in the form of Exhibit C hereto signed by the Company
and approved by the Bank. The Trustee shall keep and maintain  adequate  records
pertaining to the Project Fund and all disbursements  therefrom, and the Trustee
shall, upon request of the Company,  furnish  statements in the form customarily
prepared by the Trustee.  The Trustee shall hold all moneys and investments from
time to time on deposit in the Project Fund for the Owners and for the Bank, the
rights of the Bank being subject and subordinate to the rights of the Trustee so
long as any amount due in respect of the Bonds remains unpaid.

SECTION 6.07. Use of Money in the Project Fund Upon Default. If the principal of
the Bonds shall have become due and payable pursuant to Article VIII hereof, any
balance  remaining in the Project Fund shall without further  authorization  (i)
prior to the Obligation Termination Date, if any amounts are due and owing under
the Reimbursement  Agreement, be transferred immediately to the Bank, as long as
the Bank is not in default  of its  obligations  under the Letter of Credit,  or
(ii) after the Obligation Termination Date, be transferred into the Bond Fund.

SECTION 6.08.  Use of Money in the Project Fund Upon  Completion of the Project.
The  completion of the Project and payment or provision for payment of all Costs
of the Project shall be evidenced by the filing with the Trustee of an Officers'
Certificate  requesting,  as soon as practicable  and in any event not more than
sixty  (60) days from the date of  receipt  by the  Trustee  of the  certificate
referred to in the preceding sentence, that any balance remaining in the Project
Fund (except  amounts the Company  shall have directed the Trustee to retain for
any Cost of the  Project  not  then  due and  payable)  shall,  without  further
authorization  be transferred into a separate  subaccount  within the Bond Fund.
Thereafter,  the  Trustee  shall cause a  mandatory  redemption  of the Bonds in
accordance  with the terms of Section  4.01(c)(2)  hereof in an amount such that
the funds  transferred  to the Bond Fund  pursuant to this  Section 6.08 will be
sufficient  to reimburse the Letter of Credit Bank for the  redemption  price of
the Bonds. On the date fixed for  redemption,  the Trustee (i) shall draw on the
Letter of Credit in an amount sufficient to pay the full redemption price of the
Bonds from the sources and in the order provided in Section 6.03 hereof and (ii)
transfer to the Letter of Credit Bank funds from the separate  subaccount within
the Bond Fund created  pursuant to this  Section 6.08 to reimburse  the Bank for
such  drawing.  If there are any excess  funds  remaining in the Bond Fund after
such mandatory  redemption  (except amounts that the Company shall have directed
the Trustee to retain for any cost of a project not then due and payable),  such
funds shall be transferred  by the Trustee on the next Interest  Payment Date to
the Letter of Credit Bank to  reimburse  the Letter of Credit Bank for a drawing
affected pursuant to Section 6.12 hereof.

SECTION  6.09.  Nonpresentment  of Bonds.  In the  event  any Bond  shall not be
presented  for  payment  when the  principal  thereof  becomes  due,  either  at
maturity,  or at the  date  fixed  for  redemption  thereof,  or  otherwise,  if
Available Moneys  sufficient to pay any such Bond shall have been made available
to the  Trustee  for the  benefit of the Owner  thereof,  all  liability  of the
Company to the Owner thereof for the payment of such Bond shall forthwith cease,
determine  and be completely  discharged,  and thereupon it shall be the duty of
the  Trustee to hold such  funds  uninvested,  without  liability  for  interest
thereon,  for the  benefit  of the Owner of such Bond who  shall  thereafter  be
restricted  exclusively  to such funds for any claim of  whatever  nature on his
part under this Indenture with respect to such Bond.

Any  moneys so  deposited  with and held by the  Trustee  not so  applied to the
payment of Bonds  within  five (5) years  after the date on which the same shall
have  become due shall be repaid by the  Trustee  to the  Company  upon  written
direction of an Authorized  Representative of the Company, and thereafter Owners
of Bonds shall be entitled to look only to the Company for payment,  and then to
the  extent of the amount so  repaid,  and all  liability  of the  Trustee  with
respect to such money shall thereupon cease, and the Company shall not be liable
for any interest thereon and shall not be regarded as a trustee of such money.

SECTION 6.10.  Moneys to be Held in Trust.  All moneys  required to be deposited
with or paid to the Trustee  for the account of any fund or account  referred to
in any provision of this  Indenture  shall be held by the Trustee in trust,  and
shall,  while held by the  Trustee,  constitute  part of the Trust Estate and be
subject to the lien and security interest created hereby.

SECTION  6.11.  Repayment  to the Bank and the Company from the Bond Fund or the
Project Fund.  Any amounts  remaining in the Bond Purchase  Fund, the Bond Fund,
the Project Fund or any other fund or account created hereunder after payment in
full of the principal of, premium,  if any, and interest on the Bonds, the fees,
charges and  expenses of the Trustee and all other  amounts  required to be paid
hereunder,  shall  be paid as soon as  possible  to the  Bank  unless  the  Bank
notifies  the Trustee to the  contrary,  in writing,  in which case such amounts
shall be paid directly to Company.

SECTION 6.12. Letter of Credit. (a) During the term of the Letter of Credit, the
Trustee  shall draw  moneys  under the Letter of Credit in  accordance  with the
terms  thereof (i) to pay when due (whether by reason of  maturity,  redemption,
conversion,  acceleration  or otherwise)  the principal of, and interest and, to
the extent the Letter of Credit covers same, any premium on the Bonds,  and (ii)
to pay when due the Purchase Price of the Bonds.

(b) Notwithstanding any provision to the contrary which may be contained in this
Indenture,  including,  without limitation,  Section 6.12(a)(i) in computing the
amount to be drawn  under the Letter of Credit on account of the  payment of the
principal or Purchase Price of,  interest or, to the extent the Letter of Credit
covers  same,  any  premium on the Bonds,  the  Trustee  shall  exclude any such
amounts in respect of any Bonds which are Pledged Bonds or Borrower  Bonds prior
to the date such payment is due, and (ii) amounts drawn by the Trustee under the
Letter of Credit  shall not be applied to the payment of the  Purchase  Price of
any Bonds  which are  Pledged  Bonds or  Borrower  Bonds  prior to the date such
payment is due.

(c) The Letter of Credit  shall  terminate in  accordance  with its terms on the
Letter of Credit  Termination  Date.  Upon such  termination,  the Trustee shall
deliver  the  terminated  Letter  of  Credit  to the  Bank,  together  with such
certificates as may be required by the terms of the Letter of Credit;  provided,
however,  that the Trustee  shall not surrender the Letter of Credit to the Bank
until the third  Business Day  following the  effective  date of any  Substitute
Letter  of  Credit  or, in the event  the  Trustee  shall  not have  received  a
Substitute  Letter of Credit  which will be effective on or before the Letter of
Credit  Termination  Date,  until  the Bank has  honored  all draws  under  such
terminated Letter of Credit made in accordance with the terms thereof.

SECTION  6.13.   Substitute  Letter  of  Credit.  The  Company,  upon  at  least
thirty-five (35) days prior written notice to the Trustee,  the Tender Agent and
the Remarketing Agent may, at any time, at its option,  provide for the delivery
on any  Business  Day to the  Trustee  of a  Substitute  Letter of  Credit.  Any
Substitute  Letter of Credit  shall  have  administrative  terms and  provisions
reasonably  acceptable  to the Trustee and shall be delivered to the Trustee not
later than the thirtieth  (30th)  Business Day prior to expiration of the Letter
of Credit it is being  issued to replace.  On or before the date of the delivery
of any  Substitute  Letter of  Credit  to the  Trustee,  as a  condition  to the
acceptance of any Substitute Letter of Credit by the Trustee,  the Company shall
furnish to the Trustee and the Remarketing  Agent: (a) written evidence that the
issuer of the  Substitute  Letter of Credit is a commercial  bank  organized and
doing  business  in the  United  States  or a  branch  or  agency  of a  foreign
commercial  bank located and doing  business in the United States and subject to
regulation by state or federal banking regulatory authorities; (b) an opinion of
Bond  Counsel  stating  that  delivery  of such  Substitute  Letter of Credit is
authorized  under the  Indenture  and complies  with the terms  thereof;  (c) an
opinion of counsel  satisfactory to the Trustee, the Company and the Remarketing
Agent to the effect that (i) the Substitute  Letter of Credit is a legal,  valid
and binding obligation of the issuer (or, in the case of a branch or agency of a
foreign commercial bank, the branch or agency) issuing the same,  enforceable in
accordance  with its terms,  (ii)  payments of  principal or  redemption  price,
premium,  if any (if such  Substitute  Letter of Credit  secures  the payment of
premium),  or Purchase Price of and interest on the Bonds from the proceeds of a
drawing  on the  Substitute  Letter  of  Credit  will not  constitute  avoidable
preferences  under the Bankruptcy Code or other applicable laws and regulations,
and (iii) it is not necessary to register the Substitute  Letter of Credit under
the Securities Act of 1933, as amended,  or to qualify an indenture with respect
thereto under the Trust Indenture Act of 1939, as amended. An additional opinion
of counsel,  satisfactory to the Trustee, the Company and the Remarketing Agent,
shall be required  regarding  the  legality,  validity  and binding  effect of a
Substitute Letter of Credit issued by a branch or agency of a foreign commercial
bank.  The Trustee  shall  accept any such  Substitute  Letter of Credit only in
accordance with its terms and upon the satisfaction of the foregoing  conditions
and other provisions contained in the Indenture.

SECTION  6.14.  Investment  of Moneys in Funds.  All  moneys in any of the funds
established  pursuant to this Indenture  (except moneys  obtained from a draw on
the  Letter  of Credit  which  shall be  uninvested)  shall be  invested  by the
Trustee, as directed in writing by the Company,  solely in Investment Securities
except with respect to  Available  Moneys held by the Trustee for the payment of
Undelivered  Bonds,  which  Available  Moneys  the  Trustee  shall  not  invest.
Investment  Securities may be purchased at such prices as the Trustee may in its
discretion  determine  or as may be  directed  by the  Company.  Absent  written
investment  directions from the Company, the Trustee shall invest available fund
balances in  investments  described in  subparagraph  (ix) of the  definition of
Investment Securities.

To the extent the Bank has not been reimbursed under the Reimbursement Agreement
and has notified the Trustee of same in writing, all interest, profits and other
income received from the investment of moneys in any fund  established  pursuant
to this Indenture  shall be  transferred to the Bank in the amount  specified by
the Bank. Otherwise,  such amounts shall be deposited to the appropriate fund or
account in which such  investments  were made.  Notwithstanding  anything to the
contrary  contained  in this  paragraph,  an amount of  interest  received  with
respect to any Investment  Security equal to the amount of accrued interest,  or
premium  paid,  if any paid as part of the  purchase  price  of such  Investment
Security  shall be credited  to the fund from which such  accrued  interest  was
paid.

Investment   Securities  acquired  as  an  investment  of  moneys  in  any  fund
established under this Indenture shall be credited to such fund. For the purpose
of determining  the amount in any fund, all  Investment  Securities  credited to
such fund shall be valued at the lesser of cost or par value plus,  prior to the
first payment of interest following purchase, the amount of accrued interest, if
any, paid as a part of the purchase price.

The  Trustee may act as  principal  or agent in the making or  disposing  of any
investment.  The Trustee may sell at the best price  obtainable,  or present for
redemption,  any  Investment  Securities  so  purchased  whenever  it  shall  be
necessary to provide moneys to meet any required payment,  transfer,  withdrawal
or disbursement from the fund to which such Investment Security is credited, and
the Trustee shall not be liable or responsible  for any loss resulting from such
investment.

      ARTICLE VII

      PARTICULAR COVENANTS

SECTION 7.01. Punctual Payment.  The Company shall punctually pay or cause to be
paid the  principal,  premium,  if any, and interest to become due in respect of
all the  Bonds,  in  strict  conformity  with the terms of the Bonds and of this
Indenture, according to the true intent and meaning thereof.

SECTION 7.02.  Extension of Payment of Bonds.  The Company shall not directly or
indirectly extend or assent to the extension of the maturity of any of the Bonds
or the time of payment of any claims for  interest by the purchase or funding of
such Bonds or claims for  interest or by any other  arrangement  and in case the
maturity  of any of the  Bonds or the time of  payment  of any such  claims  for
interest  shall be  extended,  such  Bonds or claims for  interest  shall not be
entitled,  in case of any default hereunder,  to the benefits of this Indenture,
except subject to the prior payment in full of the principal of all of the Bonds
then  outstanding  and of all claims for interest  thereon  which shall not have
been so extended.  Nothing in this Section shall be deemed to limit the right of
the Company to issue Bonds for the purpose of refunding any  Outstanding  Bonds,
and such issuance  shall not be deemed to constitute an extension of maturity of
Bonds.

SECTION 7.03. Against Encumbrances.  The Company shall not create, or permit the
creation of, any pledge, lien, charge or other encumbrance upon the revenues and
other assets pledged or assigned under this Indenture while any of the Bonds are
Outstanding, except the pledge and assignment created by this Indenture and will
assist  the  Trustee  in  contesting  any such  pledge,  lien,  charge  or other
encumbrance which may be created.

SECTION 7.04.  Power to Issue Bonds and Make Pledge and Assignment.  The Company
represents and covenants that it is duly authorized pursuant to law to issue the
Bonds and to enter into this  Indenture.  The Bonds and the  provisions  of this
Indenture  are and will be the  legal,  valid  and  binding  obligations  of the
Company in accordance with their terms, and the Company and Trustee shall at all
times,  to the extent  permitted  by law,  defend,  preserve and protect all the
rights of the Bondholders under this Indenture against all claims and demands of
all Persons whomsoever.

SECTION 7.05. Accounting Records and Financial Statements. (a) The Trustee shall
at all times keep,  or cause to be kept,  proper  books of record and account as
shall be  consistent  with  prudent  industry  practice,  in which  complete and
accurate entries shall be made of all  transactions  relating to the proceeds of
Bonds and all funds established pursuant to this Indenture. Such books of record
and account shall be available for  inspection by the Company,  the Bank and any
Bondholder,  or his agent or  representative  duly  authorized  in  writing,  at
reasonable hours and under reasonable circumstances.

(b) The  Trustee  shall  within  thirty  (30) days  after the end of each  month
furnish to the Company a monthly  statement (which need not be audited) covering
receipts,  disbursements,  allocation and  application of any moneys  (including
proceeds of Bonds) in any of the funds and accounts established pursuant to this
Indenture for such month.

SECTION 7.06.  Waiver of Laws.  The Company shall not at any time insist upon or
plead in any manner  whatsoever,  or claim or take the benefit or advantage  of,
any stay or extension provided by law now or at any time hereafter in force that
may affect the covenants and  agreements  contained in this  Indenture or in the
Bonds,  and all benefit or advantage of any such law or laws is hereby expressly
waived by the Company to the extent permitted by law.

SECTION 7.07. Further Assurances. The Company will make, execute and deliver any
and all such further indentures, instruments and assurances as may be reasonably
necessary or proper to carry out the intention or to facilitate the  performance
of this Indenture and for the better assuring and confirming unto the Holders of
the Bonds of the rights and benefits provided in this Indenture.






      ARTICLE VIII

      EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS

SECTION 8.01. Events of Default. The following events shall be
Events of Default:

(a) default in the due and  punctual  payment of the  principal of any Bond when
and as the same shall  become due and  payable,  whether at  maturity as therein
expressed, by proceedings for redemption, by acceleration, or otherwise; or

(b) default in the due and punctual  payment of any  installment  of interest on
any Bond when and as the same shall become due and payable; or

(c) failure to pay the Purchase Price on any Bond tendered pursuant to Article V
when such payment is due; or

(d)  default by the  Company in the  observance  of any of the other  covenants,
agreements or conditions on its part in this Indenture or in the Bonds,  if such
default  shall have  continued  for a period of sixty  (60) days  after  written
notice  thereof,  specifying such default and requiring the same to be remedied,
shall have been given to the Company by the  Trustee,  or to the Company and the
Trustee by the Holders of not less than  twenty-five  percent (25%) in aggregate
principal amount of the Bonds at the time Outstanding;  provided,  however, that
if such observance  requires work to be done,  actions to be taken or conditions
to be  remedied,  which by their  nature  cannot  reasonably  be done,  taken or
remedied,  as the case may be,  within such sixty (60) day  period,  no Event of
Default  shall be deemed to have  occurred  or to exist if,  and so long as, the
Company shall  commence such  performance  within such sixty (60) day period and
shall diligently and continuously proceed to completion; or

(e) if the  Company  makes an  assignment  for the  benefit  of  creditors  or a
composition  agreement  with  all or a  material  part  of its  creditors,  or a
trustee,  receiver,  executor,  conservator,  liquidator,  sequestrator or other
judicial representative,  similar or dissimilar, is appointed for the Company or
any of its  assets  or  revenues,  or  there  is  commenced  any  proceeding  in
liquidation,   bankruptcy,   reorganization,   arrangement   of  debts,   debtor
rehabilitation,  creditor adjustment or insolvency,  local, state or federal, by
or against the Company; or

(f) the Trustee's  receipt of written notice from the Bank of declaration by the
Bank of an Event of Default under the provisions of the Reimbursement Agreement;
or

(g) if, at any time after a draw under the Letter of Credit,  the Trustee  shall
have  received  written  notice  from the  Bank  that the  amount  of such  draw
corresponding to the payment of interest on the Bonds shall not be reinstated in
the amount and in the manner set forth in the Letter of Credit.

Upon actual  knowledge  of the  existence  of any Event of Default,  the Trustee
shall as soon as practicable notify the Bank, the Company,  the Tender Agent and
the  Remarketing  Agent.  Anything  contained in this  Indenture to the contrary
notwithstanding,  (i) no Event of  Default  under  subsections  (d) or (e) above
shall be deemed to have occurred  without the prior written  consent of the Bank
so long as the Bank is not in  default  under the terms of the  Letter of Credit
and (ii) the Trustee shall not notify  Bondholders of the existence of any Event
of Default  under (d) or (e) without the prior  written  consent of the Bank, as
long as the Bank is not in default under the terms of the Letter of Credit.

SECTION  8.02.  Acceleration.  If any Event of Default under Section 8.01 hereof
occurs,  the Trustee (with the written  consent of the Bank provided the Bank is
not in default of its  obligations  under the  Letter of Credit)  may,  and upon
request of the Owners of 25% in principal  amount of the Bonds then  Outstanding
shall,  by written  notice to the Bank and the  Company,  declare the  principal
amount of all Bonds then  Outstanding  and the interest  accrued thereon to such
date  (the  "Acceleration  Date")  to be due  and  the  Acceleration  Price  (as
hereinafter  defined) shall thereupon become payable on the first (1st) Business
Day  following  the  Acceleration  Date (the  "Payment  Date").  Thereupon,  the
Trustee, among other things, shall draw immediately upon the Letter of Credit as
set forth in Section 6.12 hereof.  Interest on the accelerated Bonds shall cease
to accrue on the  Acceleration  Date.  Accelerated  Bonds  shall be payable at a
price equal to 100% of the  aggregate  principal  amount  thereof plus  interest
accrued to the  Acceleration  Date the  "Acceleration  Price").  Notwithstanding
anything  contained  herein to the contrary,  upon the occurrence of an Event of
Default  described  in Section  8.01(f) or (g)  hereof,  the Trustee  shall,  by
written notice to the Bank, and the Company declare  immediately due and payable
the principal amount of the Outstanding Bonds.

Any such declaration is subject to the condition that if, at any time after such
declaration  and before any judgment or decree for the payment of the moneys due
shall  have been  obtained  or  entered,  the  Letter of Credit  shall have been
reinstated in full as to principal and interest and the  reasonable  charges and
expenses of the  Trustee,  and any and all other  defaults  known to the Trustee
(other than in the  payment of  principal  of and  interest on the Bonds due and
payable solely by reason of such declaration) shall have been made good or cured
to the  satisfaction  of the  Trustee or  provision  deemed by the Trustee to be
adequate  shall have been made  therefor,  then,  and in every  such  case,  the
Holders  of not less than 25% in  aggregate  principal  amount of the Bonds then
Outstanding,  by written notice to the Company, the Bank and the Trustee, or the
Trustee  if such  declaration  was made by the  Trustee,  may,  on behalf of the
Holders  of all of the  Bonds,  rescind  and  annul  such  declaration  and  its
consequences and waive such default; but such rescission and annulment shall not
extend to or affect any subsequent default,  and shall not impair or exhaust any
right or power in consequence thereof.

Upon any  declaration of  acceleration  hereunder,  the Trustee shall as soon as
possible give written notice of the acceleration to the Bondholders as set forth
below. In addition,  notice of such acceleration  shall be mailed, by registered
or certified mail or overnight mail, to the Rating Agency then rating the Bonds,
if any, but failure to mail any such notice or any defect in the mailing thereof
shall not affect the validity of such acceleration.  Such notice of acceleration
(i)  shall  be  given  in the  name of the  Company,  (ii)  shall  identify  the
accelerated  Bonds (by name,  date of issue,  interest rate and maturity  date);
(iii) shall specify the Acceleration Date; (iv) shall state that the interest on
the  accelerated  Bonds ceased to accrue on the  Acceleration  Date;  (vi) shall
state the reason for the acceleration; and (vii) shall state that on the Payment
Date the  Acceleration  Price will be payable at the principal  corporate  trust
office of the Trustee.  The Trustee shall use "CUSIP" numbers on such notices as
a convenience to Bondholders and such notice shall state that no  representation
is made as to the  correctness of such numbers either as printed on the Bonds or
as contained in any notice of acceleration  and that reliance may be placed only
on the bond numbers printed on the Bonds.

Upon  acceleration  pursuant to this Section 8.02, the Trustee shall immediately
draw upon the Letter of Credit as provided  in Section  6.12 hereof in an amount
that is sufficient to pay the Acceleration Price due on the Outstanding Bonds on
the Payment Date.

Upon  receipt by the  Trustee of any  amount  from the Bank under the  preceding
paragraphs  of this Section 8.02 (or after receipt by the Trustee of any amounts
from the Bank under any other  provision of this  Indenture),  the Bank shall be
subrogated to the right,  title and interest of the Trustee and the  Bondholders
in and to any security held for the payment of the Bonds and upon payment of any
fees and  expenses  due and payable to the Trustee  pursuant to this  Indenture,
shall be assigned by the Trustee to the Bank.

SECTION 8.03. Other Remedies.  If any Event of Default occurs and is continuing,
the Trustee,  before or after  declaring the principal of the Bonds  immediately
due and payable,  may enforce each and every right  granted to the Trustee under
the Letter of Credit or any other security instrument,  or under any supplements
or amendments thereto,  and shall, at all times complying with the provisions of
Section 8.02 hereof, apply Available Moneys in the Bond Fund held by the Trustee
to the payment of  principal  of or interest on the Bonds.  In  exercising  such
rights and the rights  given the Trustee  under this  Article  VII,  the Trustee
shall  take  such  action,  as in the  judgment  of the  Trustee,  applying  the
standards  described in Section 9.01 hereof,  would best serve the  interests of
the Bondholders.

SECTION 8.04. Legal Proceedings by Trustee. If any Event of Default has occurred
and is  continuing,  the  Trustee in its  discretion  may and,  upon the written
request of the Bank or the Owners of 25% in  principal  amount of the Bonds then
Outstanding  (subject to the consent of the Bank,  as long as the Bank is not in
default  of its  obligations  under  the  Letter of  Credit  or a  voluntary  or
involuntary  case has not been  commenced by the filing of a petition  under the
Bankruptcy   Code  or  any  other  law  relating  to   bankruptcy,   insolvency,
reorganization,  winding-up or  composition or adjustment of debts by or against
the Bank) and receipt of indemnity to its satisfaction shall, in its own name.

A. By mandamus,  other Suit,  action or proceeding at law or in equity,  enforce
all rights of the  Bondholders,  including  the right to require  the Company to
carry out any  provisions of this  Indenture for the benefit of the  Bondholders
and to perform its duties under the Act;

B.    Bring suit upon the Bonds;

C.    By action or suit in equity require the Company to account
as if it were the trustee of an express trust for the
Bondholders; and

D. By action or suit in equity enjoin any acts or things that may be unlawful or
in violation of the rights of the Bondholders.

SECTION 8.05.  Discontinuance of Proceedings by Trustee. If any proceeding taken
by the  Trustee  on  account  of any  Event of  Default  is  discontinued  or is
determined  adversely to the Trustee,  the Company, the Trustee, the Bondholders
and the Bank shall be restored to their former positions and rights hereunder as
though no such proceeding had been taken,  but subject to the limitations of any
such adverse determination.

SECTION 8.06.  Bondholders May Direct  Proceedings by Trustee.  The Holders of a
majority in principal amount of the Bonds  Outstanding  hereunder shall have the
right to direct the method and place of conducting  all remedial  proceedings by
the Trustee hereunder,  provided that such direction shall not be otherwise than
in accordance with law or the provisions of this Indenture, and that the Trustee
shall not be  required to comply  with any such  direction  which it deems to be
unlawful or unjustly  prejudicial to Bondholders  not parties to such direction.
The foregoing  provisions of this Section 8.06 to the contrary  notwithstanding,
the Bank shall  have the right to direct the method and the place of  conducting
all remedial  proceedings by the Trustee hereunder  provided that such direction
shall not be otherwise  than in  accordance  with law or the  provisions of this
Indenture  and as long as the Bank shall not be in  default  under the Letter of
Credit.

SECTION 8.07. Limitations on Actions by Bondholders.  Anything in this Indenture
to the contrary  notwithstanding,  no Bondholder  shall have any right to pursue
any remedy hereunder unless:

(a) The Trustee shall have been given written notice of an Event of Default;

(b) The  holders  of at least  25% in  aggregate  principal  amount of the Bonds
Outstanding shall have requested the Trustee, in writing, to exercise the powers
hereinabove granted or to pursue such remedy in its or their name or names;

(c) The Trustee  shall have been offered  indemnity  satisfactory  to it against
costs, expenses and liabilities;

(d) The  Trustee  shall  have  failed  to  comply  with  such  request  within a
reasonable time; and

(e) The Bank shall be in default of its obligations  under the Letter of Credit;
provided,  however,  that nothing herein shall affect or impair the right of any
Owner of any Bond to  enforce  payment of the  principal  thereof  and  interest
thereon at and after the maturity  thereof,  or the obligation of the Company to
pay such  principal  and interest to the  respective  Owners of the Bonds at the
time and place from the source  and in the  manner  expressed  herein and in the
Bonds provided  further that such action shall not disturb or prejudice the lien
of this Indenture.

SECTION 8.08. Trustee May Enforce Rights Without Possession of Bonds. All rights
under this  Indenture  and the Bonds may be enforced by the Trustee  without the
possession  of any  Bonds  or the  production  thereof  at the  trial  or  other
proceedings  relative  thereto,  and any  proceedings  instituted by the Trustee
shall be brought in its name for the ratable benefit of the Owners of the Bonds.

SECTION 8.09. Delays and Omissions Not to Impair Rights. No delay or omission in
respect  of  exercising  any right or power  accruing  upon any Event of Default
shall  impair  such right or power or be a waiver of such  Event of Default  and
every remedy given by this Article VIII may be exercised,  from time to time and
as often as may be deemed expedient.

SECTION 8.10.  Application of Moneys in Event of Default.  Any money received by
the Trustee  under this  Article VIII shall be applied in the order listed below
(provided  that any money  received by the Trustee upon drawing under the Letter
of  Credit  together  with  Available  Moneys  on  deposit  in the Bond Fund and
available  for payment of principal  and interest on all  Outstanding  Bonds any
money held by the Trustee upon the nonpresentment of Bonds and any money held by
the Trustee for the  defeasance of Bonds pursuant to Article XI shall be applied
only as provided in clause (b) below and only to pay  outstanding  principal and
accrued  interest  as  provided  in the  Letter of Credit,  with  respect to the
Bonds):

(a) to the payment of the fees and expenses of the Trustee including  reasonable
counsel fees and expenses,  and any  disbursements  of the Trustee with interest
thereon and its reasonable compensation;

(b) To the payment of principal and interest then owing on the Bonds,  including
any interest on overdue  interest,  and in case such money shall be insufficient
to pay the same in full,  then to the payment of principal and interest  ratably
without  preference  or priority of one over  another or of any  installment  of
interest over any other installment of interest;

(c) To the  payment of any  unreimbursed  drawing  under the Letter of Credit or
other  obligations  owing by the  Company  to the Bank  under the  Reimbursement
Agreement; and

(d) The surplus if any remaining after the application of the money as set forth
above  shall be paid to the Company or the person  lawfully  entitled to receive
the same as a court of competent jurisdiction may direct.

SECTION 8.11. Remedies Not Exclusive.  No remedy herein conferred is intended to
be exclusive of any other remedy or remedies,  and each remedy is in addition to
every other  remedy given  hereunder  or now or hereafter  existing at law or in
equity or by statute.

SECTION 8.12.  Subrogation  Rights of Bank.  The Trustee agrees that the Bank or
other  provider of a  Substitute  Letter of Credit  shall be  subrogated  to all
rights, remedies and collateral of the Trustee under this Indenture or any other
document or instrument, to the extent the Bank or other provider of a Substitute
Letter of Credit has  honored a draw  under the  Letter of Credit or  Substitute
Letter  of  Credit,  as the case may be,  and has not  been  reimbursed  or paid
therefor.

SECTION  8.13.  Waiver of Default.  As long as the Bank is not in default of its
obligations under the Letter of Credit and the Letter of Credit is in full force
and effect,  the Bank may waive an Event of Default and if the Bank does so, the
Trustee  must also waive such Event of  Default.  The  Trustee  may not waive an
Event of  Default  under  this  Indenture  if the  Letter of Credit has not been
reinstated to cover  principal and interest on the Bonds in accordance  with the
terms of the Letter of Credit.
      ARTICLE IX

      THE TRUSTEE, THE TENDER AGENT AND
      THE REMARKETING AGENT

SECTION 9.01.  Duties,  Immunities and  Liabilities of Trustee.  (a) The Trustee
shall,  prior to an Event of  Default,  and  after the  curing of all  Events of
Default which may have occurred, perform such duties and only such duties as are
specifically  set  forth  in this  Indenture.  The  Trustee  shall,  during  the
existence of any Event of Default  (which has not been cured),  exercise such of
the rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their  exercise,  as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.

(b) Any Trustee hereunder may be removed at any time by an instrument appointing
a successor to the Trustee so removed,  executed by the Holders of a majority in
principal  amount of the Bonds then  Outstanding  or the Bank (provided that the
Bank is not in default  under the Letter of Credit) and filed with the  Trustee,
and the Company.  Such removal shall take effect only upon the  appointment of a
successor trustee.

(c) The  Trustee  may at any  time  resign  by  giving  written  notice  of such
resignation to the Company and the Bank and by giving the Bondholders  notice of
such  resignation  by mail at the  addresses  shown  on the  registration  books
maintained by the Bond Registrar. Upon receiving such notice of resignation, the
Company shall promptly notify the Bank, and the Company shall promptly appoint a
successor Trustee by an instrument in writing.

(d) Any removal or  resignation  of the Trustee and  appointment  of a successor
Trustee shall become  effective upon  acceptance of appointment by the successor
Trustee.  If no successor  Trustee  shall have been  appointed and have accepted
appointment within forty-five (45) days of giving notice of removal or notice of
resignation as aforesaid,  the resigning Trustee or any Bondholder (on behalf of
himself  and  all  other  Bondholders)  may  petition  any  court  of  competent
jurisdiction for the appointment of a successor  Trustee.  Any successor Trustee
appointed under this Indenture, shall signify its acceptance of such appointment
by executing  and  delivering  to the Company and to its  predecessor  Trustee a
written acceptance  thereof,  and thereupon such successor Trustee,  without any
further  act,  deed or  conveyance,  shall  become  vested  with all the moneys,
estates,  properties,  rights,  powers,  trusts,  duties and obligations of such
predecessor  Trustee,  with like effect as if originally  named Trustee  herein,
but,  nevertheless at the request of the Company or the request of the successor
Trustee,  such  predecessor  Trustee  shall  execute  and  deliver  any  and all
instruments  of conveyance or further  assurance and do such other things as may
reasonably be required for more fully and certainly vesting in and confirming to
such  successor  Trustee all the right,  title and interest of such  predecessor
Trustee in and to any  property  held by it under this  Indenture  and shall pay
over,  transfer,  assign and deliver to the successor Trustee any money or other
property subject to the trusts and conditions  herein set forth. Upon request of
the  successor  Trustee,  the  Company  shall  execute  and  deliver any and all
instruments as may be reasonably  required for more fully and certainly  vesting
in and confirming to such successor Trustee all such moneys estates, properties,
rights, powers,  trusts, duties and obligations.  Upon acceptance of appointment
by a successor Trustee as provided in this subsection, such successor Trustee at
its expense  shall mail a notice of its  succession  to the trusts  hereunder to
Moody's and to the Bondholders at the addresses shown on the registration  books
maintained by the Bond Registrar.

(e) Any Trustee  appointed under the provisions of this section in succession to
the  Trustee  shall be a trust  company  or bank  having  the  powers of a trust
company having a corporate trust office in the State,  having a combined capital
and surplus of at least One Hundred Million Dollars  ($100,000,000),  subject to
supervision or examination by federal or state authorities and shall be rated by
Moody's or have  received  written  evidence  from  Moody's that the use of such
Trustee  would not  result in a  reduction  or  withdrawal  of the rating on the
Bonds.  If such bank or trust  company  publishes a report of condition at least
annually, pursuant to law or to the requirements of any supervising or examining
authority  above  referred  to,  then for the  purpose  of this  subsection  the
combined capital and surplus of such bank or trust company shall be deemed to be
its  combined  capital  and  surplus as set forth in its most  recent  report of
condition  so  published.  In case at any time  the  Trustee  shall  cease to be
eligible in accordance  with the provisions of this  subsection (e), the Trustee
shall  resign  immediately  in the manner and with the effect  specified in this
Section.

SECTION 9.O1A.  Compensation and Indemnity. The Company shall pay to the Trustee
from time to time,  and the Trustee shall be entitled to,  compensation  for its
services  as set forth in the  Trustee's  letter to the  Placement  Agent  dated
January 16, 1998. The Trustee's  compensation shall not be limited by any law on
compensation  of a trustee of an express trust.  The Company shall reimburse the
Trustee upon request for all reasonable  out-of-pocket expenses incurred or made
by it, including costs of collection,  costs of preparing and reviewing reports,
certificates and other documents, costs of preparation and mailing of notices to
Holders and reasonable  costs of counsel  retained by the Trustee in addition to
the  compensation  for its services.  Such expenses shall include the reasonable
compensation and expenses,  disbursements  and advances of the Trustee's agents,
counsel,  accountants and experts. The Company shall indemnify and hold harmless
the  Trustee  against  any and  all  losses,  liability  or  expense  (including
reasonable attorneys' fees) incurred by it in connection with the administration
of this trust and the performance of its duties  hereunder,  including the costs
and expenses of enforcing this Indenture  (including  this Section 9.O1A) and of
defending itself against any claims (whether asserted by any Holder, the Company
or  otherwise).  The Trustee shall notify the Company  promptly of any claim for
which it may seek  indemnity.  Failure by the  Trustee to so notify the  Company
shall not relieve the Company of its  obligations  hereunder.  The Company shall
defend the claim and the Trustee may have separate counsel and the Company shall
pay the fees and expenses of such  counsel.  The Company need not  reimburse any
expense or  indemnify  against any loss,  liability  or expense  incurred by the
Trustee through the Trustee's own willful misconduct or gross negligence.

To secure the Company's  payment  obligations in this Section 9.01A, the Trustee
shall have a lien prior to the Bonds on all money or property  held or collected
by the Trustee  other than money or property  held in trust to pay  principal of
and interest on particular Bonds in accordance with Section 8.10 and proceeds of
drawings on the Letter of Credit.  The Trustee's right to receive payment of any
amounts  due under this  Section  9.01A  shall not be  subordinate  to any other
liability or indebtedness of the Company.

The Company's payment  obligations  pursuant to this Section 9.O1A shall survive
the discharge of this  Indenture.  When the Trustee  incurs  expenses  after the
occurrence  of a Default  specified  in  Section  8.01(e)  with  respect  to the
Company,  the  expenses are intended to  constitute  expenses of  administration
under any bankruptcy law.

SECTION 9.02. Merger or Consolidation. Any company into which the Trustee may be
merged  or  converted  or  with  which  it may be  consolidated  or any  company
resulting from any merger,  conversion or  consolidation  to which it shall be a
party  or any  company  to  which  the  Trustee  may  sell  or  transfer  all or
substantially  all of its corporate trust business,  provided such company shall
be eligible under subsection (e) of Section 9.01, shall be the successor to such
Trustee  without  the  execution  or  filing of any  paper or any  further  act,
anything herein to the contrary notwithstanding.


SECTION 9.03.  Liability of Trustee. (a) The recitals of facts herein and in the
Bonds  contained  shall be taken as statements  of the Company,  and the Trustee
shall assume no  responsibility  for the  correctness  of the same,  or make any
representations  as to the validity or  sufficiency  of this Indenture or of the
Bonds or shall  incur any  responsibility  in  respect  thereof,  other  than in
connection with the duties or obligations  herein or in the Bonds assigned to or
imposed  upon  it.  The  Trustee  shall,   however,   be  responsible   for  its
representations contained in its certificate of authentication on the Bonds. The
Trustee shall not be liable in  connection  with the  performance  of its duties
hereunder,  except  for its own gross  negligence  or  willful  misconduct.  The
Trustee  may become the Owner of Bonds with the same  rights it would have if it
were not Trustee and, to the extent  permitted by law, may act as depositary for
and permit any of its  officers  or  directors  to act as a member of, or in any
other  capacity with respect to, any  committee  formed to protect the rights of
Bondholders,  whether or not such  committee  shall  represent  the Holders of a
majority in principal amount of the Bonds then Outstanding.

(b) The Trustee shall not be liable for any error of judgment made in good faith
by a responsible officer, unless it shall be proved that the Trustee was grossly
negligent in ascertaining the pertinent facts.

(c) The Trustee  shall not be liable with respect to any action taken or omitted
to be taken by it in good faith in accordance  with the direction of the Bank or
the Holders of not less than a majority  in  aggregate  principal  amount of the
Bonds  at the  time  Outstanding  relating  to the  time,  method  and  place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee under this Indenture.

(d) The Trustee  shall be under no  obligation  to exercise any of the rights or
powers vested in it by this Indenture (other than the making of a draw under the
Letter of Credit in accordance  with its terms and the terms  hereof,  declaring
the  principal  of the Bonds to be  immediately  due and payable  when  required
hereunder  or making  payments on the Bonds when due) at the  request,  order or
direction of any of the  Bondholders  or the Bank pursuant to the  provisions of
this  Indenture  unless such  Bondholders  or the Bank shall have offered to the
Trustee  indemnification  to its satisfaction  for indemnity  against the costs,
expenses and liabilities which may be incurred therein or thereby.

(e) The Trustee shall not be liable for any action taken by it in good faith and
believed by it to be  authorized  or within the  discretion  or rights or powers
conferred upon it by this Indenture.


SECTION  9.04.  Right  of  Trustee  to  Rely  on  Documents.   The  Trustee  may
conclusively rely, and shall be protected in acting upon any notice, resolution,
request,  consent, order,  certificate,  report, opinion, bond or other paper or
document  believed by it to be genuine and to have been signed or  presented  by
the proper party or parties.  The Trustee may consult with  counsel,  who may be
counsel of or to the Company, with regard to legal questions, and the opinion of
such counsel shall be full and complete  authorization and protection in respect
of any action taken or suffered by it hereunder in good faith and in  accordance
therewith.

The Trustee  shall not be bound to recognize  any person as the Holder of a Bond
unless and until such Bond is submitted  for  inspection,  if required,  and his
title thereto is satisfactorily established, if disputed.

Whenever in the  administration  of the trusts imposed upon it by this Indenture
the Trustee  shall deem it  necessary  or  desirable  that a matter be proved or
established  prior to taking or  suffering  any action  hereunder,  such  matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be  conclusively  proved and  established  by a Certificate  of the
Company,  and such  Certificate  shall be full  warrant to the  Trustee  for any
action taken or suffered in good faith under the provisions of this Indenture in
reliance upon such  Certificate,  but in its discretion the Trustee may, in lieu
thereof,  accept other  evidence of such matter or may require  such  additional
evidence as it may deem reasonable.

SECTION 9.05. Preservation and Inspection of Documents.

(a) All documents received by the Trustee under the provisions of this Indenture
shall be retained in its possession and shall be subject during normal  business
hours of the Trustee to the  inspection of the Company and any  Bondholder,  and
their agents and representatives duly authorized in writing, at reasonable hours
and under reasonable conditions.

(b) The Trustee  covenants  and agrees that it shall  maintain a current list of
the names and addresses of all the Bondholders.

SECTION  9.06.  Compensation.  The  Trustee  shall  be  paid  from  time to time
reasonable compensation for all services rendered under this Indenture, and also
all  reasonable  expenses,   charges,   legal  and  consulting  fees  and  other
disbursements and those of its attorneys, agents and employees,  incurred in and
about the  performance  of its powers and duties  under this  Indenture,  all as
provided  in its bid  submitted  to the  Remarketing  Agent and the  Company  to
provide services under this Indenture.


SECTION 9.07.  The Tender Agent.  Dauphin  Deposit Bank and Trust  Company,  the
initial Tender Agent appointed by the Company,  and each successor  tender agent
appointed in  accordance  herewith,  shall  designate its office and signify its
acceptance of the duties and obligations  imposed upon it as described herein by
a written  instrument  of  acceptance  delivered  to the Trustee and the Company
under which the Tender Agent shall, among other things:

(a) hold all Bonds  delivered  to it  hereunder  in trust for the benefit of the
respective Owners of Bonds which shall have so delivered such Bonds until moneys
representing the Purchase Price of such Bond shall have been delivered to or for
the account of or to the order of such Owners of Bonds.  Upon delivery of moneys
representing the Purchase Price of such Bonds to or for the account of or to the
order of such Owners of Bonds,  the Tender Agent shall hold all such Bonds which
are required to be delivered to the Pledged Bond  Custodian  pursuant to Section
5.07(b)  hereof,  as the agent of the Bank for the  purpose  of  perfecting  the
Bank's security  interest therein under the Pledge Agreement (which agency shall
terminate  upon  delivery of such Bonds by the Tender Agent to or upon the order
of the Bank in accordance with such Section 5.07(b)); and

(b) hold all  moneys  delivered  to it  hereunder  and  under the  Tender  Agent
Agreement for the purchase of such Bonds in a separate  account in trust for the
benefit of the person or entity which shall have so delivered  such moneys until
required to transfer such funds as provided herein.

SECTION 9.08.  Qualification  of Tender  Agent.  (a) The Tender Agent shall be a
bank or trust  company  duly  organized  under the laws of the United  States of
America or any state or  territory  thereof,  having a combined  capital  stock,
surplus  and  undivided   profits  of  at  least  One  Hundred  Million  Dollars
($100,000,000)  or that is a  wholly-owned  subsidiary  of such a bank or  trust
company,  and  authorized  by law to perform all duties  imposed upon it by this
Indenture and shall be rated at least  Baa3/P-3 by Moody's if the Bonds are then
rated by Moody's,  or has received written evidence from Moody's that the use of
such Tender Agent would not result in a reduction or withdrawal of the rating on
the Bonds.  The Tender  Agent may at any time  resign and be  discharged  of its
duties and obligations by giving at least sixty (60) days notice to the Company,
the Trustee,  the Remarketing Agent and the Bank; provided that such resignation
or removal  shall not take effect until the  appointment  of a successor  Tender
Agent, and in accordance with the provisions  hereof.  Upon the written approval
of the Bank,  the Tender  Agent may be removed at any time by the  Company  upon
written notice to the Trustee and the Remarketing Agent. Successor Tender Agents
may be  appointed  from  time to time by the  Company,  with the  prior  written
consent of the Bank.

(b) Upon the resignation or removal of the Tender Agent,  the Tender Agent shall
deliver any Bonds and moneys held by it in such capacity to its successor.

SECTION 9.09.  Qualifications of Remarketing Agent;  Resignation;  Removal.  The
Remarketing Agent shall be a financial  institution or registered  broker/dealer
authorized  by law  to  perform  all  of the  duties  imposed  upon  it by  this
Indenture. The Remarketing Agent may at any time resign and be discharged of its
duties and  obligations  created by this  Indenture  giving at least thirty (30)
days notice to the Company and the Trustee. The Remarketing Agent may be removed
at any time, upon not less than thirty (30) days written notice from the Company
filed with the  Trustee.  Upon the  resignation  or  removal of the  Remarketing
Agent, the Company shall appoint a successor Remarketing Agent and shall provide
written  notice  thereof  to the  Trustee.  The  resignation  or  removal of the
Remarketing Agent shall not become effective until a successor Remarketing Agent
is appointed  and accepts such  appointment.  If the Bonds are rated by a Rating
Agency,  any  successor  Remarketing  Agent shall be rated at least  Baa3/P-3 or
otherwise be acceptable to such Rating Agency.

SECTION 9.10. Construction of Ambiguous Provisions. The Trustee may construe any
provision hereof insofar as such may appear to be ambiguous or inconsistent with
any other provision  hereof,  and any  construction of any such provision by the
Trustee, in good faith shall be binding upon the Owners of the Bonds.

      ARTICLE X

      MODIFICATION OR AMENDMENT OF THE INDENTURE

SECTION  10.01.  Amendments  Permitted.   This  Indenture  and  the  rights  and
obligations  of the Company,  of the Trustee and of the Holders of the Bonds may
be modified or amended from time to time and at any time for any lawful purpose,
by an indenture or  indentures  supplemental  hereto,  which the Company and the
Trustee may enter into without the consent of any Bondholders but with the prior
written  consent  of the Bank (as long as the Bank is not in  default  under the
Letter of  Credit).  The  foregoing  to the  contrary  notwithstanding,  no such
modification or amendment shall, without the consent of the holders of all Bonds
then  Outstanding,  (a) extend  the  maturity  date of any Bond,  (b) reduce the
amount of principal thereof, (c) extend the time of payment or change the method
of computing the rate of interest thereon,  without the consent of the Holder of
each Bond so affected, or eliminate the Holders' rights to tender the Bonds, (d)
extend the due date for the purchase of Bonds  tendered by the Holders  thereof,
or (e) reduce the Purchase  Price of such Bonds.  It shall not be necessary  for
the  consent  of  the   Bondholders  to  approve  the  particular  form  of  any
Supplemental Indenture, but it shall be sufficient if such consent shall approve
the  substance  thereof.  Promptly  after the  execution  by the Company and the
Trustee of any  Supplemental  Indenture  pursuant  to this  Section  10.01,  the
Trustee  shall mail a notice,  setting  forth in general  terms the substance of
such Supplemental Indenture, to each Rating Agency then rating the Bonds and the
Holders  of the  Bonds at the  address  shown on the  registration  books of the
Trustee.  Any failure to give such  notice,  or any defect  therein,  shall not,
however,  in any way  impair or affect  the  validity  of any such  Supplemental
Indenture.

SECTION  10.02.  Effect of  Supplemental  Indenture.  Upon the  execution of any
Supplemental  Indenture pursuant to this Article, this Indenture shall be deemed
to be modified and amended in accordance  therewith,  and the respective rights,
duties and obligations under this Indenture of the Company,  the Trustee and all
Holders of Bonds  Outstanding  shall  thereafter  be  determined,  exercised and
enforced  hereunder  subject in all respects to such modification and amendment,
and all the terms and  conditions of any such  Supplemental  Indenture  shall be
deemed to be part of the terms and  conditions of this Indenture for any and all
purposes.   SECTION  10.03.   Trustee  Authorized  to  Join  in  Amendments  and
Supplements;  Reliance on Counsel.  The Trustee is  authorized  to join with the
Company in the execution and delivery of any supplemental indenture or amendment
permitted  by this  Article  X and in so doing  shall be fully  protected  by an
opinion  of  counsel  that  such,  supplemental  indenture  or  amendment  is so
permitted  and has been  duly  authorized  by the  Company  and that all  things
necessary to make it a valid and binding agreement have been done.

      ARTICLE XI

      DEFEASANCE

SECTION 11.01.  Discharge of Indenture.  The Bonds may be paid by the Company in
any of the following  ways,  provided that the Company also pays or causes to be
paid any other sums payable hereunder by the Company:

(a) by paying or causing to be paid the  principal of and interest on the Bonds,
as and when the same become due and payable.

(b) with respect to Bonds which bear  interest at the Fixed Rate,  by depositing
with the  Trustee,  in trust,  Available  Moneys or  securities  purchased  with
Available  Moneys in the necessary  amount (as provided in Section 11.03) to pay
or redeem all Bonds then Outstanding; or

(c) by  delivering  to the  Trustee,  for  cancellation  by it,  the Bonds  then
Outstanding.

If the  Company  shall pay or cause to be paid all Bonds  then  Outstanding  and
shall  also pay or cause to be paid all  other  sums  payable  hereunder  by the
Company,  then and in that case, at the election of the Company  (evidenced by a
Certificate  of the Company filed with the Trustee,  signifying the intention of
the  Company  to  discharge  all  such  indebtedness  and this  Indenture),  and
notwithstanding that any Bonds shall not have been surrendered for payment, this
Indenture and the pledge of Revenues and other assets made under this  Indenture
and all covenants,  agreements  and other  obligations of the Company under this
Indenture shall cease,  terminate,  become void and be completely discharged and
satisfied.  In such event, upon Request of the Company,  the Trustee shall cause
an  accounting  for such period or periods as may be requested by the Company to
be  prepared  and filed with the  Company  and shall  execute and deliver to the
Company  all such  instruments,  as  prepared by or caused to be prepared by the
Company,  that may be  necessary or desirable  to evidence  such  discharge  and
satisfaction,  and the Trustee shall pay over,  transfer,  assign or deliver all
moneys or  securities or other  property held by it pursuant to this  Indenture,
which are not  required  for (i) the payment of all the  charges and  reasonable
expenses of the Trustee under this Indenture,  (ii) the payment or redemption of
Bonds not  theretofore  surrendered  for such payment or redemption or (iii) the
payment  of  amounts  owed to the Bank by the  Company  under the  Reimbursement
Agreement, to the Company.

SECTION  11.02.  Discharge of Liability on Bonds.  During the Fixed Rate Period,
upon the deposit with the Trustee, in trust, at or before maturity,  of money or
securities  in the  necessary  amount (as  provided in Section  11.03) to pay or
redeem any Outstanding  Bond (whether upon or prior to the end of the Fixed Rate
Period or the redemption  date of such Bond),  provided that, if such Bond is to
be redeemed prior to maturity,  notice of such redemption  shall have been given
as in Article IV provided provision  satisfactory to the Trustee shall have been
made for the giving of such notice, then all liability of the Company in respect
of such Bond shall cease, terminate and be completely discharged, and the Holder
thereof  shall  thereafter  be  entitled  only to  payment  out of such money or
securities  deposited with the Trustee as aforesaid for their payment,  subject,
however, to the provisions of Section 11.04 below.

The Company may at any time surrender to the Trustee for  cancellation by it any
Bonds  previously  issued and delivered,  which the Company may have acquired in
any manner  whatsoever,  and such Bonds,  upon such surrender and  cancellation,
shall be deemed to be paid and retired.

SECTION  11.03.  Deposit of Money or Securities  with Trustee.  During the Fixed
Rate Period,  whenever in this  Indenture it is provided or permitted that there
be deposited  with or held in trust by the Trustee  money or  securities  in the
necessary  amount to pay or redeem any Bonds,  the money or  securities so to be
deposited or held shall be cash or  Investment  Securities  described in clauses
(i) or (ii) of the definition  thereof in Section 1.01 hereof,  which Investment
Securities shall be noncallable and not subject to prepayment,  the principal of
and  interest  on which  when  due  will  provide  money  sufficient  to pay the
principal of, premium,  if any, and all unpaid  interest to maturity,  or to the
redemption  date,  as the case may be, on the Bonds to be paid or  redeemed,  as
such principal,  premium, if any, and interest become due, provided that, in the
case of Bonds which are to be redeemed prior to the maturity thereof,  notice of
such  redemption  shall have been given as provided  in Article IV or  provision
satisfactory  to the Trustee shall have been made for the giving of such notice,
provided, in each case, that the Trustee shall have been irrevocably  instructed
(by request of the Company) to apply such money to the payment of such principal
and interest with respect to such Bonds.

Whenever Investment Securities are deposited with the Trustee in accordance with
this  Section  11.03,  the Company  shall  provide to the Trustee and the Rating
Agency (a) a verification  report from an Accountant,  satisfactory  in form and
content  to  the  Trustee,  demonstrating  that  the  Investment  Securities  so
deposited  and the income  thereon  shall be sufficient to pay the principal of,
premium, if any, and all unpaid interest to maturity, or to the redemption date,
as the case may be,  on the  Bonds to be paid or  redeemed,  as such  principal,
premium,  if any, and interest  become due and (b) an opinion  acceptable to the
Rating Agency, of nationally  recognized  bankruptcy counsel, to the effect that
the provision for payment of the Bonds  contemplated to be made pursuant to this
Section  11.03  will not  constitute  or  result in such  payments  constituting
voidable preferences under Section 547 of the Bankruptcy Code.

SECTION 11.04.  Payment of Bonds After  Discharge of Indenture.  Notwithstanding
any  provisions of this  Indenture,  any moneys held by the Trustee in trust for
the payment of the principal of, premium,  if any, or interest on, any Bonds and
remaining  unclaimed  for five (5) years after the principal of all of the Bonds
has become due and payable  (whether at maturity or upon call for  redemption or
by acceleration as provided in this  Indenture),  if such moneys were so held at
such  date,  or five (5)  years  after  the date of  deposit  of such  moneys if
deposited after said date when all of the Bonds became due and payable, shall be
repaid to the Company, upon its written request, free from the trusts created by
this  Indenture  and all  liability  of the Trustee  with respect to such moneys
shall  thereupon  cease,  provided,  however,  that before the repayment of such
moneys to the Company as aforesaid,  the Trustee may (at the cost and request of
the Company) first mail to the Holders of Bonds which have not been paid, at the
addresses  last shown on the  registration  books  maintained by the Trustee,  a
notice, in such form as may be deemed appropriate by the Trustee with respect to
the Bonds so  payable  and not  presented  and with  respect  to the  provisions
relating to the repayment to the Bank and the Company of the moneys held for the
payment thereof.
      ARTICLE XII

      INSURANCE; DESTRUCTION, DAMAGE, EMINENT DOMAIN

SECTION 12.01. Insurance to be Maintained.  The Company covenants to provide and
maintain continuously,  unless otherwise herein provided,  adequate insurance on
the  Project  Facilities  as shall be  mutually  agreed upon by the Bank and the
Company. Each insurance policy with respect to the Project Facilities shall name
the Bank and the Trustee as additional insureds.

SECTION 12.02. Destruction, Damage and Eminent Domain. If the Project Facilities
shall be wholly or  partially  destroyed  or damaged  by fire or other  casualty
covered  by  insurance,  or shall be wholly  or  partially  condemned,  taken or
injured by any Person, including any Person possessing the right to exercise the
power of or a power in the nature of eminent  domain or shall be  transferred to
such a Person by way of a conveyance  in lieu of the exercise of such a power by
such a Person,  the Company  covenants that it will take all actions and will do
all  things  which  may be  necessary  to enable  recovery  to be made upon such
policies of insurance or on account of such  taking,  condemnation,  conveyance,
damage or injury.  The Company is authorized,  in its own name, as trustee of an
express trust,  to demand,  collect,  sue,  settle  claims,  receive and release
moneys which may be due and payable  under  policies of insurance  covering such
damage or destruction or on account of such condemnation,  damage or injury. Any
moneys  recovered  (i)  on  policies  of  insurance  required  to be  maintained
hereunder or (ii) as a result of any taking, condemnation, conveyance, damage or
injury shall be  deposited  in the Project  Fund held by the Trustee  under this
Indenture  and shall be applied in  accordance  with the  provisions  of Section
12.04  hereof,  provided,  however,  that as long as the Bank is not in  default
under the terms of the  Letter  of  Credit,  the  applicable  provisions  of the
Reimbursement  Agreement shall control the disposition of casualty insurance and
condemnation award proceeds.

Any  appraisement  or adjustment of loss or damage and any settlement or payment
therefore, shall be agreed upon by the Company, the Bank (as long as the Bank in
not in  default  under the  Letter of  Credit)  and the  appropriate  insurer or
condemnor  or Person,  shall be  evidenced  to the Bank by the  certificate  and
approvals set forth in this Indenture.  The Bank may rely conclusively upon such
certificates.

SECTION 12.03.  Notice of Property Loss.  After the occurrence of loss or damage
to, or after receipt of notice of condemnation of, the Project  Facilities,  the
Company shall within five (5) Business  Days thereof  notify the Trustee and the
Bank, in writing, of such damage.


SECTION 12.04. Disposition of Casualty Insurance and Condemnation
Award Proceeds.

(a) If the Bank is in  default  under the terms of the  Letter  of  Credit,  the
Company  may elect,  in its  discretion,  whether to apply the  proceeds  of any
casualty  insurance  coverage  and/or  condemnation  awards  to (i) the  repair,
reconstruction  or  replacement  of  damaged,   destroyed  or  injured  property
comprising  the Project  Facilities or (ii) the  redemption of Bonds pursuant to
the applicable  provisions of this Indenture.  Absent timely  direction from the
Company  as to  the  application  of  any  casualty  insurance  coverage  and/or
condemnation  awards, the proceeds thereof shall be applied to the extraordinary
redemption  of the  Bonds  at par  plus  accrued  interest  through  the date of
redemption.  For purposes of the preceding  sentence,  "timely  direction" shall
mean  thirty (30) days after the Company  has  agreed,  in  connection  with any
damage to or  condemnation  of the Project  Facilities,  upon the  settlement or
payment with respect to any  appraisement  or adjustment  of loss or damage,  as
appropriate.

(b) If the Bank is not in default  under the terms of the Letter of Credit,  the
proceeds of any casualty insurance coverage and/or  condemnation awards shall be
applied in accordance with Section 7(f) of the Reimbursement Agreement.


      ARTICLE XIII

      MISCELLANEOUS

SECTION 13.01.  Successor is Deemed  Included in All References to  Predecessor.
Whenever  in this  Indenture  either  the  Company  or the  Trustee  is named or
referred to, such reference shall be deemed to include the successors or assigns
thereof,  and all the covenants and agreements in this Indenture contained by or
on behalf of the Company or the  Trustee  shall bind and inure to the benefit of
the respective successors and assigns thereof whether so expressed or not.

SECTION 13.02.  Limitation of Rights to Parties,  Bank, Company and Bondholders.
Nothing in this  Indenture  or in the Bonds  expressed or implied is intended or
shall be construed  to give to any person  other than the Company,  the Trustee,
the Bank, and the Holders of the Bonds, any legal or equitable right,  remedy or
claim  under or in respect  of this  Indenture  or any  covenant,  condition  or
provision  therein or herein contained,  and all such covenants,  conditions and
provisions are and shall be held to be for the sole and exclusive benefit of the
Company, the Trustee, the Bank, and the Holders of the Bonds.

SECTION 13.03. Waiver of Notice. Whenever in this Indenture the giving of notice
by mail or  otherwise  is  required,  the giving of such notice may be waived in
writing by the person  entitled to receive  such notice and in any such case the
giving or receipt  of such  notice  shall not be a  condition  precedent  to the
validity of any action taken in reliance upon such waiver.

SECTION 13.04.  Severability  of Invalid  Provisions.  If any one or more of the
provisions  contained in this  Indenture or in the Bonds shall for any reason be
held to be invalid, illegal or unenforceable in any respect, then such provision
or provisions shall be deemed several from the remaining provisions contained in
this Indenture and such  invalidity,  illegality or  unenforceability  shall not
affect  any other  provision  of this  Indenture,  and this  Indenture  shall be
construed as if such  invalid or illegal or  unenforceable  provision  and never
been contained  herein.  The Company hereby  declares that it would have entered
into this  Indenture  and each and every  other  section,  paragraph,  sentence,
clause or phrase  hereof  and  authorized  the  issuance  of the Bonds  pursuant
thereto  irrespective  of the fact  that any one or more  sections,  paragraphs,
sentences,  clauses or phrases of this Indenture may be held illegal, invalid or
unenforceable.

SECTION 13.05.  Notices.  All notices to Bondholders shall be given by certified
or registered mail,  commercial  overnight delivery services,  telex,  telegram,
telecopier or other  telecommunication  device unless otherwise  provided herein
and confirmed in writing as soon as practicable.  All such notices shall also be
sent to the Holders and any person designated by any Holder to receive copies of
such  notices.  Any  notice  to or  demand  upon the  Trustee  may be  served or
presented,  and such demand may be made, at the principal corporate trust office
of the  Trustee,  or at such other  address as may have been filed in writing by
the Trustee,  the  Trustees  agent,  the Company,  the  Remarketing  Agent,  the
Placement  Agent,  the  Tender  Agent or the Bank  shall be  deemed to have been
sufficiently  given or served for all  purposes  by being  delivered  or sent by
telex or by being  deposited,  postage  prepaid,  in a post  office  letter box,
addressed as follows:

To the Trustee:

Dauphin Deposit Bank and Trust Company
213 Market Street
Harrisburg, PA  17101

To the Company:

Piercing Pagoda, Inc.
3910 Alder Place
P.O. Box 25007
Lehigh Valley, PA  18002-5007

(or such other address as may have been filed in writing by the
Company with the Trustee),

To the Remarketing Agent:

CoreStates Securities, Corp
600 Penn Street, Second Floor South
Reading, PA  19602

(or such other address as may have been filed in writing by the
Remarketing Agent with the Trustee),

To the Placement Agent:

CoreStates Securities, Corp
600 Penn Street, Second Floor South
Reading, PA  19602

To the Tender Agent:

Dauphin Deposit Bank and Trust Company
213 Market Street
Harrisburg, PA  17101

(or such other address as may have been filed in writing by the
Tender Agent with the Trustee),

To the Bank:

CoreStates Bank, N.A.
600 Penn Street, Third Floor North
Reading, PA  19102
(or such  other  address  as may have been filed in writing by the Bank with the
Trustee).

To the Rating Agency:

Moody's Investors Service
99 Church Street
New York, NY  10007

(or such other  address as may have been filed in writing by the this  Indenture
and shall be  conclusive  in favor of the  Trustee and of the Company if made in
the manner provided in this Section.

The fact and date of the execution by any person of any such request, consent or
other  instrument  or  writing  may be proved by the  certificate  of any notary
public or other officer of any  jurisdiction,  authorized by the laws thereof to
take acknowledgements of deeds, certifying that the person signing such request,
consent or other instrument  acknowledged to him the execution thereof, or by an
affidavit of a witness of such execution duly sworn to before such notary public
or other officer.

The  ownership of Bonds shall be proved by the bond  registration  books held by
the Trustee.

Any request,  consent or other  instrument  or writing of the Holder of any Bond
shall  bind  every  future  Holder of the same Bond and the Holder of every Bond
issued in exchange  therefor or in lieu thereof,  in respect of anything done or
suffered to be done by the Trustee or the Company in accordance  therewith or in
reliance thereon.

SECTION 13.07.  Disqualified  Bonds.  In determining  whether the Holders of the
requisite  aggregate  principal  amount of Bonds have  concurred  in any demand,
request,  direction,  consent or waiver  under this  Indenture,  Bonds which are
owned or held by or for the account of the Company,  or by any other  obligor on
the Bonds, or by any person directly or indirectly controlling or controlled by,
or under  direct or  indirect  common  control  with the  Company,  or any other
obligor on the Bonds,  shall be disregarded and deemed not to be Outstanding for
the  purposes of this  Section.  Bonds so owned which have been  pledged in good
faith may be regarded as  outstanding  for the  purposes of this  Section if the
pledgee shall  establish to the  satisfaction of the Trustee the pledgee's right
to vote such Bonds and that the pledgee is not a person  directly or  indirectly
controlling or controlled  by, or under direct or indirect  common control with,
the Company,  or any other obligor on the Bonds. In case of a dispute as to such
right,  any  decision by the Trustee  taken upon the advice of counsel  shall be
full protection to the Trustee.

SECTION 13.08.  Money Held for Particular  Bonds.  The money held by the Trustee
for the  payment of the  interest,  principal  or  premium  due on any date with
respect to  particular  Bonds (or  portions  of Bonds in the case of  registered
Bonds  redeemed in part only)  shall,  on and after such date and  pending  such
payment,  be set aside on its books and held  uninvested  in trust by it for the
Holders of the Bonds entitled thereto,  subject,  however,  to the provisions of
Section 11.04 hereof.

SECTION 13.09.  Funds. Any fund required by this Indenture to be established and
maintained by the Trustee may be  established  and  maintained in the accounting
records  of the  Trustee,  either  as a fund or an  account,  and  may,  for the
purposes of such records,  any audits thereof and any reports or statements with
respect  thereto,  be treated  either as a fund or as an  account,  but all such
records  with  respect  to all such  funds  shall at all time be  maintained  in
accordance with current industry standards, to the extent practicable,  and with
due regard for the requirements of Section 7.05 hereof and for the protection of
the security of the Bonds and the rights of every holder thereof.

SECTION  13.10.  Payments Due on Days other than Business Days. If a payment day
is not a Business Day at the place of payment,  then payment may be made at that
place on the next Business Day and no interest shall accrue for the  intervening
period.

SECTION 13.11. Execution in Several Counterparts. This Indenture may be executed
in any  number  of  counterparts  and each of such  counterparts  shall  for all
purposes be deemed to be an original;  and all such counterparts,  or as many of
them as the Company and the Trustee shall preserve  undestroyed,  shall together
constitute but one and the same instrument.

SECTION 13.12. Notices to Rating Agency. Written notice shall be provided by the
Company to each Rating Agency of (a) the  appointment of any successor  Trustee,
Tender  Agent  or  Remarketing  Agent,  (b) any  Supplemental  Indenture  or any
amendment  to the  Letter  of  Credit or the  Reimbursement  Agreement,  (c) the
expiration,  termination, extension or substitution of the Letter of Credit, (d)
the payment of all  Outstanding  Bonds,(e)  the  conversion  of the Bonds to the
Fixed Rate,  (f)  redemption,  (g)  defeasance,  (h) mandatory  tender,  and (i)
acceleration.

SECTION 13.13. Governing Law. This Indenture shall be governed by
and construed in accordance with the laws of the Commonwealth of
Pennsylvania (without regard to any conflict of laws provision).


IN WITNESS WHEREOF, PIERCING PAGODA, INC. has caused this Indenture to be signed
in its name by its President or other duly authorized officer and its seal to be
hereunto  affixed and  attested by its  Secretary or  Assistant  Secretary,  and
Dauphin Deposit Bank and Trust Company, in token of its acceptance of the trusts
created hereunder,  has caused this Indenture to be signed in its corporate name
by its duly authorized officer and its corporate seal to be hereunto affixed and
attested, all as of the day and year first above written.

Witness:

PIERCING PAGODA, INC.


------------------------- -----------------------------------

[SEAL]


Attest:                        DAUPHIN DEPOSIT BANK AND TRUST
COMPANY



---------------------------    -----------------------------------
 Assistant Secretary      Vice President





EXHIBIT A


      PIERCING PAGODA, INC.



      TAXABLE VARIABLE RATE DEMAND/FIXED RATE BONDS
      SERIES OF 1998





No. VR 1
$2,565,000
REGISTERED OWNER: CEDE & CO

Interest Rate   Maturity Date       Dated Date         CUSIP

Variable         May 1, 2013        April 30, 1998       720773AA8


THIS BOND IS SUBJECT TO  MANDATORY  TENDER FOR  PURCHASE  AT THE TIME AND IN THE
MANNER HEREINAFTER DESCRIBED,  AND MUST BE SO TENDERED OR WILL BE DEEMED TO HAVE
BEEN SO TENDERED UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN.

BY ACCEPTANCE OF THIS BOND,  THE  REGISTERED  OWNER HEREOF AGREES THAT THIS BOND
WILL BE PURCHASED, WHETHER OR NOT SURRENDERED, (A) ON CONVERSION OF THE INTEREST
RATE MADE OF THE BONDS OR ANY  EXPIRATION  OF THE LETTER OF CREDIT  FACILITY  AS
DESCRIBED  BELOW, OR (B) ON ANY PURCHASE DATE SPECIFIED BY THE REGISTERED  OWNER
HEREOF IN THE EXERCISE OF THE RIGHT TO DEMAND PURCHASE OF THIS BOND AS DESCRIBED
BELOW.  IN SUCH EVENT THE REGISTERED  OWNER OF THE BOND SHALL NOT BE ENTITLED TO
RECEIVE ANY FURTHER  INTEREST  THEREON,  SHALL HAVE NO FURTHER RIGHTS UNDER THIS
BOND OR THE INDENTURE EXCEPT TO PAYMENT OF THE PURCHASE PRICE HELD THEREFOR, AND
SHALL THEREAFTER HOLD THIS BOND AS AGENT FOR THE TENDER AGENT.

KNOW ALL MEN BY THESE PRESENTS that PIERCING PAGODA,  INC. (the "Company"),  for
value received,  promises to pay to CEDE & Co. or registered  assigns, on May 1,
2013,  upon  surrender  hereof,  the  principal  sum of Two Million Five Hundred
Sixty-Five Thousand ($2,565,000), and in like manner to pay interest on said sum
at the rate described below on the first Wednesday of each calendar month, or if
such date is not a Business Day, the next succeeding  Business Day  (hereinafter
defined) and on the Conversion Date (hereinafter defined),  commencing,  June 3,
1998 (each an "Interest  Payment  Date"),  from the  Interest  Payment Date next
preceding the date of  authentication  hereof to which interest has been paid or
duly  provided  for,  unless the date of  authentication  hereof is an  Interest
Payment Date to which interest has been paid or duly provided for, in which case
from the date of  authentication  hereof, or unless no interest has been paid or
duly  provided for on the Bonds (as  hereinafter  defined),  in which case from,
April 30, 1998 (the "Date of Issuance"),  until payment of the principal  hereof
has been made or duly provided for.

Notwithstanding  the  foregoing,  if this Bond is  authenticated  after any date
which is the seventh  calendar day (as  hereinafter  defined) next preceding any
Interest  Payment  Date (a "Record  Date") and  before  the  following  Interest
Payment Date,  this Bond shall bear  interest  from such Interest  Payment Date;
provided,  however, that if the Company shall default in the payment of interest
due on such Interest  Payment Date,  then this Bond shall bear interest from the
next  preceding  Interest  Payment Date to which  interest has been paid or duly
provided  for,  or, if no  interest  has been paid or duly  provided  for on the
Bonds,  from the Date of  Issuance.  The  principal  of this Bond is  payable in
lawful money of the United  States of America at the principal  corporate  trust
office of the Trustee or at the duly designated  office of any successor Trustee
under the  Indenture.  Payment  of  interest  on this Bond shall be made on each
Interest Payment Date to the registered Owner hereof as of the applicable Record
Date and shall be paid by check mailed by the Trustee to such  registered  Owner
at his address as it appears on the registration books of the Company or at such
other  address as is  furnished  to the  Trustee  in writing by such  registered
Owner,  or in such  other  manner  as may be  permitted  by the  Indenture.  The
Purchase  Price  (hereinafter  defined) of this Bond shall be payable by Dauphin
Deposit Bank and Trust Company (together with any successor, the "Tender Agent")
to the  registered  Owner hereof,  upon  presentation  hereof,  at the principal
corporate trust office of the Tender Agent.  As used herein,  the term "Business
Day"  means a day  which is not a  Saturday,  Sunday or legal  holiday  on which
banking  institutions  in the  State  of New  York,  the City of New  York,  the
Commonwealth of  Pennsylvania,  City of Harrisburg,  or the City of Philadelphia
are  authorized  to remain  closed or on which the New York  Stock  Exchange  is
closed.

This Bond shall bear interest as follows:

(A) From the Date of Issuance  of this Bond to the  Conversion  Date,  this Bond
shall bear  interest  at the  "Floating  Rate.  The  "Floating  Rate" shall be a
variable rate of interest  equal to the minimum rate of interest  necessary,  in
the sole judgment of the  Remarketing  Agent,  to sell the Bonds on any Business
Day at a price  equal to the  principal  amount  thereof,  exclusive  of accrued
interest,  if any,  thereon.  The Floating  Rate shall be  determined  weekly by
CoreStates Securities, Corp, Reading,  Pennsylvania (the "Remarketing Agent") by
9:30 a.m. on each  Wednesday (or if such Wednesday is not a Business Day, on the
next  succeeding  Business Day) and shall be effective on such Wednesday for the
immediately following Weekly Period (as hereinafter defined),  all as more fully
set forth in the  Indenture.  The  determination  of the Floating  Rate shall be
conclusive and binding upon the Company,  the Trustee,  the Bank (as hereinafter
defined), the Remarketing Agent, the Tender Agent and the Owners of this Bond.


Anything herein to the contrary notwithstanding. the Floating
Rate shall in no event exceed seventeen percent (17%) per annum.

(B) The  Bonds  shall  bear  interest  at the  "Fixed  Rate"  from and after the
Conversion  Date. In such event,  the Fixed Rate shall be  applicable  until the
maturity of the Bonds. The "Fixed Rate" shall be a fixed annual interest rate on
the Bonds established by the Remarketing Agent as the rate of interest for which
the  Remarketing  Agent has received  commitments on or prior to the fifth (5th)
day  preceding  the  Conversion  Date,  at a price of par  without  discount  or
premium.

Prior to the  Conversion  Date,  interest  on the Bonds shall be computed on the
basis of a 365/366 day year,  actual  number of days  elapsed.  On and after the
Conversion  Date,  interest on the Bonds shall be computed on the basis of a 360
day year of twelve 30 day months.

As used herein,  the term "Conversion  Date" means the Optional  Conversion Date
(as hereinafter defined); the term "Letter of Credit Termination Date" means the
later of (i) that date upon  which the  Letter of Credit  (hereinafter  defined)
shall expire or terminate  pursuant to its terms, or (ii) that date to which the
expiration or termination of the Letter of Credit may be extended,  from time to
time,  either by extension  or renewal of the  existing  Letter of Credit or the
issuance of a  Substitute  Letter of Credit (as defined in the  Indenture);  the
term "Optional  Conversion Date" means that date, which shall be a Business Day,
from and  after  which the  interest  rate on the  Bonds is  converted  from the
Floating  Rate to the Fixed Rate as a result of the  exercise  by the Company of
the Conversion  Option (as hereinafter  defined);  the term "Conversion  Option"
means the option  granted to the Company in the Indenture  pursuant to which the
interest rate on the Bonds is converted from the Floating Rate to the Fixed Rate
as of the Optional  Conversion  Date; the term "Purchase  Price" means an amount
equal to 100% of the principal  amount of any Bond  tendered or deemed  tendered
for  purchase  pursuant  to the  Indenture  or with  respect to which the Demand
Purchase  Option (as hereinafter  defined) has been exercised,  plus accrued and
unpaid interest thereon to the date of purchase.

The interest  rate on the Bonds may be converted  from the Floating  Rate to the
Fixed Rate at any time after the Initial Interest Payment Date upon satisfaction
of certain  conditions  and notice given by the Trustee at the  direction of the
Company to the Owners of the Bonds at least  twenty  (20) days but not more than
thirty  (30)  days  prior  to  the  Conversion   Date  in  accordance  with  the
requirements  of the  Indenture,  and the Bonds  shall be subject  to  mandatory
tender by the Owners thereof on the Conversion Date. On and after the Conversion
Date,  the Demand  Purchase  Option will not be  available  to the Owners of the
Bonds. On or prior to the Conversion Date, Owners of the Bonds shall be required
to deliver  their Bonds to the Tender Agent for purchase at the Purchase  Price.
Accrued  interest  on the Bonds will be payable  on the  Conversion  Date to the
Owners of Bonds as of the Conversion Date. Any Bonds not delivered to the Tender
Agent on or prior to the Conversion Date ("Undelivered  Bonds"), for which there
has been irrevocably  deposited in trust with the Trustee or the Tender Agent an
amount of money  sufficient to pay the Purchase Price of the Undelivered  Bonds,
shall be deemed to have been  purchased at the Purchase  Price and are deemed to
be no longer  outstanding  with respect to such prior Owners.  IN THE EVENT OF A
FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE  CONVERSION
DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY, PAYMENT  (INCLUDING ANY, INTEREST
TO ACCRUE ON OR SUBSEQUENT TO THE CONVERSION DATE) OTHER THAN THE PURCHASE PRICE
FOR SUCH  UNDELIVERED  BONDS,  AND ANY  UNDELIVERED  BONDS  SHALL NO  LONGER  BE
ENTITLED TO THE BENEFITS OF THE INDENTURE,  EXCEPT FOR THE PURPOSE OF PAYMENT OF
THE PURCHASE PRICE THEREFOR.

Notwithstanding the foregoing provisions, to the extent that at the close of the
fifth (5th)  Business Day prior to the proposed  Optional  Conversion  Date, the
Remarketing  Agent has not  presented  to the Company firm  commitments  for the
purchase  of all of the  Bonds,  the  Company,  at its  option,  may  rescind an
optional  conversion of the Bonds.  Any such election to rescind must be made by
the close of the fourth  Business Day prior to the proposed  Conversion Date and
the Company shall give written  notice to the Trustee,  the Tender Agent and the
Bank of its  decision  to rescind  the  optional  conversion  by such time.  The
Company  shall  cause the  Trustee  to  immediately  notify  the  Owners of such
rescission  and thereafter the Bonds shall bear interest at the Floating Rate in
effect for the then current  Weekly Period and  thereafter  the Bonds shall bear
interest at the Floating Rate until any subsequent  Conversion  Date effected in
accordance with the Indenture. As used herein, "Weekly Period" means, while this
Bond bears  interest at the Floating  Rate, the weekly period that begins on and
includes  Wednesday of each  calendar  week and ends at the close of business on
Tuesday of the next succeeding week.

At any time prior to the Record Date preceding the first  Interest  Payment Date
following the Conversion  Date, the Trustee or the Tender Agent, as the case may
be, shall deliver a replacement  Bond evidencing  interest  payable at the Fixed
Rate.

Prior to the Conversion Date, this Bond shall be purchased, at the option of the
Owner hereof("Demand Purchase Option") at the Purchase Price, upon:

(a)  delivery  by such  Owner  to the  Trustee  and the  Tender  Agent  at their
principal  corporate  trust office and  Delivery  Office  (hereinafter  defined)
respectively;  and to the Remarketing  Agent at its principal office of a notice
(a "Demand  Purchase  Notice") (said notice to be irrevocable and effective upon
receipt) which states (i) the aggregate principal amount and the bond numbers of
Bonds  to be  purchased;  and  (ii)  the  date on  which  such  Bonds  are to be
purchased, which date shall be a Business Day not prior to the seventh (7th) day
next  succeeding  the date of  delivery  of such  notice and which date shall be
prior to the Conversion Date;

(b) if such Bonds are to be  purchased  prior to an  Interest  Payment  Date and
after the Record Date in respect thereof,  delivery to the Tender Agent together
with the  Demand  Purchase  Notice  described  in (a) above,  of a  non-recourse
due-bill, payable to bearer, for interest due on such Interest Payment Date; and

(c) delivery to the Tender Agent at its Delivery Office (as hereinafter defined)
at or prior to 10:00  a.m.,  New York  City  time,  on the date  designated  for
purchase in the applicable  Demand Purchase Notice of such Bonds to be purchased
with an  appropriate  endorsement  for transfer or  accompanied  by a bond power
endorsed in blank.

Any Bond as to which a Demand Purchase Notice has been delivered pursuant to (a)
above,  must be delivered to the Tender Agent as provided in (c) above,  and any
such Bonds not so  delivered  ("Undelivered  Bonds"),  for which  there has been
irrevocably deposited in trust with the Trustee or the Tender Agent an amount of
money sufficient to pay the Purchase Price thereof, shall be deemed to have been
purchased at the Purchase Price and are deemed to be no longer  outstanding with
respect to such tendering  Owner. IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS
TO DELIVER ITS BONDS AS SPECIFIED ABOVE, SAID OWNER SHALL NOT BE ENTITLED TO ANY
PAYMENT  (INCLUDING  ANY,  INTEREST  TO  ACCRUE  ON OR  SUBSEQUENT  TO THE  DATE
DESIGNATED FOR PURCHASE IN THE APPLICABLE DEMAND PURCHASE NOTICE) OTHER THAN THE
PURCHASE PRICE FOR SUCH UNDELIVERED  BONDS,  AND ANY UNDELIVERED  BONDS SHALL NO
LONGER BE ENTITLED TO THE BENEFITS OF THE  INDENTURE,  EXCEPT FOR THE PAYMENT OF
THE PURCHASE PRICE THEREFOR.

Notwithstanding the foregoing provisions,  in the event any Bond as to which the
Owner  thereof has exercised  the Demand  Purchase  Option is remarketed to such
Owner pursuant to the  Remarketing  Agreement,  such Owner need not deliver such
Bond to the Tender Agent as provided in (c) above,  although  such Bond shall be
deemed to have been  delivered to the Tender Agent,  redelivered  to such Owner,
and remarketed for purposes of the indenture.

Any  delivery of a notice  required  to be made to the Trustee at its  principal
corporate  trust office  pursuant to (a) above shall be delivered to the Trustee
at  213  Market  Street,  Harrisburg,  PA  17101,  Attention:   Corporate  Trust
Department,  or to the  office  designated  for such  purpose  by any  successor
Trustee,  any delivery of a notice required to be made to the Remarketing  Agent
at its  principal  office  pursuant  to (a)  above  shall  be  delivered  to the
Remarketing Agent at 600 Penn Street,  Second Floor South, Reading, PA 19602, or
to the office  designated for such purpose by any successor  Remarketing  Agent,
and any delivery of Bonds  required to be made to the Tender  Agent  pursuant to
(b)  above  shall  be  delivered  to the  Tender  Agent  at 213  Market  Street,
Harrisburg, PA 17101, or the office designated for such purpose by any successor
Tender Agent (the "Delivery Office").

This Bond and the Bonds of the  Series of which it is a part is  comprised  of a
duly authorized issue of bonds designated as "Taxable Variable Rate Demand/Fixed
Rate Bonds,  Series of 1998" (the  "Bonds")  issued in the  aggregate  principal
amount of $2,565,000  and by virtue of a resolution  duly adopted by the Company
on April 27, 1998 (the "Bond Resolution"), and equally and ratably secured under
a Trust  Indenture  dated as of April 29,  1998,  by and between the Company and
Dauphin  Deposit Bank and Trust Company,  as Trustee,  or its successor in trust
(herein  called the  "Trustee") as the same from time to time has been or may be
amended,  modified or  supplemented  by  supplemental  indentures  (being herein
collectively  called the  "Indenture"),  for the  purpose  of  raising  funds to
finance a project (the  "Project")  consisting of (i) the  construction of a new
70,655 square feet building on 5.3 acres of land at the Company  headquarters in
Hanover Township,  Northampton County, Pennsylvania for the purpose of expanding
the Company's capabilities to distribute,  assemble and warehouse their products
and to provide for office space to carry out the administrative functions of the
Company's  business;  and (ii) the payment of fees and expenses  relating to the
issuance of the Bonds.

The Bonds are all  issued  under and are  equally  and  ratably  secured  by and
entitled to the  protection of the  Indenture,  pursuant to which the Company is
obligated to make payment of the principal  and Purchase  Price of, and premium,
if any,  and interest on the Bonds and certain  costs,  fees and expenses of the
Trustee.  The Company has caused to be delivered  to the Trustee an  irrevocable
direct pay letter of credit (together with any Substitute Letter of Credit,  the
"Letter of Credit")  issued by  CoreStates  Bank,  N.A. (in such  capacity,  the
"Bank") and dated the Date of Issuance of the Bonds,  which will expire,  unless
earlier  terminated  or  extended,  on April  29,  2003 (the  "Letter  of Credit
Termination Date").  Subject to certain conditions,  the Letter of Credit may be
replaced by a Substitute  Letter of Credit of another  commercial bank,  savings
and loan association or savings bank. Under the Letter of Credit, the Trustee is
entitled  to draw up to an amount  sufficient  to pay (a) the  principal  of the
Bonds or the portion of the Purchase Price corresponding to the principal of the
Bonds and (b) forty-five (45) days accrued  interest  (calculated at the maximum
rate of 17% per annum based on a 365/366 day year and the actual  number of days
elapsed)  on the  Bonds  or the  portion  of the  Purchase  Price  of the  Bonds
corresponding to accrued interest thereon.

Reference  is  hereby  made  to the  Indenture  and the  Letter  of  Credit  for
description of the property pledged and assigned, the provisions,  among others,
with respect to the nature and extent of the  security,  the rights,  duties and
obligations  of the  Company,  the  Trustee  and the Owners of the Bonds and the
terms upon which the Bonds are issued and  secured;  and the Owner of this Bond,
by acceptance hereof,  hereby consents to the terms and provisions of all of the
foregoing as a material  portion of the  consideration  for the issuance of this
Bond.

This Bond is  transferable  by the  registered  Owner hereof in person or by his
attorney duly authorized in writing,  at the principal corporate trust office of
the  Trustee  or at the  Delivery  Office  of the  Tender  Agent  or that of any
successor Tender Agent,  but only in the manner,  subject to the limitations and
upon payment of the charges  provided in the  Indenture,  and upon surrender and
cancellation  of this Bond. Upon such transfer a new registered Bond or Bonds of
authorized denomination or denominations for the same aggregate principal amount
will be issued to the transferee in exchange therefor.  The Company,  the Tender
Agent and the  Trustee  may deem and treat the  registered  Owner  hereof as the
absolute Owner


hereof (whether or not this Bond shall be overdue) for all purposes, and neither
the Company,  the Tender  Agent nor the Trustee  shall be bound by any notice or
knowledge to the contrary.

Prior to the  Conversion  Date,  (i) the Bonds are issuable as fully  registered
bonds without coupons in the  denominations of $100,000 or any integral multiple
of $5,000 in excess thereof; and (ii) the Bonds may not be issued,  exchanged or
transferred  except in  authorized  denominations  of $100,000  or any  integral
multiple of $5,000 in excess  thereof from and after the  Conversion  Date,  the
Bonds  shall be  issuable  as fully  registered  bonds  without  coupons  in the
denominations of $5,000 or any integral multiple thereof.

      Extraordinary Redemption

The Bonds are callable for redemption in the event the Project Facilities or any
portion thereof is damaged or destroyed or taken in a condemnation proceeding as
provided in Article XII of the  Indenture.  If called for redemption at any time
as provided in the preceding sentence,  the Bonds shall be subject to redemption
by the  Company  on any  Interest  Payment  Date,  in  whole  or in  part,  at a
redemption  price of one hundred percent (100%) of the principal  amount thereof
plus accrued interest to the redemption date pursuant to Section 4.01(b) of this
Indenture.

      Mandatory Redemption

The Bonds are subject to  mandatory  redemption,  fifteen (15) days prior to the
Letter of Credit  Termination Date, in whole, at a redemption price equal to one
hundred  percent  (100%) of the principal  amount  thereof  being  redeemed plus
accrued interest to the redemption date if; on the thirtieth (30th) Business Day
prior to the  Letter of Credit  Termination  Date,  the  Trustee  shall not have
received a Substitute  Letter of Credit which will be effective on or before the
Letter of Credit Termination Date.

The Bonds are also subject to mandatory redemption,  in whole or in part, on any
Interest Payment Date, at a redemption price equal to one hundred percent (100%)
of the  principal  amount  thereof being  redeemed plus accrued  interest to the
redemption  date,  if any proceeds of the sale of the Bonds remain on deposit in
the Project Fund established under the Indenture upon completion of the Project,
under the conditions specified therein.

If less than all the Bonds are to be redeemed,  the particular Bonds or portions
thereof to be  redeemed  shall be  selected  by the Trustee at random or in such
other manner as the Trustee in its discretion shall deem fair and appropriate.

      Mandatory Sinking Fund Redemption

The Bonds are subject to  mandatory  redemption  on the  Interest  Payment  Date
occurring in the month of May in each of the years set forth below commencing on
the Interest  Payment Date  occurring  in May 1999 (each,  a "Mandatory  Sinking
Account Payment Date"), at a





redemption  price equal to 100% of the  principal  amount  thereof  plus accrued
interest as follows:


      BONDS
Mandatory Sinking
Year                                Account Payments

1999                                $125,000.00
2000                                $120,000.00
2001                                $125,000.00
2002                                $130,000.00
2003                                $140,000.00
2004                                $150,000.00
2005                                $155,000.00
2006                                $165,000.00
2007                                $175,000.00
2008                                $185,000.00
2009                                $195,000.00
2010                                $205,000.00
2011                                $220,000.00
2012                                $230,000.00
          *2013                                $245,000.00

*Final maturity


      Optional Redemption

On or prior to the  Conversion  Date, the Bonds are subject to redemption by the
Company,  at the  option of the  Company,  at any time,  subject  to the  notice
provisions described below, in whole or in part, at the redemption price of 100%
of the  principal  amount  thereof being  redeemed plus accrued  interest to the
redemption date.

In the event of any of the Bonds or portions  thereof are called for  redemption
as  aforesaid,  notice  of the call for  redemption,  identifying  the  Bonds or
portions thereof to be redeemed and the redemption price (including the premium,
if any),  shall be given by the  Trustee  by  mailing  a copy of the  redemption
notice by  first-class  mail at least (i) ten (10) days  prior to the date fixed
for redemption in the event of a mandatory  redemption because the Trustee shall
not have  received  a  Substitute  Letter of Credit  effective  on or before the
Letter of Credit  Termination  Date, and (ii) thirty (30) days but not more than
sixty (60) days prior to the date fixed for redemption in all other instances to
the Owner of each Bond to be redeemed  in whole or in part at the address  shown
on the  registration  books.  Any  notice  mailed  as  provided  above  shall be
conclusively presumed to have been duly given, whether or not the Owner receives
the notice. No further interest shall accrue on the principal of any Bond called
for redemption  after the redemption date if Available Moneys (as defined in the
Indenture)  sufficient for such redemption have been deposited with the Trustee.
Notwithstanding the foregoing,  the notice  requirements  contained in the first
sentence of this paragraph may be deemed  satisfied with respect to a transferee
of a Bond which has been purchased  pursuant to the Demand Purchase Option under
certain circumstances provided in Section 5.05 of the Indenture, after such Bond
has  previously  been  called for  redemption,  notwithstanding  the  failure to
satisfy the notice  requirements  of the first  sentence of this  paragraph with
respect to such transferee.

      Mandatory Tender

The Bonds are subject to mandatory  tender in whole on the effective date of any
Substitute  Letter  of Credit  provided  by a  Substitute  Bank (as such term is
defined in the  Indenture),  at a purchase  price equal to 100% of the principal
amount thereof, plus accrued interest to the purchase date.

In the event of a mandatory tender,  notice of such tender shall be given by the
Trustee by  delivering or mailing by  first-class  mail a copy of such notice at
least  twenty  (20) days but not more than thirty (30) days prior to the date of
such tender to the Owner of each Bond at the address  shown on the  registration
books.

The Bonds are issued pursuant to and in full  compliance  with the  Constitution
and laws of the  Commonwealth of  Pennsylvania,  and by appropriate  action duly
taken by the Company authorizing the execution and delivery of the Indenture.

The Owner of this Bond  shall  have no right to enforce  the  provisions  of the
Indenture or to institute  action to enforce the covenants  therein,  or to take
any action with respect to any default  under the  Indenture,  or to  institute,
appear in or defend any suit or other  proceedings with respect thereto,  unless
certain circumstances described in the Indenture shall have occurred. In certain
events,  on the  conditions,  in the manner and with the effect set forth in the
Indenture,  the  principal of all the Bonds issued under the  Indenture and then
outstanding  may become or may be  declared  due and  payable  before the stated
maturity thereof, together with interest accrued thereon.

The  Indenture  permits,  with  certain  exceptions  as  therein  provided,  the
amendment  thereof and the  modifications  of the rights and  obligations of the
Company  and the  rights of the  owners of the Bonds at any time by the  Company
with  the  consent  of the  Bank  and  the  Holders  of all  Bonds  at the  time
Outstanding.  Any such  consent or any waiver by the Bank and the Holders of all
Bonds at the time Outstanding shall be conclusive and binding upon the Owner and
upon all future Owners of this Bond and of any Bond issued in replacement hereof
whether or not  notation of such  consent or waiver is made upon this Bond.  The
Indenture also contains provisions which, subject to certain conditions,  permit
or require the Trustee to waive  certain past  defaults  under the Indenture and
their consequences.

It is hereby  certified,  recited and  declared  that all acts,  conditions  and
things required to exist, happen and be performed precedent to and in connection
with the  execution  and delivery of the Indenture and the issuance of this Bond
do exist,  have happened and have been performed in due time, form and manner as
required by law.

This Bond shall not be valid or become obligatory for any purpose or be entitled
to any  security  or  benefit  under  the  Indenture  until the  certificate  of
authentication hereon shall have been signed by the Trustee or the Tender Agent,
as authenticating agent.

IN WITNESS WHEREOF,  Piercing Pagoda,  Inc. has caused this Bond to be signed in
its name and on its behalf by the manual or facsimile signature of its President
and its  corporate  seal to be  affixed,  imprinted  or  reproduced  hereon  and
attested by the manual or facsimile signature of its authorized officer,  all as
of the Date of Issuance.

Attest:                            PIERCING PAGODA, INC.



--------------------------         -----------------------------
Authorized Officer                 President




[SEAL]




Abbreviations


The following  abbreviations,  when used in the  inscription  on the face of the
within  Bond,  shall be  construed  as  though  they  were  written  out in full
according to applicable laws or regulations.

TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
 JT TEN - as joint tenants with the right of
survivorship and not as tenants in
common


UNIFORM GIFT MIN ACT -         Custodian

(Cust)                    (Minor)


under Uniform Gifts to Minors

Act

(State)



Additional abbreviations may also be used, though not in the above list.
(Form of Certificate of Authentication)


      CERTIFICATE OF AUTHENTICATION

This  Bond is one of the Bonds of the issue  described  in the  within-mentioned
Trust Indenture.



DAUPHIN DEPOSIT BANK AND TRUST
COMPANY





By:
Authorized Signature



Date of Authentication: April 30, 1998


      (Form of Transfer)


   FOR VALUE RECEIVED, ____________ , the undersigned, hereby sells, assigns and
transfers  unto  _______________(Tax   Identification  or  Social  Security  No.
_____________) the within Bond and all rights thereunder, and hereby irrevocably
constitutes  and appoints  ____________________________attorney  to transfer the
within  Bond on the books  kept for  registration  thereof,  with full  power of
substitution in the premises.



Dated: ___________________     ______________________________




NOTICE:  Signature  must be  NOTICE:  The  signature  to this  guaranteed  by an
approved  assignment  must  correspond  with the eligible  guarantor  name as it
appears  upon the face of  institution,  an the within Bond in every  particular
institution  which is a  without  alteration  or  enlargement  participant  in a
Securities or any change whatsoever.  Transfer Association  recognized signature
guarantee program.
      [FORM OF BOND COUNSEL OPINION]





Re:  Piercing Pagoda, Inc.
     $2,565,000
     Taxable Variable Rate Demand/Fixed Rate Bonds,
     Series of 1998 (the "Bonds")


TO THE REGISTERED OWNERS OF THE ABOVE BONDS

We have acted as Bond  Counsel  in  connection  with the  issuance  by  Piercing
Pagoda,  Inc., of the  above-captioned  Bonds. The proceeds of the Bonds will be
used by the Company to finance a project (the  "Project")  consisting of (i) the
construction  of a new 70,655  square feet  building on 5.3 acres of land at the
Company headquarters in Hanover Township,  Northampton County,  Pennsylvania for
the purpose of expanding the Company's capabilities to distribute,  assemble and
warehouse  their  products  and to  provide  for  office  space to carry out the
administrative functions of the Company's business; and (ii) the payment of fees
and expenses  relating to the issuance of the Bonds. All capitalized  terms used
in this opinion and not defined herein shall have the meanings  assigned to them
in the Indenture unless the context clearly requires otherwise.

The Bonds  issued  this date  mature  on May 1, 2013 and bear  interest  and are
subject  to  purchase  and  redemption  prior to  maturity  upon the  terms  and
conditions stated therein and in the Indenture. The Bonds initially are issuable
as registered bonds in denominations of $100,000 or integral multiples of $5,000
in excess thereof. After the Conversion Date the Bonds shall be in denominations
of $5,000 or integral multiples of $5,000 in excess thereof.

In connection with the issuance of the Bonds, CoreStates Bank, N.A. ("Bank"), at
the request of the Borrower, has issued a certain irrevocable, direct pay Letter
of Credit dated the date of issuance of the Bonds (the  "Letter of Credit"),  in
favor of the  Trustee.  Pursuant  to the terms and  conditions  set forth in the
Letter of  Credit  and the  Indenture,  on each debt  service  payment  date the
Trustee  shall draw upon the Letter of Credit  the amount  necessary  to pay the
principal  of and  interest  payable on the Bonds on such debt  service  payment
date.

In connection with providing our opinion, we have examined the following:

1.  Section 103 and  Sections  141 through 150 of the  Internal  Revenue Code of
1986, as amended (the "Code");



2. Copies of the resolution of the Company authorizing,  among other things, the
issuance of the Bonds (the "Resolution");

3. A copy of the executed Letter of Credit;

4.  A  specimen  copy  of  one  of  the  Bonds  (we  assume  due  execution  and
authentication of each Bond);

5. Executed copies of the Indenture,  the Reimbursement Agreement, the Letter of
Credit, the Remarketing  Agreement,  the Tender Agent Agreement,  the Pledge and
Security  Agreement,  the Company General  Certificate and the other  documents,
agreements, certificates and opinions delivered at the closing held this day.

Based upon our  examination of the foregoing and upon our attendance at the Bond
Closing, it is our opinion that, as of the date hereof:

A. The Indenture has been duly authorized, executed and delivered by the Company
and  constitutes  the  legal,  valid  and  binding  obligation  of  the  Company
enforceable in accordance with its respective terms.


B. The Bonds are exempt from  registration  under the  Securities Act of 1933 as
amended, in connection with the offering and sale of the Bonds and the Indenture
is exempt from qualification under the Trust Indenture Act of 1939, as amended.

C. The issuance and sale of the Bonds have been duly  authorized  by the Company
and such  Bonds  have  been duly  executed  and  delivered  by the  Company  and
authenticated by the Trustee,  are valid and binding  obligations of the Company
and are  entitled to the benefit and  security of the  Indenture,  except as the
rights  created  thereunder  and  the  enforcement  thereof  may be  limited  to
bankruptcy,  insolvency  or other laws or  equitable  principles  affecting  the
enforcement of creditors' rights generally.

D. Except as to the possible  application of state  securities laws, as to which
no opinion need be expressed, no authorization,  declaration,  approval, consent
or other  order of any  governmental  authority  or  agency  is  required  to be
obtained by the Company and the valid  authorization,  execution and delivery of
the Bond Placement  Agreement and all other documents executed by the Company in
connection with the issuance of the Bonds.

E. The description and summaries under the captions entitled "The Bonds" (except
for the  information  extracted  from  information  provided  by DTC),  and "The
Indenture" contained in the Placement Memorandum fairly summarize the applicable
provisions of the  documents or portions of applicable  law, as the case may be,
which are purported to be summarized therein.

F.  Interest on the Bonds is not excluded from gross income for federal or state
income tax purposes.

In providing the foregoing opinions, we advise you as follows:

(a) The enforceability of the provisions of the Bonds and the Indenture (and any
other applicable document) may be limited by applicable  bankruptcy,  insolvency
or similar laws affecting the enforcement of creditors' rights generally.

(b)  Equitable  remedies  with respect to the Bonds and the  Indenture  (and any
other applicable document) lie in the discretion of the courts and, accordingly,
may not be available.

(c) Except as  specifically  set forth  above,  we express no opinion  regarding
other  federal or state  income tax  consequences  arising  with  respect to the
Bonds.

(d) We have not been engaged to verify, nor have we independently  verified, nor
do we express any opinion to the registered owners of the Bonds with respect to,
the accuracy,  completeness or  truthfulness of any statements,  certifications,
information or financial  statements set forth in the Placement Memorandum dated
April 23,  1998  (the  "Placement  Memorandum"),  or with  respect  to any other
materials  used in  connection  with the  placement  of the Bonds other than the
opinion expressed in 5(e) herein.

We express no opinion with respect to whether the Company or any other person in
connection  with the placement of the Bonds or the  preparation of the Placement
Memorandum, has made any untrue statement of a material fact or omitted to state
a material fact necessary in order to make any statement  made, not  misleading.
Further, we have not verified, and express no opinion as to the accuracy of, any
"CUSIP"  identification  number  that may be printed  on any Bond.  We have also
assumed the  genuineness  of the signatures  appearing on all the  certificates,
documents and instruments executed and delivered at closing.


Very truly yours,

KING, MCCARDLE, HERMAN, FREUND & OLEXA


      EXHIBIT B


      FIXED RATE FORM OF BOND


      PIERCING PAGODA, INC.



      TAXABLE VARIABLE RATE DEMAND/FIXED RATE BONDS
      SERIES OF 1998



No. FR-                                                  $2,565,000


Interest Rate   Maturity Date       Dated Date      CUSIP

 May 1, 2013         April 29, 1998       720773AA8



KNOW ALL MEN BY THESE PRESENTS that PIERCING PAGODA,  INC. (the "Company"),  for
value received,  promises to pay to CEDE & Co., or registered  assigns,  on upon
surrender  hereof,  the  principal  sum of Two Million Five  Hundred  Sixty-Five
Thousand Dollars ($2,565,000), and in like manner to pay interest (calculated on
the basis of a 360-day  year of twelve  30-day  months)  on said sum at the rate
of_____%  per annum on May 1 and  November 1 of each year,  commencing  (each an
"Interest Payment Date"), from the Interest Payment Date next preceding the date
of  authentication  hereof to which interest has been paid or duly provided for,
unless the date of  authentication  hereof is an Interest  Payment Date to which
interest  has been paid or duly  provided  for,  in which  case from the date of
authentication  hereof, or unless no interest has been paid or duly provided for
on the Bonds (as  hereinafter  defined),  in which case from the Conversion Date
(as defined in the  Indenture,  as  hereinafter  defined),  until payment of the
principal  hereof  has  been  made or duly  provided  for.  Notwithstanding  the
foregoing,  if this Bond is authenticated  after any date which is the fifteenth
calendar day (as hereinafter  defined) next preceding any Interest  Payment Date
(a "Record  Date") and before the following  Interest  Payment  Date,  this Bond
shall bear interest from such Interest Payment Date; provided,  however, that if
the  Company  shall  default in the  payment of  interest  due on such  Interest
Payment  Date,  then this  Bond  shall  bear  interest  from the next  preceding
Interest  Payment Date to which interest has been paid or duly provided for, or,
if no  interest  has  been  paid or duly  provided  for on the  Bonds,  from the
Conversion  Date.  The  principal of this Bond is payable in lawful money of the
United States of America at the principal  corporate trust office of the Trustee
or at the duly  designated  office of any successor  Trustee under the Indenture
(as hereinafter defined). Payment of interest on this Bond shall be made on each
Interest Payment Date to the registered Owner hereof as of the applicable Record
Date and shall be paid by check mailed by the Trustee to such  registered  Owner
at his address as it appears on the registration books of the Company or at such
other  address as is  furnished  to the  Trustee  in writing by such  registered
Owner,  or in such  other  manner  as may be  permitted  by the  Indenture.  The
Purchase  Price  (hereinafter  defined) of this Bond shall be payable by Dauphin
Deposit Bank and Trust Company (together with any successor, the "Tender Agent")
to the  registered  Owner hereof,  upon  presentation  hereof,  at the principal
corporate trust office of the Tender Agent.  As used herein,  the term "Business
Day"  means a day  which is not a  Saturday,  Sunday or legal  holiday  on which
banking  institutions  in the  State  of New  York,  the City of New  York,  the
Commonwealth of  Pennsylvania,  City of Harrisburg,  or the City of Philadelphia
are  authorized  to remain  closed or on which the New York  Stock  Exchange  is
closed.

This Bond and the Bonds of the  Series of which it is a part is  comprised  of a
duly authorized issue of bonds designated as "Taxable Variable Rate Demand/Fixed
Rate Bonds,  Series of 1998" (the  "Bonds")  issued in the  aggregate  principal
amount of $2,565,000  and by virtue of a resolution  duly adopted by the Company
on and equally and ratably secured under a Trust Indenture dated as of April 29,
1998, by and between the Company and Dauphin Deposit Bank and Trust Company,  as
Trustee,  or its  successor in trust (herein  called the  "Trustee") as the same
from  time to time has  been or may be  amended,  modified  or  supplemented  by
supplemental indentures (being herein collectively called the "Indenture"),  for
the  purpose  of  financing  a project  (the  "Project")  consisting  of (i) the
construction  of a new 70,655  square feet  building on 5.3 acres of land at the
Company headquarters in Hanover Township,  Northampton County,  Pennsylvania for
the purpose of expanding the Company's capabilities to distribute,  assemble and
warehouse  their  products  and to  provide  for  office  space to carry out the
administrative functions of the Company's business; and (ii) the payment of fees
and expenses relating to the issuance of the Bonds.

The Bonds are all  issued  under and are  equally  and  ratably  secured  by and
entitled to the  protection of the  Indenture,  pursuant to which the Company is
obligated to make payment of the principal and premium,  if any, and interest on
the Bonds and certain costs,  fees and expenses of the Trustee.  The Company has
caused to be delivered to the Trustee an irrevocable direct pay letter of credit
(together with any Substitute  Letter of Credit,  the "Letter of Credit") issued
by CoreStates  Bank,  N.A. (in such capacity,  the "Bank") and dated the Date of
Issuance of the Bonds, which will expire, unless earlier terminated or extended,
on (the "Letter of Credit Termination Date"). Subject to certain conditions, the
Letter of Credit may be  replaced  by a  Substitute  Letter of credit of another
commercial bank,  savings and loan association or savings bank. Under the Letter
of Credit, the trustee is entitled to draw up to an amount sufficient to pay (a)
the principal of the Bonds and (b) 205 days accrued interest  (calculated at the
maximum rate of____% per annum based on a 360 day year and the actual  number of
days elapsed) on the Bonds.

Reference  is  hereby  made  to the  Indenture  and the  Letter  of  Credit  for
description of the property pledged and assigned, the provisions,  among others,
with respect to the nature and extent of the  security,  the rights,  duties and
obligations  of the  Company,  the  Trustee  and the Owners of the Bonds and the
terms upon which the Bonds are issued and  secured;  and the Owner of this Bond,
by acceptance hereof,  hereby consents to the terms and provisions of all of the
foregoing as a material  portion of the  consideration  for the issuance of this
Bond.

This Bond is  transferable  by the  registered  Owner hereof in person or by his
attorney duly authorized in writing,  at the principal corporate trust office of
the Trustee but only in the manner,  subject to the limitations and upon payment
of the charges provided in the Indenture, and upon surrender and cancellation of
this Bond.  Upon such  transfer  a new  registered  Bond or Bonds of  authorized
denomination or  denominations  for the same aggregate  principal amount will be
issued to the transferee in exchange  therefor.  The Company and the Trustee may
deem and treat the registered Owner hereof as the absolute Owner hereof (whether
nor not this Bond shall be overdue)  for all  purposes,  and neither the Company
nor the Trustee shall be bound by any notice or knowledge to the contrary.

The Bonds shall be issuable as fully  registered  bonds  without  coupons in the
denominations of $5,000 or any integral multiple thereof.

      Extraordinary Redemption

The Bonds are callable for redemption in the event the Project Facilities or any
portion thereof is damaged or destroyed or taken in a condemnation proceeding as
provided in Article XII of the  Indenture.  If called for redemption at any time
as provided in the preceding sentence,  the Bonds shall be subject to redemption
by the  Company  on any  Interest  Payment  Date,  in  whole  or in  part,  at a
redemption  price of one hundred percent (100%) of the principal  amount thereof
plus accrued  interest to the redemption date pursuant to Section 4.01(b) of the
Indenture.


      Mandatory Redemption

The Bonds are subject to  mandatory  redemption,  fifteen (15) days prior to the
Letter of Credit  Termination Date, in whole, at a redemption price equal to one
hundred  percent  (100%) of the principal  amount  thereof  being  redeemed plus
accrued interest to the redemption date if, on the thirtieth (30th) Business Day
prior to the  Letter of Credit  Termination  Date,  the  Trustee  shall not have
received a Substitute  Letter of Credit which will be effective on or before the
Letter of Credit Termination Date.

The Bonds are also subject to mandatory redemption,  in whole or in part, on any
Interest Payment Date, at a redemption price equal to one hundred percent (100%)
of the  principal  amount  thereof being  redeemed plus accrued  interest to the
redemption  date,  if any proceeds of the sale of the Bonds remain on deposit in
the Project Fund established under the Indenture upon completion of the Project,
under the conditions specified therein.

If less than all the Bonds are to be redeemed,  the particular Bonds or portions
thereof to be  redeemed  shall be  selected  by the Trustee at random or in such
other manner as the Trustee in its discretion shall deem fair and appropriate.

      Mandatory Sinking Fund Redemption

The Bonds are subject to  mandatory  redemption  on the  Interest  Payment  Date
occurring in the month of May in each of the years set forth below commencing on
the Interest Payment Date occurring in June (each, a "Mandatory  Sinking Account
Payment  Date"),  at a redemption  price equal to 100% of the  principal  amount
thereof plus accrued interest as follows:


      BONDS
Mandatory Sinking
Year                                Account Payments

1999                                $125,000.00
2000                                $120,000.00
2001                                $125,000.00
2002                                $130,000.00
2003                                $140,000.00
2004                                $150,000.00
2005                                $155,000.00
2006                                $165,000.00
2007                                $175,000.00
2008                                $185,000.00
2009                                $195,000.00
2010                                $205,000.00
2011                                $220,000.00
2012                                $230,000.00
          *2013                                $245,000.00

*Final maturity

In the event of any of the Bonds or portions  thereof are called for  redemption
as  aforesaid,  notice  of the call for  redemption,  identifying  the  Bonds or
portions thereof to be redeemed and the redemption price (including the premium,
if any),  shall be given by the  Trustee  by  mailing  a copy of the  redemption
notice by  first-class  mail at least (i) ten (10) days  prior to the date fixed
for redemption in the event of a mandatory  redemption because the Trustee shall
not have  received  a  Substitute  Letter of Credit  effective  on or before the
Letter of Credit  Termination  Date, and (ii) thirty (30) days but not more than
sixty (60) days prior to the date fixed for redemption in all other instances to
the Owner of each Bond to be redeemed  in whole or in part at the address  shown
on the  registration  books.  Any  notice  mailed  as  provided  above  shall be
conclusively presumed to have been duly given, whether or not the Owner receives
the notice. No further interest shall accrue on the principal of any Bond called
for redemption  after the redemption date if Available Moneys (as defined in the
Indenture) sufficient for such redemption have been deposited with the Trustee.

      Mandatory Tender

The Bonds are subject to mandatory  tender in whole on the effective date of any
Substitute  Letter of Credit  provided by a  Substitute  Bank (as defined in the
Indenture),  at a purchase price equal to 100% of the principal  amount thereof,
plus accrued interest to the purchase date.

In the event of a mandatory tender,  notice of such tender shall be given by the
Trustee by  delivering or mailing by  first-class  mail a copy of such notice at
least  twenty  (20) days but not more than thirty (30) days prior to the date of
such tender to the Owner of each Bond at the address  shown on the  registration
books.

The Bonds are issued pursuant to and in full  compliance  with the  Constitution
and laws of the  Commonwealth of  Pennsylvania,  and by appropriate  action duly
taken  by the  Company  which  authorizes  the  execution  and  delivery  of the
Indenture.

The Owner of this Bond  shall  have no right to enforce  the  provisions  of the
Indenture or to institute  action to enforce the covenants  therein,  or to take
any action with respect to any default  under the  Indenture,  or to  institute,
appear in or defend any suit or other  proceedings with respect thereto,  unless
certain circumstances described in the Indenture shall have occurred. In certain
events,  on the  conditions,  in the manner and with the effect set forth in the
Indenture,  the  principal of all the Bonds issued under the  Indenture and then
outstanding  may become or may be  declared  due and  payable  before the stated
maturity thereof together with interest accrued thereon.

The Indenture permits with certain exceptions as therein provided, the amendment
thereof and the  modifications  of the rights and obligations of the Company and
the  rights  of the  Owners  of the  Bonds at any time by the  Company  with the
consent of the Bank and the  Holders of all Bonds at the time  Outstanding.  Any
such  consent or any waiver by the Bank and the Holders of all Bonds at the time
Outstanding  shall be conclusive  and binding upon the Owner and upon all future
Owners of this Bond and of any Bond issued in replacement  hereof whether or not
notation of such consent or waiver is made upon this Bond.  The  Indenture  also
contains provisions which, subject to certain conditions,  permit or require the
Trustee  to  waive  certain  past   defaults   under  the  Indenture  and  their
consequences.  It is  hereby  certified,  recited  and  declared  that all acts,
conditions and things  required to exist,  happen and be performed  precedent to
and in  connection  with the  execution  and delivery of the  Indenture  and the
issuance of this Bond do exist,  have  happened  and have been  performed in due
time, form and manner as required by law.

This Bond shall not be valid or become obligatory for any purpose or be entitled
to any  security  or  benefit  under  the  Indenture  until the  certificate  of
authentication hereon shall have been signed by the Trustee or the Tender Agent,
as authenticating agent.

IN WITNESS WHEREOF,  Piercing Pagoda,  Inc. has caused this Bond to be signed in
its name and on its behalf by the manual or facsimile signature of its President
and its  corporate  seal to be  affixed,  imprinted  or  reproduced  hereon  and
attested by the manual or facsimile  signature of its  Secretary,  all as of the
Date of Issuance.

Attest:                            PIERCING PAGODA, INC.




--------------------------         -----------------------------
Secretary                          President




[SEAL]





      (Form of Certificate of Authentication)

      CERTIFICATE OF AUTHENTICATION

This  Bond is one of the Bonds of the issue  described  in the  within-mentioned
Trust Indenture.





           Dauphin Deposit Bank and
Trust Company, as Trustee





By:
    Authorized Signature


Date of Authentication:  April 29, 1998


      (Form of Transfer)

   FOR VALUE RECEIVED, ____________ , the undersigned, hereby sells, assigns and
transfers  unto  _______________(Tax   Identification  or  Social  Security  No.
_____________) the within Bond and all rights thereunder, and hereby irrevocably
constitutes  and appoints  ____________________________attorney  to transfer the
within  Bond on the books  kept for  registration  thereof,  with full  power of
substitution in the premises.



Dated: ___________________     ______________________________




NOTICE:  Signature  must be  NOTICE:  The  signature  to this  guaranteed  by an
approved  assignment  must  correspond  with the eligible  guarantor  name as it
appears  upon the face of  institution,  an the within Bond in every  particular
institution  which is a  without  alteration  or  enlargement  participant  in a
Securities or any change whatsoever.  Transfer Association  recognized signature
guarantee program.


      EXHIBIT C

      PROJECT FUND REQUISITION
      FORM OF
      PROJECT FUND REQUISITION


      April 29, 1998


Dauphin Deposit Bank and Trust Company
213 Market Street
Harrisburg, PA  17101

CoreStates Bank, N.A.
600 Penn Street, Third Floor North
Reading, PA  19102



Ladies and Gentlemen:

I hereby requisition pursuant to Section 6.06 of the Trust Indenture dated as of
April 29, 1998 (the  "Indenture")  by and between  Piercing  Pagoda,  Inc.  (the
"Company") and CoreStates Securities,  Corp, as Trustee, and Section 4.04 of the
Reimbursement   Agreement  dated  as  of  April  29,  1998  (the  "Reimbursement
Agreement") by and between the Company and CoreStates  Bank,  N.A. (the "Bank"),
the sum of $ from the Project Fund to be paid as described below:

I hereby  certify that (a) such  obligation  has been incurred by the Company in
connection  with the Project,  as defined in the  Indenture,  (b) each item is a
proper charge  against the Project Fund,  (c) such  obligation  has not been the
basis for a prior  requisition which has been paid, (d) no written notice of any
lien,  right to lien or attachment upon, or claim affecting the right to receive
payment  of,  any of the moneys  payable  under the  requisition  above has been
received,  (e) no material  adverse  change has occurred in the condition of the
Company,  financial or otherwise, since the date of the Reimbursement Agreement,
(f) the  payment  of such  requisition  will not  violate  any  prohibitions  or
requirements relating to the use of proceeds set forth in the Indenture, (g) the
Company has complied  fully with all provisions of the  Reimbursement  Agreement
and all  representations and warranties made by the Company in the Reimbursement
Agreement and the other Reimbursement  Documents (as such term is defined in the
Reimbursement  Agreement) are true and correct on and as of the date hereof, (h)
all  conditions  precedent to the issuance of the Letter of Credit (as such term
is defined in the Reimbursement Agreement) and to disbursement in Sections 4.01,
4.02, 4.03 and 4.04 of the Reimbursement  Agreement have been satisfied,  (i) no
Event of Default,  as defined in the  Indenture,  or event which after notice or
lapse of time or both  would  constitute  an Event of  Default  thereunder,  has
occurred  and not been  waived or cured,  and no Event of Default  or  Potential
Event of Default as defined in the Reimbursement Agreement, has occurred


and is continuing or shall result from the funding of the
disbursement requisitioned hereby.

The Company further  certifies that the contractors  listed below have delivered
certain  requests for payment on AIA Forms 702 and 703 which are attached hereto
for review and approval by the Bank:

Name of Payee   Amount of Request   Amount of Retainage




Other Project expenses included in this Request for Disbursement are as follows:

Name of Payee   Amount of Request          Purpose




PIERCING PAGODA, INC.





Chief Financial Officer


   NOTE: THIS REQUISITION IS NOT COMPLETE AND IS NOT TO BE PAID
UNTIL THE APPROVAL OF THE BANK IS RECEIVED.

      BANK APPROVAL

CoreStates Bank, N.A., issuer of the Letter of Credit, hereby
approves the Company's Requisition No.          .


CORESTATES BANK, N.A.






Vice President


Dated:  April 29, 1998

LETTER OF REPRESENTATIONS
      [To be completed by Issuer, Remarketing Agent,
      Tender Agent, Paying Agent, and Trustee]



                  Piercing Pagoda, Inc.
      [Name of Issuer]


                CoreStates Securities, Corp
      [Name of Remarketing Agent]


         Dauphin Deposit Bank and Trust Company
      [Name of Tender Agent]


         Dauphin Deposit Bank and Trust Company
      [Name of Paying Agent]


         Dauphin Deposit Bank and Trust Company
      [Name of Trustee]


       April 29,1998
                  Date


Attention: Underwriting Department
The Depository Trust Company
55 Water Street, 50th Floor
New York, NY 10041-0099


Re: $2,565,000 Piercing Pagoda, Inc.
    Taxable Variable Rate Demand/Fixed Rate Bonds
    Series of 1998                      720773AA8
       (Issuer Description)                        (CUSIP)


Ladies and Gentlemen:

This  letter  sets forth our  understanding  with  respect  to  certain  matters
relating to the above-referenced  issue (the "Securities").  The Securities will
be issued pursuant to a trust indenture, bond resolution, or other such document
authorizing   the  issuance  of  the  Securities   dated  April  29,  1998  (the
"Document").  CoreStates  Securities,  Corp  ("Underwriter") is distributing the
Securities through The Depository Trust Company ("DTC").

      To induce DTC to accept the Securities as eligible for
deposit


at DTC, and to act in accordance  with its Rules with respect to the Securities,
Issuer,  Remarketing  Agent,  Tender Agent,  Paying Agent,  and Trustee make the
following representations to DTC:

1.  Prior to  closing  on the  Securities  on April  29,  1998,  there  shall be
deposited  with DTC one  Security  certificate  registered  in the name of DTC's
nominee,  Cede & Co., for each stated maturity of the  Securities,  the total of
which represents 100% of the principal  amount of such Securities.  If, however,
the  aggregate  principal  amount of any  maturity  exceeds  $150  million,  one
certificate will be issued with respect to each $150 million of principal amount
and an  additional  certificate  will be issued  with  respect to any  remaining
principal amount. Each Security certificate shall bear the following legend:

Unless this  certificate  is presented by an  authorized  representative  of The
Depository Trust Company, a New York corporation ("DTC"), to Issuer or its agent
for registration of transfer,  exchange,  or payment, and any certificate issued
is registered in the name of Cede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized  representative  of DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.

2. In the event of any solicitation of consents from or voting by holders of the
Securities,  Trustee or Issuer shall  establish a record date for such  purposes
(with no provision for  revocation  of consents or votes by subsequent  holders,
and shall,  to the extent  possible,  send notice of such record date to DTC not
less than 15 calendar  days in advance of such record date. If delivered by hand
or sent by mail or overnight delivery, such notice shall be sent to:

Supervisor; Proxy
Reorganization Department
The Depository Trust Company
7 Hanover Square; 23rd Floor
New York, NY 1OOO4-2695

If sent by  telecopy,  such  notice  shall  be sent to (212)  709-6896  or (212)
709-6897.  Trustee or Issuer shall  confirm  DTC's  receipt of such  telecopy by
telephoning (212) 709-6870.

3. In the event of a redemption  or any other similar  transaction  resulting in
the  retirement of all  Securities  outstanding  or a reduction in the aggregate
principal  amount  of  Securities  outstanding  ("full or  partial  redemption",
Trustee or Issuer shall send DTC a notice of such event not less than 30 days


nor more than 60 days prior to the redemption date or, in the case of an advance
refunding  of all or part of the  Securities  outstanding,  the  date  that  the
proceeds are deposited in escrow.

In the event of a partial redemption of the outstanding  Securities,  Trustee or
Issuer shall send a notice to DTC specifying:  (a) the amount of the redemption;
(b) the date such notice is to be mailed to beneficial  owners or published (the
"Publication Date"); and (c) whether any concurrent optional tender privilege is
available.  Such notice  shall be sent to DTC by a secure  means  (e.g.  legible
telecopy,  registered or certified mail, overnight delivery,) in a timely manner
designed  to assure that such  notice is in DTC's  possession  no later than the
close of business  two business  days before the  Publication  Date.  Trustee or
Issuer shall forward such notice either in a separate  secure  transmission  for
each CUSIP  number or in a secure  transmission  for multiple  CUSIP  numbers if
applicable),  which  shall  include  a  manifest  or list of each  CUSIP  number
submitted in that  transmission.  The Publication Date shall be not less than 30
days nor more than 60 days prior to the redemption date.

Notices to DTC pursuant to  Paragraph 3, if sent by mail or overnight  delivery,
shall be sent to:

Supervisor; Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY  11530-4719

If sent by  telecopy  such  notices  shall  be sent to (516)  227-4164  or (516)
227-4190.  If Trustee or Issuer  does not  receive a telecopy  receipt  from DTC
confirming  that the  notice  has  been  received,  it  should  telephone  (516)
227-4070.

In the event that certain  Securities  are not subject to a partial  redemption,
DTC  will  exclude  such  Securities  from  its  redemption  procedures  if such
exclusion is requested  as follows.  Such request  shall be in writing and shall
contain:  (a)  certification  by Trustee or Issuer that the principal  amount of
such Securities is not subject to the partial  redemption and certification by a
custodian/DTC  Participant  that the  Participant's  position  on DTC's  records
includes such  Securities;  and (b)  certification by Trustee or Issuer that the
election to exclude such  Securities  from the partial  redemption is authorized
under  the  Document.  Such  request  shall be sent to DTC's  Call  Notification
Department in the manner indicated above to assure that such request is in DTC's
possession  no later than the close of  business  two  business  days before the
Publication Date of the partial redemption notice.

4.  For so  long  as  the  Securities  have  an  adjustable  rate  of  interest,
Remarketing Agent shall deliver to DTC by hand or by


telecopy,  before the close of  business  on the final rate  determination  date
preceding each interest payment date?, a written notice containing the following
information:

(a)  "Today's" date (the final rate determination date);

(b)  Security CUSIP number;

(c)  Security description;

(d)  Interest record date;

(e)  Interest payment date;

(f)        Amount of the  interest  payment  expressed  in whole and  fractional
           dollars per S1,000 of Security face amount;

(g)        Whether  interest  accrues record date to record date or payment date
           to payment date; and

(h)        The name,  telephone number,  and address of Remarketing Agent person
           responsible for determining (f) and (g)
     above.

The name,  telephone  number,  telecopy  number (if  available),  and address of
Remarketing Agent person initially responsible for determining (f) and (g) above
at the time of issuance of the securities will be:

Angel L. Helm, Managing Director
CoreStates Securities, Corp
600 Penn Street, Second Floor South
Reading, PA  19602
Telephone: (610) 655-3366    Fax: (610) 655-0934

If delivered by hand, such notice shall be sent to:

Manager; VRDO Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY  10004-2695





------------------------------------
?The final rate  determination  date for each  interest  payment shall occur not
less  than two  business  day prior to the  interest  payment  date.  If sent by
telecopy,  such  notice  shall be sent to  (212)  709-1723  or  (212)  709-1686.
Remarketing  Agent shall confirm  DTC's receipt of such telecopy by  telephoning
(212) 709-1178.

If the  interest  payment  date is a moving  calendar  day  (such  as the  first
Wednesday  or fifth  business  day of each  month),  or if  optional  tenders of
Securities  are made daily  following same day notice,  Remarketing  Agent shall
send a copy of such notice to a service bureau  designated by DTC, by hand or by
telecopy  before  the close of  business  on the final rate  determination  date
preceding each interest payment date. Such notice initially shall be sent to:

Attention:  Ms. Jennifer Haynes
Municipal Market Data
155 Federal Street; 4th Floor
Boston, MA 02110-1715

If sent by telecopy,  such notice shall be sent to (617)  426-8068.  Remarketing
Agent  shall  confirm  Municipal  Market  Data's  receipt  of such  telecopy  by
telephoning (617) 542-2277.

In order to enable DTC to confirm independently the interest payment information
provided by  Remarketing  Agent,  Trustee shall deliver to DTC by noon ET on the
business day next following the final rate  determination  date a written notice
containing the following information:

(a) "Today's" date (the business day next following the final rate determination
date);

(b) Security CUSIP number;

(c) Security description:

(d) Interest record date:

(e) Interest payment date:

(f) Amount of the interest payment expressed in whole and fractional dollars per
    $1,000 of Security face amount; and

(g) The name, telephone number,  telecopy number (if available),  and address of
    Trustee person responsible for determining (f) above.

The name,  telephone  number,  telecopy  number (if  available),  and address of
Trustee person initially responsible for determining (f)





above at the time of issuance of the Securities will be:

Bernard V. Kelly, Jr.
Dauphin Deposit Bank and Trust Company
213 Market Street
Harrisburg, PA  17101
Telephone: (717) 255-2121    Fax: (717) 231-2615

Such notice shall be sent to Manager, VRDO Announcements, Dividend Department as
indicated above.

If the  interest  payment  date is a moving  calendar  day  (such  as the  first
Wednesday  or fifth  business  day of each  month),  or if  optional  tenders of
Securities are made daily following  same-day notice,  Trustee shall send a copy
of such notice to a service bureau  designated by DTC, by hand or by telecopy by
noon ET on the business day next  following the final rate  determination  date.
Such  notice  initially  shall be sent to  Municipal  Market  Data in the manner
indicated earlier in this Paragraph.

5. Transactions in the Securities shall be eligible for same-day (Federal) funds
settlement in DTC's Same-Day Funds Settlement  ("SDFS")  system.  For so long as
the Securities are Eligible Securities in the SDFS system ("SDFS Securities"):

A. Interest  payments shall be received by Cede & Co., as nominee of DTC, or its
registered  assigns in same-day funds on each payment date (or the equivalent in
accordance  with  existing  arrangements  between  Paying  Agent and DTC).  Such
payments  shall be made  payable  to the  order of Cede & Co.  Absent  any other
existing arrangements, such payments shall be addressed as follows:

Manager; Cash Receipts
Dividend Department
The Depository Trust Company
7 Hanover Square; 24th Floor
New York, NY 10004-2695

B. Principal payments shall be received by Cede & Co., as nominee of DTC, or its
registered  assigns in  same-day  funds on each  payment  date in the manner set
forth  in the SDFS  Paying  Agent  Operating  Procedures  (a copy of  which  has
previously  been furnished to Paying Agent).  Such payments shall be sent to DTC
in time to be credited to DTC's account at the Federal  Reserve Bank of New York
("FRBNY") no later than 10:00 a.m.  (Paying  Agent's  local time) on the payment
date or as soon as possible thereafter following Paying Agent's receipt of funds
from Issuer. It is understood that unless DTC receives such



payments in its FRBNY account by 2:00 p.m.  (Eastern  Time), it may be unable to
distribute such payments that same day.

The name,  telephone  number,  telecopy  number (if  available),  and address of
Paying Agent person  initially  responsible  for arranging  such payments to DTC
will be:

Bernard V. Kelly, Jr.
Dauphin Deposit Bank and Trust Company
213 Market Street
Harrisburg, PA  17101
Telephone: (717) 255-2121      Fax: (717) 231-2615

6. In the event that transactions in the Securities become eligible for next-day
(Clearinghouse)  funds  settlement in DTC's  Next-Day Funds  Settlement  "NDFS")
system,  and for so long as the Securities  are Eligible  Securities in the NDFS
system ("NDFS Securities"):

A. Interest  payments  shall be received by Cede & Co., a nominee of DTC, or its
registered  assigns,  in next- day funds on each payment date (or the equivalent
in accordance  with existing  arrangements  between Paying Agent and DTC).  Such
payments  shall be made  payable  to the  order of Cede & Co.  Absent  any other
existing arrangements, such payments shall be addressed as follows:

Manager; Cash Receipts
Dividend Department
The Depository Trust Company
7 Hanover Square; 24th Floor
New York, NY 10004-2695

B. Principal payments shall be received by Cede & Co., as nominee of DTC, or its
registered assigns, in next-day funds on each payment date (or the equivalent in
accordance  with  existing  arrangements  between  Paying  Agent and DTC).  Such
payments  shall  be made  payable  to the  order  of Cede & Co.,  and  shall  be
addressed as follows:

Collection Supervisor; Redemptions
Reorganization Department
The Depository Trust Company
7 Hanover Square; 23rd Floor
New York, NY 10004-2695

7. It is understood  that for so long as optional  tenders of the Securities may
be made daily following same day or seven day



notice,  such  tenders  will  be  effected  by  means  of  DTC's  Deliver  Order
Procedures.  DTC shall have no  responsibility  to distribute  notices regarding
such optional  tenders,  or to ascertain  whether any such tender has been made.
Except as otherwise provided herein, and in accordance with DTC's procedures for
exercise of voting and consenting rights, the parties hereto acknowledge that so
long as Cede & Co.  is the  sole  record  owner  of the  Securities  it shall be
entitled to all voting rights  applicable to the  Securities  and to receive the
full amount of all  distributions  payable with respect to the  Securities.  The
parties  acknowledge  that DTC shall treat any DTC  Participant  ("Participant")
having Securities  credited to its DTC accounts as entitled to the full benefits
of ownership of such  Securities  even if the credits of  Securities  to the DTC
accounts of such  Participant  result from  failures  to deliver  Securities  or
improper  deliveries of  Securities by an owner of Securities  subject to tender
for purchase.  Without  limiting the generality of the preceding  sentence,  the
parties  acknowledge  that DTC shall  treat any  Participant  having  Securities
created to its DTC  accounts  as entitled  to receive  distributions  and voting
rights,  if any,  with  respect to the  Securities  and to receive  certificates
evidencing  Securities if such  certificates are to be issued in accordance with
Paragraphs  12 or 13  hereof.  (The  treatment  by  DTC of  the  effects  of the
crediting by it of Securities to the accounts of  Participants  described in the
preceding  two  sentences  shall not  affect the  rights of the  parties  hereto
against any Participant.)

8. It is understood  that for so long as optional  tenders of the Securities may
be made less  frequently,  than  daily  following  same day or seven day  notice
(e.g.,  during a monthly,  quarterly,  semiannual,  or annual tender period) and
Cede & Co., as nominee of DTC, or its registered  assigns as the record owner of
Securities, is entitled to tender the Securities,  such tenders will be effected
by means of DTC's  Repayment  Option  Procedures.  Under  the  Repayment  Option
Procedures,  DTC will receive during the applicable  tender period  instructions
from its Participants to tender  Securities for purchase.  The undersigned agree
that  such  tenders  for  purchase  may be made by DTC by means of a book  entry
credit of such  Securities  to the account of Tender  Agent,  provided that such
credit is made on or before the final day of the applicable  tender period,  DTC
agrees that, promptly after the recording of any such book entry credit, it will
provide to Tender Agent an Agent Put Daily  Activity  Report in accordance  with
the Repayment  Option  Procedures,  identifying the Securities and the aggregate
principal amount thereof as to which such tenders for purchase have been made.

Trustee or Issuer shall send a notice to DTC regarding such optional  tenders of
Securities by hand or by a secure means, e.g.,  legible telecopy,  registered or
certified mail,  overnight  delivery) in a timely manner designed to assure that
such  notice is in DTC's  possession  no later  than the close of  business  two
business days before the  Publication  Date. The  Publication  Date shall be not
less


than 15 days prior to the start of the  applicable  tender  period.  Such notice
shall state  whether any partial  redemption  of the  Securities is scheduled to
occur during the applicable optional tender period.

If delivered by hand or sent by mail or overnight delivery, such notice shall be
sent to:

Supervisor; Put Bond Unit
Reorganization Department
The Depository Trust Company
7 Hanover Square; 23rd Floor
New York, NY 1OOO4-2695

If sent by  telecopy,  such  notice  shall  be sent to (212)  709-1093  or (212)
709-1094.  Trustee or Issuer shall  confirm  DTC's  receipt of such  telecopy by
telephoning (212) 709-1470.

For so long as the  Securities  are SDFS  Securities,  principal  payments (plus
accrued  interest,  if any) as the  result  of  optional  tenders  for  purchase
effected by means of DTC's Repayment Option  Procedures shall be received by DTC
on each  purchase  date in  same-day  funds in the  manner set forth in the SDFS
Paying Agent  Operating  Procedures.  Such payments  shall be sent in time to be
credited to DTC's account at the FRBNY no later than 10:00 a.m.  (Paying Agent's
local time) on the  purchase  date or as soon as possible  thereafter  following
Paying Agent's  receipt of funds from Issuer.  It is understood  that; (a) until
DTC  receives  such  payments  in its FRBNY  account,  the  optionally  tendered
Securities  will  remain in Tender  Agent's  DTC  account:  and (b)  unless  DTC
receives such payments in its FRBNY account by 2:00 p.m.  (Eastern Time), it may
be unable to  distribute  such  payments  to DTC  Participants  nor  release the
Securities to the Remarketing Agent that same day.

The name,  telephone  number,  telecopy  number (if  available),  and address of
Tender Agent person  initially  responsible  for arranging  such payments to DTC
will be:

Bernard V. Kelly, Jr.
Dauphin Deposit Bank and Trust Company
213 Market Street
Harrisburg, PA  17101
Telephone: (717)255-2121      Fax: (717) 231-2615

For so long as the  Securities  are NDFS  Securities,  principal  payments (plus
accrued  interest,  if any) as the  result  of  optional  tenders  for  purchase
effected by means of DTC's Repayment Option Procedures shall be received by Cede
& Co., as nominee of DTC, or its  registered  assigns,  on each purchase date in
next-day  funds or the  equivalent  in  accordance  with  existing  arrangements
between Tender Agent and DTC. Such payments shall be made payable to the


order of Cede & Co. and shall be addressed to Supervisor, Put
Bond Unit, Reorganization Department, as indicated above.

9. In the event of a change or proposed  change in the interest rate mode of the
Securities from one variable-rate mode to any other  variable-rate mode, or to a
fixed-rate  mode,  Trustee  or Issuer  shall  send a notice to DTC of such event
specifying,  as  applicable:  (a) the name  and  number  of the DTC  Participant
account to which mandatorily  tendered  Securities are to be delivered by DTC on
the purchase date after DTC receives  payment for such  Securities;  and (b) the
first interest payment date under the new mode. Such notice shall be sent to DTC
by a  secure  means  (e.g.  legible  telecopy,  registered  or  certified  mail,
overnight delivery) in a timely manner designed to assure that such notice is in
DTC's  possession  no later than the close of business two business  days before
the Publication  Date. The Publication Date shall be not less than 15 days prior
to the expiration  date of the period  provided for security owner  elections to
retain  Securities as discussed in paragraph 10. If delivered by hand or sent by
mail or overnight delivery, such notice shall be sent to both:

Manager; VRDO Eligibility Section   Supervisor; Put Bond Unit
Underwriting Department             Reorganization Department
The Depository Trust Company        The Depository Trust Company
55 Water Street, 50th Floor               7 Hanover Square, 23rd
Floor
New York, NY  10041-0099            New York, NY 10004-2695


If sent by telecopy, such notice shall be sent to both:


Trustee or Issuer shall confirm  DTC's  receipt of such telecopy by  telephoning
the Underwriting Department at (212) 709-3731 and the Reorganization  Department
at  (212)  709-1470.  All  other  notices  regarding  the  interest  rate on the
Securities  (before  and after any change in the  interest  rate mode)  shall be
delivered to Manager, VRDO Announcements,  Dividend Department,  as indicated in
Paragraph 4.

10. In the event of  expiration or  substitution  of a facility  supporting  the
Securities  (such as a letter of  credit)  or  non-reinstatement  of the  amount
available to pay interest on the Securities  pursuant to such a facility Trustee
or Issuer shall send a notice to DTC of such event  specifying,  as  applicable,
the name and number of the DTC Participant account to which mandatorily tendered
Securities are to be delivered by DTC on the purchase date


after DTC receives payment for such Securities. Such notice shall be sent to DTC
by a secure  means  (e.g.,  legible  telecopy,  registered  or  certified  mail,
overnight  delivery in a timely manner designed to assure that such notice is in
DTC's  possession  no later than the close of business two business  days before
the  Publication  Date or, as  applicable,  immediately  after Trustee  receives
notice that the Securities are subject to  acceleration.  The  Publication  Date
shall  be not  less  than 15 days  prior to the  expiration  date of the  period
provided  for  security  over  elections  to retain  Securities  as discussed in
paragraph  10.  Such  notice  shall  be  sent  to  Supervisor,  Put  Bond  Unit,
Reorganization Department, as indicated in Paragraph 7.

11. Where the Document  provides  that the  Securities  are subject to mandatory
tender except with respect to security owner elections to retain Securities,  it
is understood that DTC will use its Repayment Option  Procedures to process such
elections.  Under the Repayment Option Procedures, DTC will receive instructions
during the applicable  election period from  Participants to retain  Securities.
DTC, on behalf of such  Participants,  will notify Tender Agent of the aggregate
principal  amount of Securities  that will not be tendered and will be retained.
If the  mandatorily  tendered  Securities  are to be  replaced  with two or more
issues of  Securities  the  "Replacement  Securities"),  Tender  Agent  shall be
responsible for allocating  specific  Replacement  Securities by CUSIP number to
the Participants that elected to retain Securities.

In cases in  which  prior to a  mandatory  tender,  certain  Securities  are not
subject to such mandatory  tender, if requested as follows DTC will exclude such
Securities  from its  mandatory  tender  procedures.  Such  request  shall be in
writing  and shall  contain:  (a)  certification  by Trustee or Issuer  that the
principal  amount of such Securities is not subject to the mandatory  tender and
certification  by a  custodian/Participant  that the  Participant's  position on
DTC's records  includes such  Securities;  and (b)  certification  by Trustee or
Issuer that the election to exclude such Securities from the mandatory tender is
authorized  under the Document.  Such request shall be sent to  Supervisor,  Put
Bond Unit, Reorganization  Department, in the manner indicated in Paragraph 7 to
assure  that such  request  is in DTC's  possession  no later  than the close of
business two business days before the Publication  Date of the mandatory  tender
notice.

For so long as the  Securities  are SDFS  Securities,  principal  payments (plus
accrued  interest,  if any) as the  result of  mandatory  tenders  for  purchase
(including  mandatory  tenders  upon  change  in the  interest  rate mode of the
Securities, or upon expiration, substitution, or non-reinstatement of a facility
supporting the Securities) shall be received by DTC on the purchase date in same
day funds in the manner set forth in Paragraph 7.




For so long as the Securities are NDFS Securities, such principal payments shall
be received  by DTC on the  purchase  date in  next-day  funds in the manner set
forth in Paragraph 7.

12. In the event of a redemption, acceleration, or any other similar transaction
e.g., tenders made and accepted in response to Trustee's or Issuer's  invitation
to tender) necessitating a reduction in aggregate principal amount of Securities
outstanding or an advance refunding of part of the Securities outstanding,  DTC,
in its discretion;  a) may request Trustee or Issuer to issue and authenticate a
new  Securities  certificate;  or (b) may make an  appropriate  notation  on the
Security  certificate  indicating  the date and  amounts  of such  reduction  in
principal  except in the case of final  maturity  in which case the  certificate
must be  presented  to  Trustee  prior to  payment.  In the event of an  advance
refunding of part of the Securities outstanding,  Trustee or Issuer shall obtain
a CUSIP number from the CUSIP Service  Bureau and issue and  authenticate  a new
Security certificate for the refunded Securities.

13. In the event that Issuer  determines  that  beneficial  owners of Securities
shall be able to obtain certificated Securities,  Trustee or Issuer shall notify
DTC of the  availability  of Security  certificates.  In such  event,  Issuer or
Trustee shall issue, transfer, and exchange Security certificates in appropriate
amounts, as required by DTC and others.

14. DTC may  discontinue  providing its services as securities  depository  with
respect to the Securities at any time by giving  reasonable notice to Trustee or
Issuer  (at which time DTC will  confirm  with  Trustee or Issuer the  aggregate
principal amount of Securities outstanding).  Under such circumstances, at DTC's
request Trustee or Issuer shall  cooperate fully with DTC by taking  appropriate
action to make available one or more separate certificates evidencing Securities
to any Participant having Securities credited to its DTC accounts.

15.  Nothing  herein shall be deemed to require Paying Agent to advance funds on
behalf of Issuer.

16. All notices and payment  advances sent to DTC shall contain the CUSIP number
of Securities.

17. DTC may direct Issuer,  Remarketing  Agent,  Tender Agent,  Paying Agent, or
Trustee to use any other telephone number or address as the number or address to
which notices or payments of interest or principal may be sent.

18. Issuer,  Remarketing Agent,  Tender Agent,  Paying Agent, or Trustee sending
notices or requests to DTC shall have a method to verify subsequently the use of
the means to deliver such notices and requests to DTC, and timeliness of receipt
of them by DTC.


19.  Issuer:  (a)  understands  that  DTC has no  obligation  to and  will  not,
communicate  to its  Participants  or to any person  having an  interest  in the
Securities any  information  contained in the Security  certificate(s);  and (b)
acknowledges that neither  Participants nor any person having an interest in the
Securities  shall be deemed to have  notice of the  provisions  of the  Security
certificate(s) by virtue of submission of such certificate(s) to DTC.

Note:
Schedule A contains  statements that DTC believes  accurately  describe DTC, the
method of effecting book-entry  transfers of securities  distributed through DTC
and certain related matters.


Very truly yours,


Piercing Pagoda, Inc.
            (Issuer)



By:

 CoreStates Securities, Corp   Dauphin Deposit Bank and Trust
(Remarketing Agent)            Company
        (Tender Agent)




By:                            By:


Dauphin Deposit Bank and Trust Dauphin Deposit Bank and Trust
Company
Company                              (Paying Agent)
            (Trustee)




By:                            By:
Received and Accepted:

THE DEPOSITORY TRUST COMPANY




By:
SCHEDULE A

      SAMPLE OFFERING DOCUMENT LANGUAGE
      DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
      (Prepared by DTC--bracketed material may be applicable only
to certain Issues)

1. The Depository  Trust Company  ("DTC"),  New York, NY, will act as securities
depository for the securities (the "Securities").  The Securities will be issued
as  fully-registered  securities  registered  in the  name of Dede & Co.  (DTC's
partnership nominee).  One fully-registered  Security certificate will be issued
for [each issue of] the Securities,  [each] in the aggregate principal amount of
such  issue,  and will be  deposited  with  DTC.  [If,  however,  the  aggregate
principal  amount of [any] issue exceeds $150 million,  one certificate  will be
issued with respect to each $150 million of principal  amount and an  additional
certificate  will be issued with respect to any  remaining  principal  amount of
such issue.]

2. DTC is a  limited-purpose  trust company organized under the New York Banking
Law, a banking  organization  within the meaning of the New York  Banking Law, a
member of the Federal Reserve System, a clearing  corporation within the meaning
of the New York Uniform  Commercial  Code,  and a "clearing  agency"  registered
pursuant to the  provisions  of Section 17A of the  Securities  Exchange  Act of
1934. DTC holds securities that its participants  ("Participants")  deposit with
DTC. DTC also  facilitates  the  settlement  among  Participants  of  securities
transactions,  such as transfers and pledges,  in deposited  securitIes  through
electronic computerized  book-entry changes in Participants'  accounts,  thereby
eliminating the need for physical  movement of securities  certificates.  Direct
Participants  include  securities  brokers and dealers,  banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of its  Direct  Participants  and by the New  York  Stock  Exchange,  Inc.,  the
American  Stock  Exchange,  Inc.,  and the National  Association  of  Securities
Dealers,  Inc.  Access to the DTC  system is also  available  to others  such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant,  either directly or
indirectly  ("Indirect  Participants").  The  Rules  applicable  to DTC  and its
Participants are on file with the Securities and Exchange Commission.

3.  Purchases  of  Securities  under the DTC  system  must be made by or through
Direct  Participants,  which will receive a credit for the  Securities  on DTC's
records.  The  ownership  Interest of each  actual  purchaser  of each  Security
("Beneficial  Owner")  is in turn to be  recorded  on the  Direct  and  Indirect
Participants'  records.  Beneficial owners will not receive written confirmation
from DTC of their  purchase,  but  Beneficial  Owners  are  expected  to receive
written confirmations providing details of the transaction,  as well as periodic
statements of their holdings,  from the Direct or Indirect  Participant  through
which the Beneficial Owner entered into the transaction.  Transfers of ownership
interests in the Securities are to be  accomplished by entries made on the books
of Participants  acting on behalf of Beneficial  Owners.  Beneficial Owners will
not receive  certificates  representing their ownership Interests in Securities,
except in the event  that use of the  book-entry  system for the  Securities  is
discontinued.

4. To facilitate subsequent transfers,  all Securities deposited by Participants
with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of Securities with DTC and their  registration in the name of Cede & Co.
effect no change in  beneficial  ownership.  DTC has no  knowledge of the actual
Beneficial Owners of the Securities;  DTC's records reflect only the identify of
the Direct  Participants to whose accounts such  Securities are credited,  which
may  or  may  not  be  the  Beneficial  Owners.  The  Participants  will  remain
responsible for keeping account of their holdings on behalf of their customers.

5. Conveyance of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants,  and by Direct Participants and
Indirect  Participants  to  Beneficial  Owners will be governed by  arrangements
among them,  subject to any  statutory or regulatory  requirements  as may be in
effect from time to time.

6.  Redemption  notices  shall  be sent to Cede & Co.  If less  than  all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the  interest of each Direct  Participant  in such issue to be
redeemed.

7. Neither DTC nor Cede & Co. will  consent or vote with respect to  Securities.
Under its usual procedures,  DTC mails an Omnibus Proxy to the Issuer as soon as
possible  after  the  record  date.  The  Omnibus  Proxy  assigns  Cede &  Co.'s
consenting or voting rights to those Direct  Participants  to whose accounts the
Securities are credited on the record date  (identified in a listing attached to
the Omnibus Proxy).

8. Principal and interest  payments on the Securities will be made to DTC. DTC's
practice  is  to  credit  Direct  Participants'  accounts  on  payable  date  in
accordance with their respective  holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on payable date.  Payments by
Participants to Beneficial Owners will be governed by standing  instructions and
customary  practices,  as is the case with  securities  held for the accounts of
customers  in  bearer  form  or  registered  in  Street  name,  and  will be the
responsibility  of such  Participant  and not of DTC, the Agent,  or the issuer,
subject to any  statutory or  regulatory  requirements  as may be in effect from
time to time.  Payment of principal and interest to DTC is the responsibility of
the Issuer or the Agent,  disbursement  of such payments to Direct  Participants
shall be the  responsibility  of DTC, and  disbursement  of such payments to the
Beneficial   Owners  shall  be  the   responsibility   of  Direct  and  Indirect
Participants.

9. A  Beneficial  Owner  shall  give  notice  to elect  to have  its  Securities
purchased  or tendered,  through its  Participant,  to the  [Tender/Remarketing]
Agent,  and shall  effect  delivery  of such  Securities  by causing  the Direct
Participant to transfer the Participant's  interest in the Securities,  on DTC's
records,  to  the  [Tender/Remarketing]  Agent.  The  requirement  for  physical
delivery of Securities  in connection  with a demand for purchase or a mandatory
purchase will be deemed  satisfied  when the ownership  rights in the Securities
are transferred by Direct Participants on DTC's records.

10. DTC may  discontinue  providing its services as securities  depository  with
respect to the Securities at any time by giving  reasonable notice to the Issuer
or the Agent. Under such circumstances, in the event that a successor securities
depository is not obtained, Security certificates are required to be printed and
delivered.

11.  The  Issuer  may  decide to  discontinue  use of the  system of  book-entry
transfers  through DTC (or a successor  securities  depository).  In that event,
Security certificates will be printed and delivered.

12. The information in this section  concerning DTC and DTC's book-entry  system
has been obtained from sources that the Issuer believes to be reliable,  but the
Issuer takes no responsibility for the accuracy thereof.
      Principal and Income Payments Rider

1. This Rider supersedes any  contradictory  language set forth in the Letter of
Representations to which it is appended.

2. With respect to payments in the Securities:

A. Issuer or Agent shall  provide  notice to a standard  interest  and  dividend
announcement  service  subscribed  to by DTC. In the event that no such  service
exists,   Issuer  or  Agent  shall   provide   such   notice   directly  to  DTC
electronically, as previously arranged by Issuer or Agent and DTC. If electronic
transmission has not been arranged, absent any other arrangements between Issuer
or Agent  and DTC,  such  notice  shall be sent by  telecopy  to DTC's  Dividend
Department  at (212)  709-1723 or (212)  709-1686,  and receipt of such  notices
shall be confirmed by telephoning (212) 709-1270. Notices to DTC pursuant to the
above by mail or any other means shall be sent to:

Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, NY 10004-2695

B. Issuer or Agent shall provide DTC, no later than noon (Eastern  Time) on each
periodic  interest,  principal or dividend  payment  date,  a written  notice of
payment information containing the Security CUSIP numbers for which payment will
be sent, as well as the dollar amount of payment.

C.  Dividends,  interest  payments,  and  principal  payments  that  are part of
periodic  principal-and-interest  payments  shall be  received by Cede & Co., as
nominee of DTC, or its registered  assigns, in same-day funds no later than 2:30
p.m. (Eastern Time) on each payment date. Absent any other arrangements  between
Issuer or Agent and DTC, such funds shall be wired as follows:

The Chase Manhattan Bank ABA # 021 000 021 For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account # 066-026776

D. Maturity and redemption payments with CUSIP-level detail shall be received by
Cede & Co., as nominee of DTC, or its registered  assigns,  in same-day funds by
2:30 p.m. (Eastern Time) on the payable date. Absent any other





arrangements  between  Issuer or Agent  and DTC,  such  funds  shall be wired as
follows:

The Chase Manhattan Bank ABA # 021 000 021 For credit to a/c Cede & Co.
c/o The Depository Trust Company
Redemption Deposit Account # 066-027306

E. Principal payments (plus accrued interest,  if any) as the result of optional
tenders for  purchase  effected by means of DTC's  Repayment  Option  Procedures
shall be received by Cede & Co., as nominee of DTC, or its  registered  assigns,
in same-day funds by 2:30 p.m.  (Eastern Time) on the first payable date. Absent
any other  arrangements  between  Issuer or Agent and DTC,  such funds  shall be
wired as follows:

The Chase Manhattan Bank ABA # 021 000 021 For credit to a/c Cede & Co.
c/o The Depository Trust Company
Reorganization Deposit Account # 066-027608
      See # 1, Vol II,
      Exhibits A & B