PLEDGE AND SECURITY AGREEMENT


PLEDGE AND SECURITY  AGREEMENT (this  "Agreement"),  dated as of April 29, 1998,
between  PIERCING  PAGODA,  INC., a Delaware  corporation  (the "Company" or the
"Pledgor") and CORESTATES BANK, N.A. (the "Bank").

WHEREAS,  the  Company  has issued its  $2,565,000  aggregate  principal  amount
Taxable  Variable  Rate  Demand/Fixed  Rate Bonds,  Series of 1998 (the "Bonds")
under a Trust  Indenture  dated as of April 29, 1998 (the  "Indenture"),  by and
between the Company and Dauphin Deposit Bank and Trust Company,  as trustee (the
"Trustee"); and

WHEREAS,  Pledgor and the Bank have entered into a Reimbursement Agreement dated
as of April 29, 1998 (the "Reimbursement Agreement"), pursuant to which the Bank
has agreed,  subject to the conditions  precedent  provided in the Reimbursement
Agreement,  to issue an irrevocable  direct pay letter of credit in favor of the
Trustee (the "Letter of Credit").

NOW, THEREFORE the parties, intending to be legally bound, agree as follows:

1. Defined Terms. As used in this Agreement,  the terms defined in the preambles
to this  Agreement  shall have such  meanings and the  following  terms have the
following meanings.

"Collateral"  means all  property  at any time  pledged  to the Bank  under this
Agreement  (whether described in this Agreement or not) and all income therefrom
and proceeds thereof.

"Event of Default" has the meaning given to such term in the
Reimbursement Agreement.

"Obligations" has the meaning given to such term in the
Reimbursement.

"Pledged Bonds" has the meaning given to such term in Section 3
hereof.

"Pledged Bonds  Custodian" means Dauphin Deposit Bank and Trust Company (or such
other  successor to or substitute)  in its capacity as collateral  agent for the
Bank.

"Remarketing Agent" has the meaning given to such term in the
Indenture.

"Tender Agent" has the meaning given to such term in the
Indenture.

"Unremarketed Bonds" has the meaning given to such term in the
Indenture.

2. Interpretation.  (a) Unless the context otherwise indicates,  words expressed
in the  singular  shall  include  the  plural  and vice versa and the use of the
neuter, masculine or feminine gender is for convenience only and shall be deemed
to mean and include the neuter, masculine or feminine gender, as appropriate.

(b)  Headings of articles  and  sections  herein are solely for  convenience  of
reference,  do not  constitute  a part hereof and shall not affect the  meaning,
construction or effect hereof.

(c) All references  herein to  "Articles,"  "Sections,"  "Paragraphs"  and other
subdivisions  are  to  the  corresponding  Articles,  Sections,   Paragraphs  or
subdivisions of this Agreement;  the words "herein,"  "hereof,"  "hereunder" and
other words of similar  import refer to this Agreement as a whole and not to any
particular Article, Section, Paragraph or subdivision hereof.

3. Pledge.  The Pledgor hereby pledges,  assigns,  hypothecates and transfers to
the Bank all of the  Pledgor's  right,  title and  interest to the  Unremarketed
Bonds  delivered from time to time to the Tender Agent by the owners thereof and
grants to the Bank a first lien on, and security  interest in, all of its right,
title and interest in and to the Unremarketed  Bonds, the interest thereon,  and
all proceeds thereof, as collateral security for the prompt and complete payment
by the  Pledgor (by  acceleration,  at stated  maturity,  or  otherwise)  of all
amounts  payable  from time to time by the Pledgor to the Bank in respect of the
Obligations. Unless all amounts drawn under the Letter of Credit with respect to
the payment of the  Purchase  Price (as defined in the  Indenture)  of the Bonds
pursuant to mandatory  and optional  tenders of the Bonds are  reimbursed to the
Bank on the same day as such  drawings,  the Pledgor  shall,  no later than 5:00
p.m.  (New York City time) on the same day,  (a) deliver or use its best efforts
to cause to be delivered to the Pledged Bonds Custodian, Unremarketed Bonds in a
principal  amount  equal  to the  unreimbursed  portion  of such  drawing  (such
Unremarketed  Bonds so delivered to and held by the Pledged Bonds Custodian from
time to time to be referred to as the  "Pledged  Bonds") and (b) give or use its
best efforts to cause to be given to the Bank notice of the number and principal
amount of each such Pledged Bond.

4.  Registration of and Interest on Pledged Bonds.  Upon delivery to the Pledged
Bonds  Custodian,  Pledged  Bonds shall be registered in the name of the Pledged
Bonds  Custodian  and shall be duly  endorsed for transfer by the Pledged  Bonds
Custodian in blank or by  appropriate  instruments  of transfer duly executed in
blank.  The Bank may, but shall not be obligated to,  request that Pledged Bonds
be  registered  in its name at any time or from time to time.  Any  interest  on
Pledged  Bonds  shall  be paid to or upon the  order  of the  Bank and  shall be
applied  as a  credit  against  the  Obligations  with  respect  to the  related
Principal and Interest  Drawings  under the Letter of Credit in accordance  with
the terms of the Reimbursement Agreement.

5.  Release of  Pledged  Bonds.  Upon  payment  to the Bank of the  proceeds  of
remarketed  Pledged Bonds in an amount  sufficient to cover the principal of and
accrued  interest,  if any,  on the  Unremarketed  Bonds,  the  Bank  shall  (i)
reinstate  the Letter of Credit to an amount  equal to the  principal  amount of
such  Bonds  together  with an amount  equal to  forty-five  (45) days  interest
thereon  calculated  at an  interest  rate  (based on a 365/366 day year for the
actual number of days elapsed) of seventeen percent (17%) to pay interest on the
Bonds;  (ii) notify the Trustee of the amount of such  reinstatement;  and (iii)
release or instruct the Pledged  Bonds  Custodian to release  Pledged Bonds in a
principal  amount equal to the principal amount of such payment to the Bank from
the  pledge  and  security  interest  created  by this  Agreement  for resale in
accordance with Section 5.01, 5.04 or 5.05 of the Indenture.  Such Pledged Bonds
shall be delivered  to or upon the order of the Tender Agent only after  payment
to the Bank as aforesaid.

6.  Redemption  of Pledged  Bonds.  In the event any Pledged  Bond is called for
redemption under the Indenture,  Pledgor shall use its best efforts to cause the
Pledged Bonds  Custodian to take all such actions as shall be required under the
Indenture  to  effect  the  redemption  and  shall  pay or  cause to be paid the
redemption  price  to or to the  order  of the  Bank  as a  credit  against  the
Obligations.

7. Rights of the Bank.  The Bank shall not be liable,  except in the case of its
willful  misconduct or gross negligence,  for failure to collect or realize upon
the  Obligations or the  Collateral or any part thereof,  or for any delay in so
doing, nor shall the Bank be under any obligation to take any action  whatsoever
with regard thereto. If an Event of Default has occurred and is continuing,  the
Bank,  with or without  notice,  shall have the right to  exercise  all  rights,
privileges  or  options  pertaining  to any  Pledged  Bonds,  as if it were  the
absolute  owner  thereof,  upon such terms and conditions as it may, in its sole
discretion determine, all without liability except to account to the Pledgor for
property actually received by it. The Bank shall have no duty to exercise any of
the aforesaid rights, privileges or options and shall not be responsible for any
failure to do so or delay in so doing.

8. Remedies.  In the event that any portion of the Obligations has been declared
due and payable (upon scheduled maturity,  acceleration or otherwise), the Bank,
without demand for performance or other demand,  advertisement  or notice of any
kind (except the notice  specified  below of time and place of public or private
sale) to the  Pledgor  or any  other  person  (all  and  each of which  demands,
advertisements  and/or  notices  are  expressly  waived  by  the  Pledgor),  may
forthwith collect, receive,  appropriate and realize upon the Collateral, or any
part thereof,  and/or may forthwith sell,  assign,  give an option or options to
purchase,  contract to sell, or otherwise dispose of and deliver the Collateral,
or any part  thereof,  in one or more  parcels or  portions at public or private
sale or sales,  at any exchange,  broker's board or at any of the Bank's offices
or elsewhere upon such terms and  conditions as it may, in its sole  discretion,
deem  advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk, with the right to the
Bank, upon any such sale or sales,  public or private,  to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption in
the  Pledgor,  which right or equity is hereby  expressly  waived or released by
Pledgor.  The  net  proceeds  of  any  such  collection,   recovery,   receipts,
appropriation,  realization or sale,  after  deducting all reasonable  costs and
expenses of every kind incurred therein or incidental to the care,  safekeeping,
or  otherwise  of any and all of the  Collateral  or in any way  relating to the
rights  of the  Bank  under  this  Agreement,  including,  but not  limited  to,
reasonable  attorneys'  fees and legal  expenses,  shall be applied first to the
satisfaction of the Obligations in such order as the Bank may elect, the Pledgor
remaining liable for any deficiency remaining unpaid after such application, and
only after so paying over such net proceeds and after the payment by the Bank of
any  other  amount  required  by  any  provision  of  law,  including,   without
limitation.   Section   9-504(i)(c)  of  the  Uniform  Commercial  Code  of  the
Commonwealth of Pennsylvania,  need the Bank account for the surplus, if any, to
the Pledgor.  The Pledgor  agrees that the Bank or the Pledged  Bonds  Custodian
need not give more than  thirty  (30) days'  notice of the time and place of any
public  sale or of the  time  after  which a  private  sale  or  other  intended
disposition is to take place and that such notice is reasonable  notification of
such  matters.  In  addition  to the rights and  remedies  granted to it in this
Agreement  and in any other  instrument  or agreement  securing,  evidencing  or
relating  to any of the  Obligations,  the Bank or the Pledged  Bonds  Custodian
shall have the  authority  to exercise  all the rights and remedies of a secured
party under the Uniform  Commercial Code of the  Commonwealth  of  Pennsylvania.
Notwithstanding  anything  contained  herein to the  contrary,  the Bank may not
sell,  assign,  give an option  or  options  to  purchase,  contract  to sell or
otherwise  dispose of and deliver the Collateral  unless it shall  reinstate the
Letter of Credit in full as to  principal  and  interest  with  respect  to such
Bonds, except this shall not apply in the case of a conversion of the Bonds to a
Fixed Rate in accordance with the terms of the Indenture.

9.  Representations,  Warranties  and  Covenants  of the  Pledgor.  The  Pledgor
represents  and  warrants  that:  (a) on the date of delivery to the Bank or the
Pledged  Bonds  Custodian  of any  Pledged  Bonds,  none of the  Authority,  the
Remarketing  Agent, the Tender Agent, the Trustee nor any other person,  firm or
corporation  (other than the Pledgor or the Bank or the Pledged Bonds Custodian)
will have any right,  title or interest in and to the Pledged Bonds; (b) it has,
and on the date of delivery to the Bank or the Pledged  Bonds  Custodian  of any
Pledged Bonds will have, full power,  authority and legal right to pledge all of
its right,  title and  interest  in and to the  Pledged  Bonds  pursuant to this
Agreement;  (c) the Pledged Bonds and the proceeds  thereof,  are not subject to
any pledge, lien, mortgage, hypothecation,  security interest, charge, option or
encumbrance  or to any  agreement  purporting  to  grant  to any  third  party a
security  interest in the property or assets of the Pledgor  which would include
the  Pledged  Bonds.  The Pledgor  covenants  and agrees that it will defend the
Bank's and the Pledged Bonds Custodian's  right,  title and security interest in
and to the Pledged Bonds and the proceeds thereof against the claims and demands
of all persons at the Pledgor's sole cost and expense.


10. No Disposition,  etc. Except as contemplated in this Agreement,  without the
prior  written  consent of the Bank,  the Pledgor  agrees that it will not sell,
assign,  transfer,  exchange  or  otherwise  dispose of or grant any option with
respect  to, the  Collateral,  nor will it create,  incur or permit to exist any
pledge, lien, mortgage, hypothecation,  security interest, charge, option or any
other  encumbrance  with  respect  to  any of the  Collateral,  or any  interest
therein,  or any proceeds  thereof,  except for the lien and  security  interest
provided for by this Agreement and sale of the Pledged Bonds pursuant to Section
5.01, 5.04 or 5.05 of the Indenture.

11. Sale of Collateral.  (a) The Pledgor  recognizes that the Bank may be unable
to effect a public sale of any or all of the Pledged  Bonds by reason of certain
prohibitions   contained  in  the  Securities  Act  of  1933,  as  amended  (the
"Securities Act"), and applicable state securities laws, but may be compelled to
resort to one or more private sales thereof to a restricted  group of purchasers
who may be obliged to agree,  among other things, to acquire such securities for
their own  account for  investment  and not with a view to the  distribution  or
resale thereof.  The Pledgor  acknowledges and agrees that any such private sale
may result in prices and other terms less  favorable  to the seller than if such
sale were a public sale and, notwithstanding such circumstances, agrees that any
such private sale shall be deemed to have been made in a commercially reasonable
manner.  The Bank  shall be  under no  obligation  to delay a sale of any of the
Pledged Bonds for the period of time necessary to permit the Pledgor to register
such  securities for public sale under the Securities  Act, or under  applicable
state securities laws, even if the Pledgor would agree to do so.

(b) The Pledgor further agrees to promptly do or cause to be done all such other
reasonable  acts and things as may be necessary to make any sale or sales of all
or any portion of the Pledged Bonds valid and binding and in compliance with any
and all applicable laws,  regulations,  orders, writs,  injunctions,  decrees or
awards of any and all courts,  arbitrators  or  governmental  instrumentalities,
domestic or foreign, having jurisdiction over any such sale or sales, all at the
Pledgor's cost and expense.

12.  Further  Assurances.  The Pledgor  agrees that at any time and from time to
time upon the written  request of the Bank or the Pledged Bonds  Custodian,  the
Pledgor will execute and deliver such further documents and do such further acts
and things as the Bank or the Pledged Bonds Custodian may reasonably  request in
order to effect the purposes of this Agreement.

13.  Severability.  Any  provision  of this  Agreement  which is  prohibited  or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining   provision  of  this   Agreement,   and  any  such   prohibition   or
unenforceability   in  any   jurisdiction   shall  not   invalidate   or  render
unenforceable such provision in any other jurisdiction.

14. No Waiver; Cumulative Remedies. No act, delay or omission of the Bank or the
Pledged Bonds Custodian shall be deemed to be a waiver of any rights or remedies
granted  under this  Agreement  and no waiver  shall be valid unless in writing,
signed by the Bank,  and then only to the  extent  set forth in such  waiver.  A
waiver of any right or remedy under this Agreement on any one occasion shall not
be construed as a bar to any right or remedy which the Bank would otherwise have
on any future occasion. No failure to exercise and no delay in exercising on the
part of the Bank or the Pledged Bonds  Custodian  any right,  power or privilege
under this Agreement shall operate as a waiver thereof,  nor shall any single or
partial exercise of any right,  power or privilege under this Agreement preclude
any other right,  power or privilege.  The rights and remedies  provided in this
Agreement are cumulative and may be exercised  singly or  concurrently,  and are
not exclusive of any rights or remedies provided by law or equity.

15. Waivers, Amendments;  Applicable Law. None of the terms or provision of this
Agreement may be waived, altered, modified or amended except by an instrument in
writing,  duly  executed  by the Pledgor and the Bank.  This  Agreement  and all
obligations  of the  Pledgor  under this  Agreement  shall be  binding  upon the
successors and assigns of the Pledgor,  and shall,  together with the rights and
remedies of the Bank or the Pledged Bonds Custodian under this Agreement,  inure
to the benefit of the Bank and its successors and assigns.

16. Fees and Expenses of the Pledged Bonds Custodian. The Pledgor agrees that it
will pay or reimburse the Bank for (i) all fees charged and expenses incurred by
the Pledged Bonds  Custodian  for and in connection  with its acting as such for
the purposes of this Agreement and (ii) all costs and other expenses incurred by
the Bank or the  Pledged  Bonds  Custodian  in  connection  with  the  transfer,
registration or exchange of the Pledged Bonds.

17.   Governing Law. This Agreement shall be governed by and be
construed and interpreted in accordance with the laws of the
Commonwealth of Pennsylvania.

18. Counterparts.  This Agreement may be executed in several counterparts,  each
of which shall be an original and all of which shall  constitute but one and the
same instrument.

IN WITNESS  WHEREOF,  the Pledgor and the Bank have caused this  Agreement to be
duly executed and delivered by their duly authorized  officers as of the day and
year first above written.

Attest:                            PIERCING PAGODA, INC.



--------------------------         -----------------------------
Authorized Officer                         Chief Financial Officer



Attest:                            CORESTATES BANK, N.A.




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











CORESTATES BANK, N.A.
530 Walnut Street
Philadelphia, PA  19106



Ladies and Gentlemen:

We refer to the Pledge and  Security  Agreement  dated as of April 29, 1998 (the
"Agreement"),  between  PIERCING  PAGODA,  INC.,  a  Delaware  corporation  (the
"Pledgor")  and you.  All terms used in this  letter and not  otherwise  defined
shall have the meanings given to such terms in the Agreement.

We accept our  appointment  as Pledged Bonds  Custodian  under the Agreement and
undertake to hold any Pledged  Bonds which the Pledgor shall deliver or cause to
be delivered to us in such  capacity as your  collateral  agent until  otherwise
directed  by you and to  otherwise  perform  the  duties  of the  Pledged  Bonds
Custodian under the Agreement.

The Pledgor by its  signature  to this letter  agrees to  indemnify  and hold us
harmless  against any loss,  liability or expense  incurred by us without  gross
negligence or bad faith on our part and arising out of or in connection with any
of our duties as Pledged Bonds  Custodian,  including the  reasonable  costs and
expense of defending ourselves against any claim or liability in connection with
the exercise or performance of any of our powers or duties in such capacity. The
provisions  of the  preceding  sentence  shall  survive the  termination  of the
Agreement.

Very truly yours,

DAUPHIN DEPOSIT BANK AND TRUST COMPANY,




     By:
       Vice President

Acknowledged and AGREED
PIERCING PAGODA, INC.



By:



      EXHIBIT A
      to UCC-1 Financing Statement




1.    A security interest in all of the following:


(a) All  right,  title  and  interest  of the  Debtor in and to all  moneys  and
securities from time to time held by the Trustee under the terms of that certain
Trust Indenture,  dated as of April 29, 1998 (the  "Indenture"),  by and between
the Debtor and the Secured Party.

(b) Any and all other  property  rights and  interests  of every kind and nature
from time to time  hereafter  by  delivery  or by writing  of any kind  granted,
bargained, sold, alienated, demised, released, conveyed, assigned,  transferred,
mortgaged,  pledged,  hypothecated  or  otherwise  subjected  to the lien of the
Indenture,  as and for additional security therewith, by the Debtor or any other
person on its behalf or with its written consent.

2.    Piercing Pagoda, Inc. is the Debtor and Dauphin Deposit Bank
and Trust Company, is the Secured Party in the UCC-I financing
statement to which this Exhibit A is attached.