REIMBURSEMENT AGREEMENT



                               among


                       PIERCING PAGODA, INC.


                                and


  CORESTATES BANK, N.A., as Administrative Agent, Co-Agent and a
                              Lender


                                and

               SUMMIT BANK, as Co-Agent and a Lender


                                and

              FIRST UNION NATIONAL BANK, as a Lender



Dated as of April 29, 1998






Piercing Pagoda, Inc.
           Taxable Variable Rate Demand/Fixed Rate Bonds
Series of 1998
REIMBURSEMENT AGREEMENT


      This   Reimbursement   Agreement   (as   amended,   modified,    extended,
supplemented,  restated  and/or  replaced from time to time,  the  "Agreement"),
dated as of April 29, 1998, is by and among Piercing Pagoda, Inc.  ("Borrower"),
a Delaware  corporation  having its chief executive  office at 3910 Adler Place,
Bethlehem,  Pennsylvania  18016,  the  financial  institutions  now or hereafter
parties to this  Agreement and their  respective  successors and assigns (each a
"Lender" and collectively, the "Lenders"), CoreStates Bank, N.A. ("CoreStates"),
a national bank having offices at 600 Penn Street, Reading,  Pennsylvania 19603,
Summit Bank  ("Summit"),  a New Jersey bank having offices at 1 Bethlehem Plaza,
Bethlehem,  Pennsylvania  18018,  and First  Union  National  Bank  ("FUNB"),  a
national  bank having  offices at 702  Hamilton  Mall,  Allentown,  Pennsylvania
18101.

BACKGROUND

A. Pursuant to the terms and subject to the conditions set forth in that certain
Syndicated  Loan  Agreement  dated  March 27,  1997  among the  parties  to this
Agreement  (as  amended,  modified,  extended,  supplemented,   restated  and/or
replaced from time to time, the  "Syndicated  Loan  Agreement"),  CoreStates and
Summit are  co-agents  for the  Lenders (in such  capacity,  each an "Agent" and
collectively,  the "Agents"),  and CoreStates is administrative agent and letter
of credit issuing agent for the Lenders (in such capacity,  the  "Administrative
Agent").

B.  Borrower has  authorized  and  directed  the  issuance of its  $2,565,000.00
aggregate principal amount Taxable Variable Rate Demand/Fixed Rate Bonds, Series
of 1998 (the  "Bonds") to finance a project (the  "Project")  consisting  of the
construction  of a 70,655  square foot  building on 5.3 acres of land in Hanover
Township,  Northampton County, Pennsylvania. The Project shall be constructed in
accordance   with  certain   plans  and   specifications   (together   with  all
modifications   thereto  approved  by  Administrative   Agent,  the  "Plans  and
Specifications"),  copies  of  which,  when  prepared,  shall be  signed by both
Borrower and Administrative Agent for identification purposes and deposited with
Administrative  Agent.  The Bonds shall issue  pursuant to the Trust  Indenture,
dated as of April 29, 1998 (the  "Indenture"),  among Borrower,  Dauphin Deposit
Bank and Trust Company,  as trustee under the Indenture (with its successors and
assigns,  the "Trustee") and Dauphin  Deposit Bank and Trust Company,  as tender
agent.

C. Under the terms and  subject to the  conditions  set forth in the  Syndicated
Loan Agreement,  Borrower has requested  Administrative Agent, on behalf of each
Lender  (according to such Lender's Pro Rata  Shares),  to issue an  irrevocable
letter of credit  in the form of  Exhibit  "A",  attached  hereto,  incorporated
herein by this  reference  and hereby made a part hereof (as amended,  modified,
extended, supplemented,  restated and/or replaced from time to time, the "Letter
of  Credit")  in  an  amount  equal  to  $2,619,954.25,  of  which  the  sum  of
$2,565,000.00  shall be in respect of the payment of principal of the Bonds (the
"Principal  Component")  and $54,954.25  shall be in respect of the payment of a
certain  portion  of  interest  accrued  on the Bonds on or prior to the  stated
maturity of the Bonds (the "Interest Component").

D. The proceeds from the sale of Bonds shall,  in accordance  with the terms and
subject to the conditions of the  Indenture,  be deposited with the Trustee from
the Project Fund (as defined in the  Indenture),  with advances of such proceeds
being made by the  Trustee,  with the  consent of  Administrative  Agent,  which
consent shall not be unreasonably  withheld or delayed if the conditions to such
consent as set forth in this Agreement are satisfied.

      NOW,  THEREFORE,   with  the  foregoing   Background  deemed  incorporated
hereinafter by this reference and hereby made a part hereof, the parties hereto,
intending to be legally bound, hereby covenant and agree as follows:

SECTION 1 - DEFINITIONS: ACCOUNTING TERMS.  For the purpose of
this Agreement, in addition to terms defined elsewhere herein,
the following terms shall have the following meanings:

      "Advance" shall have the meaning assigned to such term in
Section 2(d).

      "Affiliate"  shall  mean  any  corporation  or other  business  enterprise
directly or indirectly controlled by, or under direct or indirect common control
with the Company.

      "Authorized Officer" means the President or the Chief
Financial Officer of Borrower.

      "Basic Documents" means, collectively, the Bond Documents
and the Letter of Credit Documents, and "Basic Document" shall
mean any one of them.

      "Bond  Documents"  means two or more,  including  all,  of the Bonds,  the
Indenture,  and  the  Placement  Agreement,  all as  the  same  may be  amended,
modified,  supplemented or restated from time to time, and "Bond Document" shall
mean any one of the foregoing.

      "Bond Placement Agreement" shall have the meaning assigned to such term in
the Indenture.

      "Business Day" shall have the meaning assigned to such term
in the Indenture.

      "Certifying Officer" shall mean the Secretary or an
Assistant Secretary of the specified corporation.

      "Code" shall mean the Internal  Revenue Code of 1986, as amended from time
to time.

      "Completion Date" means June 30, 1998.

      "Date of Issuance" shall mean the date of issuance and
delivery of the Letter of Credit.

      "Debt" means:

i. All items (except items of capital stock or capital surplus or of contingency
reserves,  reserves  or  allowances  for  deferred  income  taxes or reserves or
allowances  for unearned  revenues)  which in accordance  with GAAP applied on a
consistent basis would be included in determining  total liabilities as shown on
the liability side of a balance sheet of any such Person as of the date on which
Debt is to be determined,  regardless  whether the Debt secured thereby shall be
recourse Debt or otherwise; and

ii. All Debt of others within the meaning of (i) above which any such Person has
directly or indirectly made a Guarantee, endorsed (otherwise than for collection
or deposit in the ordinary  course of  business),  discounted  with  recourse or
agreed  (contingently  or  otherwise)  to purchase or  repurchase  or  otherwise
acquire or become  liable  for,  or in respect of which such  purchase  or other
acquisition  of any  product,  materials,  or  supplies,  or for the  making  of
shipments, or for the payment for services, if in any such case payment therefor
is to be made  regardless  of the  nondelivery  of the  product,  materials,  or
supplies or the nonfurnishing of the transportation or services.

      "Default"  shall mean any event  which,  with notice or lapse of time,  or
both, would become an Event of Default.

      "Dollars"  and "$"  shall  mean  United  States  dollars  or such  coin or
currency  of the United  States of  America  as at the time of payment  shall be
legal tender for the payment of public and private debts in the United States.

      "Drawing"  shall mean a drawing under the Letter of Credit pursuant to the
terms thereof.

      "Environmental   Laws"  shall  mean  all  provisions  of  law,   statutes,
ordinances,   rules,   regulations,   permits,   licenses,   judgments,   writs,
injunctions, decrees, orders, awards and standards promulgated by the government
of the United  States of America or by any state or  municipality  thereof or by
any court, agency, instrumentality, regulatory authority or commission of any of
the foregoing concerning health,  safety and protection of, or regulation of the
discharge of substances into, the environment.

      "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section references to ERISA are to ERISA as in effect
at the date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.

      "ERISA Affiliate"  means, as applied to any Person,  any trade or business
(whether or not  incorporated)  that would be  aggregated  with Borrower for any
purpose relevant to ERISA or the Code relating to any Plan.

      "Event of Default" shall have the meaning assigned to such term in Section
8 hereof.

      "Expiration  Date" shall have the meaning assigned to the term the "Letter
of Credit  Termination  Date" in the  Indenture,  as said  date may be  extended
pursuant to Section 16 hereof.

      "GAAP" means generally accepted accounting  principles as in effect in the
United  States for Persons in the United  States  applied on a basis  consistent
with Borrower's present accounting standards.

      "Guarantee"  means,  as to any  Person,  any  obligation  of  such  Person
guaranteeing  or in effect  guaranteeing  any Debt,  leases,  dividends or other
obligations ("primary  obligations") of any other Person (the "primary obligor")
in any manner,  whether directly or indirectly,  including,  without limitation,
any obligation of such Person,  whether or not  contingent,  (a) to purchase any
such primary obligation or any property constituting direct or indirect security
therefor,  (b) to advance or supply funds (i) for the purchase or payment or any
such primary obligation or (ii) to maintain working capital or equity capital of
the primary  obligor or  otherwise  to maintain the net worth or solvency of the
primary obligor, (c) to purchase property,  securities or services primarily for
the purpose of assuring the owner of any such primary  obligation of the ability
of the  primary  obligor  to make  payment  of such  primary  obligation  or (d)
otherwise  to  assure or hold  harmless  the  owner of such  primary  obligation
against loss in respect thereof,  provided,  however,  that the term "Guarantee"
shall not include  endorsements  of instruments for deposit or collection in the
ordinary  course of business.  The amount of any Guarantee shall be deemed to be
an amount equal to the stated or determinable  amount of the primary  obligation
in respect of which such  Guarantee  is made or, if not stated or  determinable,
the maximum reasonably anticipated liability in respect thereof as determined by
Administrative Agent in good faith.

      "Hazardous  Substances"  shall have the  meaning  ascribed to such term or
similar terms such as "hazardous  waste" in any applicable  state or federal law
or regulation.

      "Investment"  means any advance,  extension of credit  (excluding  current
accounts  receivable arising in the ordinary course of business and endorsements
of negotiable  instruments for collection in the ordinary course of business) or
contribution  of capital to any Person or purchase or other  acquisition  of the
stock or any notes,  debentures or other  securities of, or any equity  interest
in, any other Person.

      "Letter of Credit Amount" shall have the meaning  assigned to such term in
the Letter of Credit.

      "Letter of Credit Documents" means this Agreement,  the Note, that certain
Continuing  Letter of Credit  Agreement,  that  certain  Open-End  Mortgage  and
Security  Agreement,  that certain Assignment of Lessor's Interest in Leases and
all related  instruments,  agreements  and  documents,  each to be executed  and
delivered by Borrower in  connection  with the issuance of the Letter of Credit,
all as the same may be amended, modified,  supplemented or restated from time to
time.

      "Material Adverse Effect" is defined in Section 6(a).

      "Net Income"  means,  at any time, the net income after taxes of Borrower,
as such would  appear on a  statement  of  operations  of  Borrower  prepared in
accordance with GAAP.

      "Note(s)" means the Revolving Loan Note(s) as defined in the
Syndicated Loan Agreement.

      "Obligations" shall mean all indebtedness,  liabilities,  responsibilities
and  obligations,   whether  now  existing  or  hereafter  arising,  primary  or
contingent,  owing  to  Administrative  Agent  by  Borrower,  pursuant  to  this
Agreement or the Basic Documents and all covenants,  agreements and obligations,
whether now existing or hereafter arising,  to be performed or observed in favor
of  Administrative  Agent by Borrower,  pursuant to this  Agreement or any Basic
Document.

      "Outstanding" shall have the meaning assigned to such term
in the Indenture.

      "PBGC" shall mean the Pension  Benefit  Guaranty  Corporation  established
pursuant to Section 4002 of ERISA, or any successor thereto.

      "Person"  shall  mean a  corporation,  a  limited  liability  company,  an
association,  a partnership,  an  organization,  a trust or business  trust,  an
individual,  a government  or political  subdivision  thereof or a  governmental
agency.

      "Plan"  means any  pension  plan  which is covered by Title IV of ERISA in
respect  of which  Borrower  or any ERISA  Affiliate  would  have any  liability
pursuant to ERISA.

      "Prime Rate" shall mean a fluctuating interest rate per annum equal at all
times to the rate of interest  determined by Administrative  Agent, from time to
time,  as its Prime  Rate,  with each change in such rate to  automatically  and
immediately change the Prime Rate.

      "Project Facilities" shall have the meaning assigned to such
term in the Indenture.

      "Property" means, collectively, the real property and improvements situate
in Hanover Township,  Northampton County,  Pennsylvania,  upon which the Project
Facilities are being  constructed,  all as more fully described in the Letter of
Credit Documents.

      "Pro Rata Share" shall have the meaning  ascribed to such term in the Loan
Agreement.

      "Rating Agency" shall have the meaning assigned to such term
in the Indenture.

      "Reportable  Event"  shall have the  meaning  assigned  to such term under
Section 4043 of ERISA.

      "SEC" shall mean the Securities and Exchange Commission and
its successors.

      "Subordinated Indebtedness" means all Indebtedness incurred at any time by
Borrower, the repayment of which is subordinated to the Loans in form and manner
satisfactory to Administrative Agent.

      "Subsidiary" of a Person shall mean any entity organized under the laws of
any state,  province or country, or political subdivision thereof, a majority of
the voting stock of which shall,  at the time as of which any  determination  is
being made,  be owned by such Person either  directly or indirectly  through any
other Person.

      "Substitute Letter of Credit" shall have the meaning assigned to such term
in the Indenture.

      "Tangible  Capital  Funds"  means,  at any time,  the  amount by which all
Assets,  excluding deferred costs and intangible Assets, exceed all Liabilities,
as would be shown on a  balance  sheet of  Borrower  prepared  as of the date of
determination in accordance with GAAP, plus Subordinated Indebtedness.

      "Taxes"  shall  mean all  federal,  state  and  local or  foreign  income,
payroll,  withholding,  excise, sales, use, real and personal property,  use and
occupancy,  business and occupation,  mercantile, real estate, capital stock and
franchise  or  other  taxes,  including  interest  and  penalties  thereon,  and
including estimated taxes thereof.

      "10-K and 10-Q  Reports"  shall have the meaning  assigned to such term in
Section 6(f).

      "Unfunded  Liability"  shall mean,  with regard to any Plan, the excess of
the  actuarial  present  value of  benefit  liabilities  under the Plan over the
current value of the Plan's assets.  The term "benefit  liabilities"  shall have
the  meaning  assigned  to such term in  Section  4001 of ERISA.  Whenever  this
Agreement  requires the amount of any Unfunded  Liability to be  determined,  it
shall be  determined  as of the end of the most  recent  Plan year  based on the
final actuarial valuation prepared for the Plan for funding purposes.

      Whenever any agreement, pledge, or other agreement, instrument or document
is  defined  in this  Agreement,  such  definition  shall be  deemed to mean and
include, from and after the date of an amendment,  restatement,  or modification
thereof, such agreement,  pledge, or other instrument or document as so amended,
restated or modified.  All terms defined in this Agreement in the singular shall
have  comparable  meanings  when used in the  plural and vice  versa.  The words
"hereof," "herein" and "hereunder" and words of similar import when used in this
Agreement  shall refer to this  Agreement  as a whole and not to any  particular
provision of this Agreement.

      All  accounting  terms  used in this  Agreement  which  are not  expressly
defined in this Agreement  shall have the  respective  meanings given to them in
accordance with GAAP  consistently  applied.  All computations  made pursuant to
this Agreement shall be made in accordance with GAAP  consistently  applied.  In
the event that a change in GAAP occurs or is first adopted by Borrower after the
date  of  this  Reimbursement   Agreement  and,  in  the  view  of  Borrower  or
Administrative  Agent,  such  change  would  have a  significant  effect  on the
calculation  of or  the  compliance  by  Borrower  with  any  of  the  financial
requirements of Section 6 hereof, then Company and Administrative Agent agree to
make such  adjustments  to the financial  requirements  contained  herein as are
reasonable under the circumstances and which, as near as is practicable, reflect
the impact of the change in GAAP.

      All capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Syndicated  Loan  Agreement.  To the extent of any
inconsistency  between  the  terms  of  this  Agreement  and  the  terms  of the
Syndicated Loan Agreement, this Agreement shall govern and control.

SECTION 2 REIMBURSEMENT AND OTHER PAYMENTS; COLLATERAL SECURITY.

a)         Reimbursement and Interest.  Borrower hereby agrees to
pay to Administrative Agent:

i) on the same Business Day of any Drawing,  but after payment by Administrative
Agent  of such  Drawing  to the  Trustee,  a sum  (and  interest  on such sum as
provided in clause (ii) below) equal to such amount so drawn under the Letter of
Credit;

ii)  notwithstanding  the rate(s) of interest set forth in the  Syndicated  Loan
Agreement  and the Notes,  interest  on any and all amounts not paid by Borrower
hereunder  from the earlier of the date of a Drawing  under the Letter of Credit
or the date such  amounts  become  payable  until  payment  in full,  payable on
demand,  at a  fluctuating  interest rate per annum equal to the Prime Rate plus
two percent (2%); and

iii) any and all  charges and  expenses  which  Administrative  Agent may pay or
incur  relative  to the Letter of Credit and any and all  expenses  incurred  by
Administrative  Agent in enforcing any rights under this Agreement and the other
Basic Documents.

b)         Issuance and Other Fees.

i) Borrower  hereby agrees to pay to  Administrative  Agent an issuance fee with
respect to the Letter of Credit from the Date of Issuance to the Expiration Date
computed  at the rate of one  percent  (1%) per  annum on the  Letter  of Credit
Amount. This fee shall be payable annually on or before the date sixty (60) days
prior to any  Expiration  Date.  The first  payment of the  issuance  fee is due
concurrently herewith.

ii) Upon each Drawing, amendment, transfer of the Letter of Credit in accordance
with its terms and any  amendment of the Letter of Credit or this  Reimbursement
Agreement  requested  by  Borrower  or the  Trustee,  Borrower  agrees to pay to
Administrative  Agent its then  existing  standard  charges  for such  letter of
credit activity plus Administrative Agent's actual costs and expenses associated
with such  transfer or amendment  (and  interest on such costs and expenses from
the date expended by Administrative  Agent to the date reimbursed by Borrower at
the interest rate  specified in Section  2(a)(ii)),  payable on the date of such
transfer or amendment.

c)  Computation  of Interest and  Commission.  Interest and  commission  payable
hereunder  shall be computed on the basis of a year of 360 days,  for the actual
number of days elapsed.  Whenever any payment under this Agreement  shall be due
on any day that is not a Business  Day,  the date for payment  thereof  shall be
extended  to the  next  succeeding  Business  Day.  If the due date for any such
payment is so extended or extended for any other reason,  including operation of
law, interest shall accrue and be payable for such extended time.

d)         Change in Law: Compensation.

i) If any change in any law, regulation,  guideline or directive (whether or not
having  the  force  of law) or in the  interpretation  thereof  by any  court or
administrative or governmental authority charged with the administration thereof
shall either (1) impose, modify or deem applicable any reserve,  special deposit
or similar requirement against letters of credit issued by Administrative  Agent
or any advance or  forbearance  in respect of the  reimbursement  obligations of
Borrower  under  this  Agreement  (an  "Advance")  (2)  reduce the amount of any
payment to be received by  Administrative  Agent  under this  Agreement  or, (3)
impose on Administrative Agent any other condition regarding this Agreement, the
Letter of Credit  or an  Advance,  and the  result of any event  referred  to in
clauses (1),  (2) or (3) above shall be to increase  the cost to  Administrative
Agent of  issuing or  maintaining  the  Letter of Credit or any  Advance  (which
increase  in cost  shall be the  result  of  Administrative  Agent's  reasonable
allocation of the aggregate of such cost  increases  resulting from such events)
or  reduce  the  amount  to be  received  by  Administrative  Agent  under  this
Agreement,  then, from time to time as specified by  Administrative  Agent, upon
demand by  Administrative  Agent,  Borrower  shall pay to  Administrative  Agent
within five  Business  Days after  receipt of written  demand for  payment  such
additional amounts which shall be sufficient to compensate  Administrative Agent
for such  increased  cost or reduction of amount  received from the date of such
change,  together  with  interest  on each such  amount  from the due date until
payment in full  thereof at the rate  provided in clause (ii) of  paragraph  (a)
above.  Administrative Agent shall submit to Borrower, at or prior to the making
of each such demand,  a  certificate  setting  forth in  reasonable  detail such
increased cost incurred or reduction of amount received by Administrative  Agent
as a result of any event  mentioned  in  clauses  (1),  (2) or (3) above and the
basis  therefor,  which  certificate  shall be  presumed to be correct as to the
amount and the basis thereof.

ii)  Without   limiting  the  foregoing  clause  (i),  in  the  event  that  the
application,  enactment  or  adoption  of,  or any  change  in,  any law,  rule,
regulation,  treaty,  guideline or directive,  (including,  without  limitation,
pursuant to the "risk-based capital guidelines"  published at 54 F.R. 4168 or 54
F.R. 4186 and any successor  guidelines or regulations) or the occurrence of the
effective date of any law, rule, regulation,  treaty,  guideline or directive or
any provision thereof enacted or adopted on the date of the execution hereof but
which  has not yet  become  effective,  or the  application,  interpretation  or
enforcement of any of the foregoing by any court,  central bank,  administrative
or governmental  authority charged with the  administration  thereof (whether or
not  having  the force of law)  affects  or would  affect  the amount of capital
required,  expected or advisable to be  maintained  by  Administrative  Agent in
connection  with the Letter of Credit or any Advances,  and the result of any of
the  foregoing  shall  be to  increase  the  cost  to  Administrative  Agent  of
extending,  issuing or  maintaining  the Letter of Credit or any  Advances or to
reduce any amount (or the effective return on any amount) received or receivable
by Administrative  Agent or reduce the rate of return on Administrative  Agent's
capital as a consequence  of its  obligations in respect of the Letter of Credit
or any  Advances  to a level  below that which  Administrative  Agent could have
achieved but for such adoption,  change or compliance (taking into consideration
Administrative  Agent's policies with respect to capital adequacy) by any amount
deemed by Administrative Agent to be material,  in connection with the Letter of
Credit or any  Advances  (which  increase in cost or reduction in yield shall be
the result of Administrative  Agent's reasonable  allocation of the aggregate of
such cost increases or yield reductions  resulting from such event),  then, from
time to time as specified by Administrative Agent, within five (5) Business Days
after  written   demand  by   Administrative   Agent,   Borrower  shall  pay  to
Administrative  Agent such  additional  amounts  which  shall be  sufficient  to
compensate  Administrative  Agent for all such increased  costs or reductions in
yield  incurred  since  the  date  of  any  such  imposition,   modification  or
application.  Administrative Agent shall submit to Borrower,  at or prior to the
making of each such demand, a certificate setting forth in reasonable detail the
amount of and the basis for such increased costs or yield reductions incurred by
Administrative Agent as a result of any of the foregoing which certificate shall
be presumed to be correct as to the amount thereof and basis therefor.

iii) If any change in any law,  regulation,  guideline or directive  (whether or
not  having the force of law) or in the  interpretation  thereof by any court or
administrative or governmental authority charged with the administration thereof
shall prohibit or restrict the making of any drawing under the Letter of Credit,
maintaining  as  outstanding  any  Advance or the  charging  of interest on such
Advance,  Borrower  agrees  that  Administrative  Agent  shall have the right to
comply with such  prohibition  or restriction  and require  repayment in full of
each Advance together with accrued interest thereon.  Administrative Agent shall
submit  to  Borrower,  at or  prior  to the  making  of  each  such  request,  a
certificate   setting  forth  the  details   concerning  the  foregoing,   which
certificate shall be presumed to be correct as to such matters.

e) Time and Place of Payment.  All payments by Borrower to Administrative  Agent
hereunder shall be made by 1:00 p.m. Reading,  Pennsylvania time on the date due
in lawful  currency  of the  United  States in  immediately  available  funds to
Administrative Agent at 600 Penn Street, Reading, Pennsylvania, or at such other
place as Administrative  Agent shall have designated to Borrower in writing. Any
payment  made after  such time shall be deemed to be made on the next  following
Business Day.

f)  Maintenance of Accounts.  Administrative  Agent shall maintain in accordance
with its usual  practice an account or accounts  evidencing  the  Obligations of
Borrower and the amounts  payable and paid from time to time  hereunder.  In any
legal action or  proceeding  in respect of this  Agreement,  the entries made in
such account or accounts  shall be  presumptive  evidence of the  existence  and
amounts of the Obligations of Borrower therein  recorded.  The failure to record
any such amount shall not, however, limit or otherwise affect the Obligations of
Borrower  hereunder,  together with all interest  accrued thereon as provided in
this Section 2.

g) Cure.  Borrower agrees to pay to  Administrative  Agent on demand any amounts
advanced by or on behalf of Administrative  Agent to the extent required to cure
any Default or Event of Default under this Agreement or any Basic Document. This
provision  shall give  Administrative  Agent the right to cure any such default,
event of  default  or event of  nonperformance  but  shall not be  construed  as
obligating, and shall not in any way obligate, Administrative Agent to do so.

SECTION 3 - SECURITY.

a) Security and Subrogation Under Indenture.  Borrower and Administrative  Agent
intend that (i)  Administrative  Agent will have the security and benefit of the
Bond  Documents as provided in the  Indenture  and (ii) in the event that one or
more Draws are not  reimbursed  under the  Letter of Credit  and  applied to the
payment  of Bonds,  Administrative  Agent  will be  subrogated  pro tanto to the
rights of the Trustee and the holders of such Bonds under the Bond Documents and
in and to all funds and security held by the Trustee under the Indenture for the
payment  of the  principal  of and  interest  on such Bonds  including,  without
limitation,  the Bond Fund,  the Project  Fund,  all other funds and  Investment
Securities and other instruments comprising investments thereof (each as defined
in the  Indenture).  In  addition,  Administrative  Agent shall have any and all
other subrogation rights available to Administrative Agent at law and in equity.

b) Pledge  of Rights to  Certain  Funds and  Investments.  To secure  Borrower's
obligations  to  Administrative  Agent  under this  Agreement,  Borrower  hereby
pledges to Administrative  Agent, and grants to Administrative  Agent a security
interest in, all of Borrower's right, title and interest in and to all funds and
investments  thereof now or hereafter held by the Trustee under the Indenture as
security for the payment of the Bonds including,  without limitation,  the funds
and Investment Securities described above,  investments thereof and interest and
other income  derived  therefrom  held as security for the payment of the Bonds;
such pledge,  assignment and grant being under and subject only to the rights of
the Trustee  under the  Indenture.  Borrower  covenants  and agrees that it will
defend  Administrative  Agent's  rights and security  interests  created by this
Section against the claims and demands of all persons.  In addition to its other
rights and remedies under this Agreement and the Basic Documents, Administrative
Agent  shall have all the  rights  and  remedies  of a secured  party  under the
Uniform  Commercial  Code or other  applicable  law with respect to the security
interests  created by this  Section.  Administrative  Agent's  rights under this
Section are in addition to, and not in lieu of, its rights  described in Section
(a).

c) Letter of Credit  Documents.  To further  secure  Borrower's  obligations  to
Administrative Agent under this Agreement,  on or prior to the Date of Issuance,
Borrower shall execute and deliver to Administrative  Agent the Letter of Credit
Documents.

d)  Financing  Statements.  Borrower  will  execute and deliver  such  financing
statements  and  continuation  statements  ("Financing  Statements")  under  the
Uniform  Commercial  Code or other  applicable law as  Administrative  Agent may
reasonably specify in order to perfect and maintain perfection of Administrative
Agent's  security  interests under this Agreement and the other Letter of Credit
Documents  and will pay the costs of filing the same in such  public  offices as
Administrative Agent may designate.

SECTION 4 - AGREEMENT OF BANK; CONDITIONS PRECEDENT TO ISSUANCE OF THE LETTER OF
CREDIT.

a)         Agreement of Administrative Agent.  Subject to the
terms and conditions of this Agreement, Administrative Agent
agrees to issue the Letter of Credit.

b)         Conditions Precedent to Issuance of the Letter of
Credit.

i)  Administrative  Agent shall have  received on or before the Date of Issuance
the  following,  each  dated  the  Date  of  Issuance  or the  date  hereof,  as
Administrative Agent may require, in form and substance reasonably  satisfactory
to Administrative Agent:

A)         Articles or Certificate of Incorporation of Borrower
certified as of a recent date by the Secretary of the
Commonwealth of Pennsylvania;

B)         Certificate of good standing for Borrower issued as of
a recent date by the Secretary of the Commonwealth of
Pennsylvania;

C)         copies of each of the following:

1)         Bylaws of Borrower; and

2)         resolutions of the Board of Directors of Borrower
authorizing the execution, delivery and performance of this
Agreement and the Basic Documents to which it is a party;

in each case  certified by a respective  Certifying  Officer  which  certificate
shall state that such bylaws and resolutions are in full force and effect on the
Date of Issuance;

D) a certificate  of a Certifying  Officer of Borrower  certifying  the name and
true  signatures of the officers of Borrower  authorized to sign this  Agreement
and the Basic  Documents  to be  executed  and  delivered  by it; E) each of the
Letter of Credit  Documents and Financing  Statements fully executed by Borrower
and  accompanied by (i) UCC, tax and judgment lien records search results in the
name of Borrower in the Commonwealth of Pennsylvania  (including the counties in
which  Borrower does  business in each such state),  (ii) a loan policy of title
insurance  insuring  Administrative  Agent's  lien on the Property and the other
Project  Facilities as a first lien subject only to such standard  exceptions as
may be  approved  by  Administrative  Agent  and  (iii)  policies  (and  related
endorsements) of casualty insurance required by the Basic Documents;

F)         an opinion of Duane, Morris and Heckscher LLP, counsel
to Borrower, as to such matters as Administrative Agent may
reasonably request, which opinion shall be satisfactory to
Administrative Agent in form and substance;

G) an opinion of King, McCardle,  Herman, Freund & Olexa, as Bond Counsel, as to
such matters as Administrative Agent may reasonably request, which opinion shall
be satisfactory to Administrative Agent in form and substance;

H)         a fully executed copy (or a duplicate thereof) of each
of the other Basic Documents not listed above;

I) a survey  prepared by a licensed  surveyor or civil  engineer  dated not more
than thirty (30) days prior to the Date of Issuance  showing the boundary  lines
of the Property,  the rights-of-way of the nearest streets,  the location of all
utility and other  easements  and  rights-of-way  affecting  the  Property,  the
proposed  location(s)  of the  Project  Facilities  and such  other  details  as
Administrative Agent may reasonably require;

J) a cost budget for construction of the Project Facilities, copies of the Plans
and  Specifications  and  certified  copies  of  all  appropriate   certificates
including,  without  limitation,  approvals,  documents,  writings  and drawings
issued by the  governmental  departments  or agencies  authorized  to issue such
writings or drawings,  evidencing that the Project  Facilities when constructed,
will be in compliance with all applicable  statutes,  laws,  ordinances,  rules,
regulations  and  requirements  including,  without  limitation,  all zoning and
environmental requirements; and

K) evidence  that  Borrower  has  obtained a commitment  for  financing  for the
construction  of a portion of the Project  Facilities  through the  Pennsylvania
Industrial Development Authority ("PIDA") in an amount not less than One Million
($1,000,000.00)  Dollars to be secured by liens and security interests in and to
the Project  Facilities which liens and security  interests shall be subject and
subordinate to the liens and security  interests of Administrative  Agent in and
to the Project  Facilities,  up to the sum of One Million  Nine  Hundred  Eighty
Thousand  ($1,980,000.00) Dollars, the Bond Fund, all other funds and Investment
Securities and other instruments comprising investments thereof;

L)         payment of a nonrefundable commitment fee equal to 1/2%
of the face amount of the Letter of Credit;

M)  such  other  documents,   instruments,   approvals  (and,  if  requested  by
Administrative  Agent,  certified  duplicates  of  executed  copies  thereof) or
opinions as Administrative Agent may otherwise reasonably request.

ii) The following  statements  shall be true and correct on the Date of Issuance
and Administrative Agent shall have received a certificate of Borrower signed on
its behalf by an Authorized Officer, dated the Date of Issuance, stating that:

A)         the representations and warranties of Borrower
contained in any of the Basic Documents and in Section 6 of this
Agreement, are correct on and as of the Date of Issuance as
though made on and as of such date; and

B)         no Event of Default or Default has occurred and is
continuing, or would result from the issuance of the Letter of
Credit and/or the consummation of the transactions contemplated
by the Basic Documents.

iii)       On or before the Date of Issuance:

A)         the Issuer and the Trustee shall have duly authorized
and executed the Indenture and the Indenture shall be in full
force and effect; and

B)         the Bonds shall be validly issued and outstanding.

c)         Conditions Precedent to Administrative Agent's Consent
to Requisitions for Disbursements from the Project Fund.

i)              No Event of Default or Default shall have occurred
and be continuing;

ii) The Project  Facilities  shall be in compliance  with all  applicable  laws,
statutes,  ordinances,  rules, regulations and requirements,  including, without
limitation, all zoning and environmental requirements;

iii) The construction of the Project Facilities shall be and have been performed
substantially  in accordance with the Plans and  Specifications  and strictly in
accordance with all applicable  statutes,  laws and ordinances,  and any and all
requirements  of  governmental  authorities  having  jurisdiction in and for the
locality in which the Project is located;

iv) Each  requisition  for  disbursements  from the Project Fund shall be in the
form of Exhibit C to the  Indenture,  and shall be  accompanied  by, among other
things,  a certification by Borrower,  any general  contractor and any architect
for the Project and, if required by Administrative Agent, Administrative Agent's
inspecting architect or engineer (at Borrower's expense) that upon review of the
Plans  and  Specifications  and the  progress  of the  construction  of  Project
Facilities, the construction is in accordance with the Plans and Specifications,
the  Project  Facilities  will  be  completed  by  the  Completion  Date  and in
accordance with  Borrower's  budget for  construction of the Project  Facilities
approved by Administrative  Agent, it being understood,  acknowledged and agreed
that any approval of a requisition  and any payment made by the Trustee from the
Project  Fund with the consent of  Administrative  Agent shall not  constitute a
waiver of Administrative  Agent's rights as to any work or material which may be
defective or which may fail to comply with the Plans and  Specifications or with
any terms of this Agreement;

v) Unless waived by Administrative Agent, each requisition shall be submitted at
least  fifteen (15) days in advance of the date  requested for proceeds from the
Project Fund;

vi)  Advances  may be made  (directly  or through a title  insurer)  to Borrower
and/or any  general  contractor  or any prime  contractor(s),  subcontractor(s),
materialmen  or others who have furnished  goods or services in connection  with
the  Project,  or  some of  them,  in  accordance  with  Administrative  Agent's
direction to the Trustee from time to time; and

vii)  Notwithstanding  anything  to the  contrary  set  forth  herein  or in the
Indenture,  Administrative  Agent shall have the right to request the Trustee to
advance  proceeds  from the Project  Fund,  without any request  therefor  being
submitted by Borrower,  for the purposes of paying real estate taxes,  insurance
premiums,  fees and expenses of  Administrative  Agent's  counsel or to cure any
Event of Default which  Administrative  Agent may (without  obligation) elect to
cure. Administrative Agent shall furnish to Borrower a copy of any request given
to the Trustee for an advance of proceeds from the Project Fund.

SECTION 5 -  OBLIGATIONS  ABSOLUTE.  The  Obligations  of  Borrower  under  this
Agreement shall be absolute,  unconditional  and irrevocable,  and shall be paid
and performed  strictly in accordance with the respective  terms thereof,  under
all  circumstances  whatsoever,  including,  without  limitation,  the following
circumstances:

i)         any lack of validity or enforceability of the Letter of
Credit or any of the Basic Documents;

ii)        any amendment or waiver of or any consent to departure
from all or any of the Basic Documents;

iii) the existence of any claim, setoff,  defense or other rights which Borrower
may have at any time against the Trustee,  the Issuer,  any  beneficiary  or any
transferee  of the Letter of Credit (or any  persons  or  entities  for whom the
Trustee,   any  such   beneficiary  or  any  such  transferee  may  be  acting),
Administrative  Agent (other than the defense of payment to Administrative Agent
in accordance  with the terms of this  Agreement) or any other person or entity,
whether in connection with this Agreement,  the Basic Documents or any unrelated
transaction;

iv) any  statement or any other  document  presented  under the Letter of Credit
proving to be forged, fraudulent,  invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect whatsoever;

v)         payment by Administrative Agent under the Letter of
Credit against presentation of a sight draft or certificate which
does not comply with the terms of the Letter of Credit;

vi)        payment by Administrative Agent under the Letter of
Credit notwithstanding:

A)         any instructions of Borrower given after the Letter of
Credit is issued not to make payment thereunder;

B)                   the occurrence of any event including,
without limitation, the commencement of legal proceedings to
prohibit payment under the Letter of Credit; or

C)         the issuance of any order by any government agency,
governing body or court whether or not having jurisdiction in the
premises prohibiting payment under the Letter of Credit; and

vii)       any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing.

SECTION 6   - REPRESENTATIONS AND WARRANTIES.  Borrower
represents and warrants as follows:

a) Syndicated Loan Agreement Representations and Warranties. The representations
and warranties set forth in the Syndicated Loan Agreement are hereby  reasserted
and  restated by Borrower as of the date of this  Reimbursement  Agreement as if
set forth at length herein.

b) Execution,  Delivery and Performance. The execution, delivery and performance
by Borrower of this  Agreement  and the other Basic  Documents  to which it is a
party are within Borrower's  powers as a corporation,  have been duly authorized
by all  necessary  corporate  action,  do not  contravene  (i) its  Articles  or
Certificate  of  Incorporation  and bylaws,  (ii) any law,  regulations,  order,
judgment,  decree or contractual restriction binding on or affecting Borrower or
(iii) the Syndicated Loan Agreement,  and do not allow for, result in or require
(A) the creation of any lien,  security  interest or other charge or encumbrance
upon or with respect to any of its properties  except in favor of Administrative
Agent or (B) the  acceleration  of any payment of, or maturity of, any Debt.  c)
Regulatory  Authority.  Borrower is duly  authorized and licensed to operate the
Project under the laws, rulings,  regulations and ordinances of the Commonwealth
of Pennsylvania and the departments, agencies and political subdivisions thereof
and  Borrower  has  obtained all  requisite  approvals  of the  Commonwealth  of
Pennsylvania and of federal,  regional and local governmental bodies required to
be obtained  prior to the date of delivery of the Bonds and this  Agreement  and
the failure to obtain would have a Material  Adverse  Effect.  The Project is in
compliance  with all applicable  federal,  state and local zoning,  subdivision,
environmental,  pollution control and other laws, rules, regulations,  codes and
ordinances.

d) No Consent,  etc. No consent,  authorization  or approval or other action by,
and no notice to or filing with (that has not already  been  obtained,  taken or
made), any Person is required for the due execution, delivery and performance by
Borrower of this Agreement and any other Basic Documents to which it is a party.

e) Legal, Valid and Binding.  This Agreement and the Basic Documents to which it
is  a  party  are  the  legally  valid  and  binding  obligations  of  Borrower,
enforceable against Borrower in accordance with their respective terms.

f) No Misrepresentation.  Except as otherwise  specifically set forth in writing
to Administrative Agent, taken as a whole, all factual information heretofore or
contemporaneously  furnished in writing to Administrative Agent by Borrower was,
when  furnished  and is as of the Date of  Issuance,  true and  accurate  in all
material respects and did and does not omit to state any material fact necessary
to  make  such  information  not  misleading  at  such  time  in  light  of  the
circumstances under which such information was provided.

g)  Regulation U, etc.  Borrower  does not own or have any present  intention of
acquiring,  any "margin  stock"  within the meaning of Regulation U (12 CFR Part
221) of the Board of  Governors of the Federal  Reserve  System  (herein  called
"margin  stock").  None of the  proceeds  of the Bonds will be used  directly or
indirectly,  by Borrower for the purpose of purchasing  or carrying,  or for the
purpose of reducing or retiring any indebtedness  which was originally  incurred
to  purchase or carry,  any margin  stock or for any other  purpose  which would
cause the transactions  contemplated  hereby to be considered a "purpose credit"
within the meaning of said  Regulation U, or which would cause this Agreement to
violate  Regulation  G,  Regulation U,  Regulation T,  Regulation X or any other
regulation  of the  Board of  Governors  of the  Federal  Reserve  System or the
Securities Exchange Act of 1934. Borrower is not an "Investment  Company" within
the meaning of the Investment Company Act of 1940, as amended.

h)  Compliance  with Laws.  Borrower is in  compliance  with all material  laws,
rules,  regulations,  court orders and decrees,  and orders of any  governmental
agency which are applicable to Borrower,  or to its properties,  including,  but
not limited to, laws, rules, regulations, court orders and decrees and orders of
any  governmental  agency with respect to employee  benefits  and  Environmental
Matters  except to the extent that  Borrower is  contesting in good faith and by
appropriate  proceedings in accordance  with applicable laws the compliance with
such laws, rules,  regulations,  court orders and decrees and there has been set
aside on its books such reserves with respect thereto as are required by GAAP or
the failure of Borrower to be in compliance  with would have a Material  Adverse
Effect.  As of the Date of Issuance,  there are no instances  where  Borrower is
contesting  its  obligation to comply with any material law,  rule,  regulation,
court order, or decree.

i) Public Utility Holding Company Act.  Borrower is not subject to any state law
or  regulation  regulating  public  utilities or similar  entities,  and is not,
within  the  meaning of the  Public  Utility  Holding  Company  Act of 1935,  as
amended,  (a) a holding  company,  (b) a  subsidiary  or  affiliate of a holding
company or (c) a public utility.

j)  Title  to  Properties:  Patents,  Trademarks,  etc.  Borrower  has  good and
marketable  title  to  all  its  properties  and  assets,   including,   without
limitation,  the Project Facilities.  Except as permitted by the Syndicated Loan
Agreement  and the other  Letter of Credit  Documents,  there are no  mortgages,
liens,  charges,  or  encumbrances  of  any  nature  whatsoever  on  any  of the
properties  or assets of Borrower.  Borrower  owns or possesses all the patents,
trademarks,  service marks, trade names, copyrights and licenses and rights with
respect to the foregoing  necessary for the conduct of its  businesses,  without
any known  conflict with the valid rights of others which would be  inconsistent
with the conduct of its business substantially as now conducted and as currently
proposed to be conducted.

k) Environmental  Matters.  Borrower is conducting its business in compliance in
all material respects with all applicable federal, state and local Environmental
Laws  including but not limited to the Resource  Conservation  and Recovery Act,
the Clean Air Act, the Federal Water Pollution Control Act, the Toxic Substances
Control  Act and the  Comprehensive  Environmental  Response,  Compensation  and
Liability  Act  ("CERCLA")  and,  except as set forth in the 10-K,  there is not
pending or, to the best  knowledge  of Borrower  after  diligent  investigation,
threatened,  civil or  criminal  litigation,  notice of  violation  or lien,  or
administrative  proceeding  relating to  Environmental  Laws involving  Borrower
which, either individually or in the aggregate,  under current interpretation of
current law could reasonably be expected to result in a Material Adverse Effect.
To the best of Borrower's  knowledge after diligent  investigation,  there is no
condition or situation,  including, without limitation, any lien or encumbrance,
with  respect  to  Environmental  Laws  which,  either  individually  or in  the
aggregate,  under  current  interpretation  of current law could  reasonably  be
expected to result in a Material  Adverse  Effect.  Borrower has  obtained  from
every  governmental  body  including,  but not  limited  to, the  United  States
Environmental  Protection  Agency and the similar  agency of  Pennsylvania,  all
material approvals,  consents,  licenses, permits, and orders necessary to carry
on its business as currently conducted.  Except as set forth in the 10-K, to the
best of its knowledge after diligent investigation, Borrower has not transported
Hazardous  Substances  or  arranged  for the  transportation  of such  Hazardous
Substances  to any  location  which is the  subject of  federal,  state or local
enforcement  actions or other  investigations  which may lead to claims  against
Borrower for clean-up costs,  remedial work, damages to natural resources or for
personal injury claims which,  either  individually  or in the aggregate,  under
current  interpretation of current law could reasonably be expected to result in
a Material  Adverse  Effect.  Borrower has not treated,  stored for more than 90
days,  recycled or disposed of any  Hazardous  Substances on any property now or
previously  owned or leased by Borrower  which under current  interpretation  of
current law could reasonably be expected to result in a Material Adverse Effect.
For purposes of this subsection (q) the term "diligent investigation" shall mean
inquiry of employees  who should have  knowledge as to the matters  involved and
review of records of  Borrower  but does not  require  the  engagement  of third
parties to conduct independent reviews and examinations.

SECTION 7 - AFFIRMATIVE  COVENANTS OF BORROWER.  So long as the Expiration  Date
has  not  occurred  or any  Obligation  has not  been  completely  performed  or
otherwise  satisfied  unless  Administrative  Agent shall  otherwise  consent in
writing:

a) Existence, Business, etc. Borrower will cause to be done all things necessary
to preserve  and to keep in full force and effect its  existence  and rights and
will  conduct its  business  in a prudent  manner.  Borrower  will comply in all
material respects with all valid laws and regulations now in effect or hereafter
promulgated  by  any  properly   constituted   governmental   authority   having
jurisdiction  including,  without  limitation,   Environmental  Laws;  provided,
however,  Borrower  shall not be required  to comply with any law or  regulation
which it is  contesting  in good  faith by  appropriate  proceedings  so long as
either the effect of such law or regulation is stayed  pending the resolution of
such proceedings or the effect of not complying with such law or regulation does
not  materially  and  adversely  affect the business,  properties,  operation or
condition (financial or otherwise) of Borrower.

b) Accounts and Reports.  Borrower will maintain a standard system of accounting
in  accordance  with GAAP and  furnish  to  Administrative  Agent the  following
reports:

i) As soon as available, and in any event within ninety (90) calendar days after
the end of each  fiscal year of  Borrower,  for such  fiscal  year,  (x) balance
sheets of Borrower,  (y)  statements  of income and expenses of Borrower and (z)
statements  of  changes  in  financial   position  of  Borrower,   certified  by
independent  certified public accountants and accompanied by a statement of such
Person  certifying  the  financial  statements  comprising  such report have not
disclosed the existence of any condition or event which constitutes a Default or
an Event of Default  or, if such a condition  or event  exists,  specifying  the
nature thereof,

ii) As soon as available,  and in any event within forty-five (45) calendar days
after  the end of each  fiscal  quarter,  for  such  fiscal  quarter,  unaudited
statements of income and expense and balance sheets of Borrower  certified by an
Authorized  Officer  of  Borrower  and a  statement  of such  officer  that  the
examination made in preparing and certifying such unaudited financial statements
has not disclosed  the  existence of any condition or event which  constitutes a
Default  or an  Event of  Default  or,  if such a  condition  or  event  exists,
specifying the nature thereof,

iii) With each report  required to be provided  pursuant to clause (ii) above, a
certificate  signed  by an  Authorized  Officer  setting  forth  in  detail  the
calculations  used in determining  Borrower's  compliance with the covenants set
forth in the Syndicated Loan Agreement;

iv) As soon as possible,  but in any event not more than ten (10)  calendar days
after the occurrence of any condition or event which constitutes a Default or an
Event of  Default,  notice  of such  condition  or event  and the  action  which
Borrower proposes to take with respect thereto;

v) As soon as  possible,  and in any event within ten (10)  calendar  days after
Borrower knows or has reason to know that any Reportable Event has occurred with
respect to any Plan,  a  statement  from an  Authorized  Officer  setting  forth
details as to such  Reportable  Event and the action which Borrower  proposes to
take with respect thereto, together with a copy of the notice of such reportable
event,  if any,  given  to the PBGC if a copy of such  notice  is  available  to
Borrower.

vi) Promptly after receipt  thereof,  a copy of any notice which Borrower or any
ERISA Affiliate receives from the PBGC, the Department of Labor, or the Internal
Revenue Service with respect to any Plan;  provided,  however,  that this clause
(vi) shall not apply to (i) notices of general  application  promulgated  by the
Department  of Labor or (ii)  notices  that do not  relate  to a tax that may be
assessed,  or a liability  that may be asserted,  against  Borrower or any ERISA
Affiliate,  unless  it  relates  to an  investigation  or  inquiry,  or a  fact,
situation,  or state of affairs that may lead to the  assessment of any such tax
or the assertion of any such liability;

vii) Promptly upon receipt thereof,  a copy of any notice,  compliance  inquiry,
administrative  complaint or any complaint  received by Borrower on any material
matter from any governmental  authority or agency concerning  Environmental Laws
excluding notices of general application from any such agency or authority;

viii)  Borrower  will  promptly  notify  Administrative  Agent in writing of any
litigation,  legal  proceeding  or, when known by any  Company,  threat of legal
proceeding   affecting  Borrower  in  accordance  with  the  provisions  of  the
Syndicated Loan Agreement; and

ix)  Copies of all  notices,  definitive  proxy  statements  and  other  similar
documents  sent by Borrower to the holders of any of its  debentures or bonds or
the trustee of any  indenture  securing  the same or pursuant to which they have
been issued or, to the extent applicable,  to any securities exchange or the SEC
or state agency regarding securities of Borrower.

c) Inspection.  Borrower will furnish to  Administrative  Agent, upon reasonable
request of  Administrative  Agent,  full information  pertinent to any covenant,
provision,  or condition of this Agreement or of any other Basic Document at all
reasonable times and as often as  Administrative  Agent may reasonably  request,
will permit any authorized  representative  designated by Administrative  Agent,
prior to occurrence  of a Default upon  reasonable  prior notice,  but after the
occurrence  of a Default or Event of Default  without  any notice  required,  to
visit and  inspect,  at the  expense  of  Administrative  Agent  (but  after the
occurrence  and during the  continuance  of, an Event of Default,  at Borrower's
expense),  during normal  business  hours any of its  properties,  including its
books (and to take extracts  therefrom) and to discuss  affairs,  finances,  and
accounts with its officers and employees.

d)  Incorporation  of Loan  Agreement and Syndicated  Loan Agreement  Covenants.
Borrower will observe, perform and comply with each and every covenant, term and
provision   contained  in  the  Syndicated  Loan  Agreement  (the  "Incorporated
Provisions"), each of which is incorporated herein by this reference as if fully
rewritten at length herein, such covenants,  terms and provisions to continue in
full force and effect with respect to this  Agreement so long as it is in effect
and  until  all of the  Obligations  are  paid  in  full.  In the  event  of any
replacement of the Syndicated  Loan Agreement with a similar credit  facility to
which Administrative Agent is a party (the "New Facility"), the representations,
warranties,  covenants and additional terms contained in such New Facility which
correspond to the  representations,  warranties  and covenants set forth in this
Agreement, and such additional terms, shall be deemed incorporated provisions to
the extent the same are consented to in writing by Administrative  Agent and, if
such consent is not granted or if the  Syndicated  Loan  Agreement is terminated
(and Administrative  Agent and the Lenders waive any Event of Default arising by
virtue  of  such  termination)  and  not  replaced,  then  the  representations,
warranties  and covenants set forth in this  Agreement  shall continue to be the
Incorporated Provisions.  Nothing contained in this Subparagraph shall be deemed
to impair the rights of the Lenders upon the termination of or the occurrence of
an Event of Default under the Syndicated Loan Agreement.

SECTION 8 - NEGATIVE  COVENANTS OF BORROWER.  So long as the Expiration Date has
not occurred or any  Obligation has not been  completely  performed or otherwise
satisfied:

a)         Amendment of Agreements.  Borrower will not enter into
or consent to any amendments of any of the Basic Documents.

b) No Drawings on Letter of Credit, No Optional Redemptions.  Borrower will not,
and will not permit any  Affiliate  to, have any Bond  (including  the principal
amount thereof and interest accrued  thereon)  legally or beneficially  owned by
any of  them to be  purchased,  or  redeemed  or  otherwise  paid,  directly  or
indirectly,  by any drawing on the Letter of Credit. Borrower also agrees not to
cause  any  optional  redemption  of  the  Bond  pursuant  to  Section  6 of the
Indenture, without the prior written consent of Administrative Agent which shall
not be  unreasonably  withheld  so long as no Default  or Event of Default  then
exists or would result from or arise after such  optional  redemption.  Borrower
will give Administrative  Agent notice of any proposed redemption not later than
twenty  (20) days prior to the date that  Borrower  plans to give  notice to the
Trustee  but in no event  later than  thirty (30) days prior to the date of such
proposed  conversion  or  redemption.  Any  notice of a proposed  conversion  or
redemption shall include  reasonable  detail as to how Borrower will immediately
reimburse  Administrative Agent for the Drawings that will be made in connection
with such conversion or redemption.

c) Bond  Status.  Borrower  shall not take any action that will cause the Rating
Agency  to  reduce  the  rating  on Bonds  from  that in  effect  on the Date of
Issuance; provided that in no event shall Borrower be responsible for any change
in such rating resulting from  Administrative  Agent's action or a change in the
credit ratings of Administrative Agent.

SECTION 9 - EVENTS  OF  DEFAULT.  Upon the  occurrence  of any of the  following
events  (herein  referred  to  as an  "Event  of  Default"),  unless  waived  by
Administrative Agent pursuant to Section 9 hereof:

a) Untrue  Representation.  Any  material  representation  or  warranty  made by
Borrower  herein or in any Basic  Document or in any  certificate,  financial or
other statement  furnished to Administrative  Agent by Borrower pursuant to this
Agreement or any Basic Document shall prove to have been untrue or incomplete in
any material respect when made; or

b) Failure  to Pay.  Borrower  shall fail to pay when due any amount  including,
without  limitation,  payment  pursuant to Section 2 hereof,  specified  in this
Agreement or any of the other Basic  Documents and such failure  shall  continue
for five (5) consecutive days; or

c) Certain  Section 7 Defaults.  Default shall be made in the due  observance or
performance of any covenant,  agreement,  or provision  contained in subsections
(a),  (b) and (c) of Section 7 and such default  shall  continue for thirty (30)
consecutive calendar days (or if such default cannot be cured within thirty (30)
consecutive  calendar days,  Borrower  shall have  commenced  within thirty (30)
consecutive  calendar  days and shall be  diligently  taking action to cure such
default  and, if such default is  material,  so long as such default  shall have
been cured in any event within sixty (60) consecutive calendar days), or

d)         Other Section 7 and Section 8 Defaults.  Default shall
be made in the due observance or performance of any covenant,
agreement or provision contained in Section 7(f) or in Section 8
hereof; or

e) Other Provision Default.  Default (not otherwise  specified in this Section 9
shall  be made in the due  observance  or  performance  of any  other  covenant,
agreement,  or  provision  of this  Agreement  or of any other  Letter of Credit
Document to be performed  or observed by Borrower and such default  shall not be
corrected  or cured within  thirty (30)  consecutive  calendar  days (or if such
default cannot be cured within thirty (30) consecutive  calendar days,  Borrower
shall have commenced within thirty (30)  consecutive  calendar days and shall be
diligently  taking action to cure such default and, if such default is material,
so long as such  default  shall have been cured in any event  within  sixty (60)
consecutive calendar days); or

f) Lack of Validity.  Any  provision  of this  Agreement or any Letter of Credit
shall at any time for any reason  cease to be valid and  binding on  Borrower or
the  validity or  enforceability  thereof  shall be contested by Borrower or any
other party thereto (excluding  Administrative Agent) or any governmental agency
or authority (other than the Issuer),  or Borrower shall deny that it has any or
further  liability or  obligation  under this  Agreement or any Letter of Credit
Document; or

g) Basic Document  Default.  An "Event of Default" shall have occurred under and
as defined in (i) Section 6.1 of the Loan  Agreement or (ii) Section 8.01 of the
Indenture,  or an "Event of  Default"  shall  occurred  under and as  defined in
Section 7 of the Syndicated Loan Agreement; or

h)  Material  Adverse  Change.  A  material  adverse  change  in  the  business,
operations,  management,  properties  or financial  condition  of  Borrower,  as
determined by Administrative  Agent in good faith, shall have occurred and shall
be continuing without amelioration by Borrower for such period as Administrative
Agent in its reasonable exercise of discretion deems appropriate in light of all
circumstances  Borrower shall have failed to provide to Administrative Agent its
written explanation thereof; or

i) The Syndicated Loan Agreement shall have terminated or  Administrative  Agent
shall no  longer  be a  participant  in or  otherwise  a party to the  financing
arrangements described therein.

Then, and in any such event,  Administrative  Agent may, in its sole discretion,
declare the Obligations  whether or not otherwise  contingent or not then due or
payable to be forthwith due and payable, and the same shall thereupon become due
and payable without demand, presentment,  protest or further notice of any kind,
all of which are hereby  expressly  waived.  Administrative  Agent,  in its sole
discretion,  may notify the  Trustee  of the  occurrence  of an Event of Default
hereunder and thereby  require the Trustee to declare the principal of the Bonds
and the interest  accrued thereon to be due and payable  immediately (or, at the
discretion  of  Administrative  Agent,  subject to mandatory  purchase),  all in
accordance  with the terms of the Indenture,  and, upon said  declaration,  such
principal and interest shall become and be  immediately,  due and payable.  Upon
any Event of Default,  Administrative Agent may make the declaration or give the
notice  provided  for  above,  but it  shall  not  be  obligated  to do so,  and
Administrative Agent may, but shall not be obligated to, cure any default, event
of default or event of nonperformance  under any Basic Document,  in which event
Borrower shall reimburse  Administrative  Agent therefor  pursuant to Section 17
hereof.  In addition to the  foregoing,  Administrative  Agent may  exercise any
other rights or remedies available under any Basic Document, any other agreement
or at law or in equity.  If the Event of Default is the  failure by  Borrower to
reimburse  Administrative  Agent on a timely basis for an "Interest Drawing" (as
defined in the Letter of  Credit),  Administrative  Agent may, no later than the
tenth (10th) Business Day following such drawing,  deliver to the Trustee notice
that the Letter of Credit will not be reinstated.

j) The rights and remedies of Administrative  Agent specified herein are for the
sole and exclusive  benefit,  use and protection of  Administrative  Agent,  and
Administrative  Agent is  entitled,  but  shall  have no duty or  obligation  to
Borrower,  the  Trustee,  the  Bondholders  (as  defined  in the  Indenture)  or
otherwise,  (i) to exercise or to refrain  from  exercising  any right or remedy
reserved to Administrative Agent hereunder,  or (ii) to cause the Trustee or any
other  party to  exercise  or to  refrain  from  exercising  any right or remedy
available to it under any of the Basic Documents.  Administrative  Agent may, in
its sole discretion,  also require the Trustee to cause the holders of the Bonds
to surrender the Bonds for mandatory  purchase pursuant to the provisions of the
Indenture.  Any  amounts  drawn on the  Letter of Credit  after  declaration  by
Administrative   Agent  that  the   Obligations   are  due  and  payable   shall
automatically be immediately due and payable by Borrower.

SECTION 10 -  AMENDMENTS,  ETC. No amendment or waiver of any  provision of this
Agreement or consent to any departure by Borrower  therefrom  shall in any event
be  effective  unless the same shall be in writing and signed by  Administrative
Agent,  and then such waiver or consent shall be effective  only in the specific
instance and for the specific purpose for which given.

SECTION  11 -  ADDRESSES  FOR  NOTICES.  All  notices  and other  communications
provided  for  hereunder  shall be in writing  and,  if to  Borrower,  mailed or
delivered to it,  addressed to it at 3910 Adler Place,  Bethlehem,  Pennsylvania
18016,  Attention:  Richard H. Penske,  Chief Financial Officer;  with a copy to
Duane,  Morris & Heckscher  LLP,  968 Postal Road,  P.O.  Box 90400,  Allentown,
Pennsylvania  18109-0400;  or if to Administrative Agent, mailed or delivered to
it, addressed to it at CoreStates  Administrative  Agent, N.A., 600 Penn Street,
P. O. Box 1102, Reading,  Pennsylvania 19603, Attention:  Lynn B. Eagleson, Vice
President; with a copy to Klehr, Harrison,  Harvey, Branzburg & Ellers LLP, 1401
Walnut Street, Philadelphia,  Pennsylvania 19102, Attention: Richard S. Roisman,
Esquire,  or as to each party at such other  address as shall be  designated  by
such party in a written  notice to the other  party.  All such notices and other
communications  shall be effective when delivered to the aforesaid addresses or,
if mailed,  be effective  three (3) days after the date of deposit in the mails,
addressed as aforesaid.

SECTION 12 - NO WAIVER: REMEDIES. No failure on the part of Administrative Agent
to exercise, and no delay in exercising,  any right hereunder shall operate as a
waiver thereof;  nor shall any single or partial exercise of any right hereunder
preclude any other further  exercise thereof or the exercise of any other right.
The remedies  herein  provided are  cumulative and not exclusive of any remedies
provided in any Basic Document now or hereafter existing at law or in equity.

SECTION 13 - RIGHT OF  SET-OFF.  In  addition  to any  rights  now or  hereafter
granted  under  applicable  law and not by way of limitation of any such rights,
during the continuance of any Event of Default hereunder,  Administrative  Agent
is  hereby  authorized  at any time and from  time to time,  without  notice  to
Borrower  or to any  other  person  or  entity,  any such  notice  being  hereby
expressly waived by Borrower, to setoff and to appropriate and apply any and all
deposits  (general or special)  and any other  indebtedness  at any time held or
owing by  Administrative  Agent to or for the credit or the  account of Borrower
against and on account of the  Obligations of Borrower,  irrespective of whether
or not  Administrative  Agent shall have made any demand  hereunder and although
said obligations,  liabilities or claims, or any of them, shall be contingent or
unmatured.

SECTION 14 -  INDEMNIFICATION.  Borrower  hereby  indemnifies and holds harmless
Administrative  Agent from and  against  any and all  claims,  damages,  losses,
liabilities,  reasonable costs or expenses whatsoever which Administrative Agent
may incur (or which may be claimed against Administrative Agent by any person or
entity  whatsoever)  by reason of or in  connection  with (i) the  execution and
delivery  or  transfer  of, or payment  or  failure to pay under,  the Letter of
Credit,  (ii) the  issuance  and sale of the  Bonds  or (iii)  disputes  between
Borrower and any general  contractor for the Project,  or between any contractor
and any  subcontractor,  materialman  or  supplier,  or between  Borrower or any
contractor  or any  subcontractor  and any  municipal  or public  authority,  or
between  Borrower  and any  broker  pertaining  to the  transaction,  including,
without  limitation,  any of the  foregoing  resulting  from the  making  of any
Advance;   provided   that   Borrower   shall  not  be  required  to   indemnify
Administrative  Agent for any claims,  damages,  losses,  liabilities,  costs or
expenses  to the  extent,  but only to the  extent,  caused  by (a) the  willful
misconduct or gross negligence of Administrative  Agent in determining whether a
sight draft or certificate  presented  under the Letter of Credit  complied with
the terms of the Letter of Credit or (b) Administrative  Agent's willful failure
to pay under the Letter of Credit after the presentation to it by the Trustee of
a sight draft and certificate  strictly  complying with the terms and conditions
of the Letter of Credit.  Nothing in this  Section 14 is  intended  to limit the
reimbursement  obligation of Borrower  contained in Section 2(a) hereof. In case
any action or proceeding is brought against  Administrative  Agent in respect of
which  indemnity may be sought under this Agreement  Administrative  Agent shall
give  notice of any such  action  or  proceeding  to  Borrower  and may  require
Borrower,  upon such notice,  to assume the defense of the action or proceeding;
provided  that  failure of  Administrative  Agent to give such notice  shall not
relieve Borrower from any of its obligations under this Section 14. Upon receipt
of notice  from  Administrative  Agent,  Borrower  shall  resist and defend such
action or proceeding at Borrower's  expense.  The  obligations of Borrower under
this Section 14 shall  survive the payment of the Bonds  and/or any  Obligations
and the termination of this Agreement for such period which is equal to the last
statute  of  limitations   governing  when  a  claim  may  be  brought   against
Administrative  Agent for which it is  entitled to  indemnification  pursuant to
this Section 14 plus six (6) months.

SECTION 15 - CONTINUING  OBLIGATION.  This Agreement is a continuing  obligation
and shall (i) be binding upon Borrower,  its  successors  and assigns,  and (ii)
inure to the  benefit  of and be  enforceable  by  Administrative  Agent and its
successors,  transferees and assigns;  provided that Borrower may not assign all
or  any  part  of  this   Agreement   without  the  prior  written   consent  of
Administrative  Agent.  Administrative  Agent may assign,  negotiate,  pledge or
otherwise   hypothecate  all  or  any  portion  of  this  Agreement,   or  grant
participations  herein,  in the  Letter  of  Credit  or in  any  of  its  rights
hereunder. No such assignment or participation by Administrative Agent, however,
will relieve  Administrative Agent of its obligation under the Letter of Credit.
In connection  with any assignment or  participation,  Administrative  Agent may
disclose to the proposed  assignee or participant any information  that Borrower
is required to deliver to Administrative Agent pursuant to this Agreement.

SECTION 16 - LIMITED  LIABILITY OF BANK.  Borrower assumes all risks of the acts
or  omissions  of the  Trustee and any  transferee  of the Letter of Credit with
respect to its use of the Letter of Credit. Neither Administrative Agent nor any
of its officers or  directors  shall be liable or  responsible  for: (a) the use
which may be made of the  Letter of Credit or for any acts or  omissions  of the
Trustee;  (b) the validity,  sufficiency or genuineness of documents,  or of any
endorsement(s) thereon, even if such documents should in fact prove to be in any
or all respects  invalid,  insufficient,  fraudulent  or forged;  (c) payment by
Administrative  Agent against presentation of documents which do not comply with
the terms of the Letter of Credit,  including  failure of any  documents to bear
any  reference or adequate  reference to the Letter of Credit;  or (d) any other
circumstances  whatsoever  in making or failing to make payment under the Letter
of Credit,  except only that Borrower shall have a claim against  Administrative
Agent, and Administrative Agent shall be liable to Borrower,  to the extent, but
only to the extent, of any direct, as opposed to consequential, damages suffered
by Borrower  which  Borrower  proves were caused by (i)  Administrative  Agent's
willful  misconduct  or  gross  negligence  in  determining   whether  documents
presented  under the  Letter of Credit  comply  with the terms of the  Letter of
Credit or (ii) Administrative Agent's willful failure to pay under the Letter of
Credit  after  the  presentation  to it by the  Trustee  of a  sight  draft  and
certificate  strictly  complying  with the terms and conditions of the Letter of
Credit.  In furtherance  and not in limitation of the foregoing,  Administrative
Agent may accept documents and  certificates  that appear on their face to be in
order,  without  responsibility  for further  investigation,  regardless  of any
knowledge  or notice to  Administrative  Agent  that the  information  contained
therein is or may be inaccurate or false.

SECTION 17 - COSTS,  EXPENSES  AND TAXES.  Borrower  agrees to pay on demand all
costs and expenses of Lenders in  connection  with the  preparation,  execution,
delivery and  administration of this Agreement and any other documents which may
be delivered in connection  with this  Agreement and all costs and expenses,  if
any,  in  connection  with (i) the  change in  terms,  maintenance,  renewal  or
cancellation  of  the  Letter  of  Credit,   (ii)  any  and  all  amounts  which
Administrative  Agent has paid relative to Administrative  Agent's curing of any
Event of Default  resulting  from the acts or omissions  of Borrower  under this
Agreement or any Basic Document,  (iii) the enforcement of this Agreement or any
other  Basic  Document,  or (iv) any action or  proceeding  relating  to a court
order, injunction, or other process or decree restraining or seeking to restrain
Administrative  Agent  from  paying any  amount  under the Letter of Credit.  In
addition,  Borrower shall pay any and all stamp and other similar taxes and fees
payable or determined to be payable in connection with the execution,  delivery,
filing and recording of the Letter of Credit,  this  Agreement,  any other Basic
Document,  or any other document which may be delivered in connection  with this
Agreement, and agrees to save Administrative Agent harmless from and against any
and all  liabilities  with respect to or  resulting  from any delay in paying or
omission to pay such taxes and fees.

SECTION 18 - SEVERABILITY.  Any provision of this Agreement which is prohibited,
unenforceable  or  not  authorized  in  any  jurisdiction   shall,  as  to  such
jurisdiction, be ineffective to the extent of such prohibition, unenforceability
or  non-authorization  without  invalidating the remaining  provisions hereof or
affecting  the  validity,  enforceability  or legality of such  provision in any
other jurisdiction.

SECTION 19 - SATISFACTION  REQUIREMENT.  If any agreement,  certificate or other
writing,  or any action taken or to be taken,  is by the term of this  Agreement
required to be satisfactory to  Administrative  Agent, the determination of such
satisfaction  shall be made by  Administrative  Agent in its sole and  exclusive
judgment.

SECTION 20 - GOVERNING  LAW. This Agreement is being intended to be performed in
the  Commonwealth  of  Pennsylvania,  and shall be  construed  and  enforced  in
accordance with, and the rights of the parties shall be governed by, the laws of
such Commonwealth.  Borrower AGREES AND CONSENTS TO THE EXERCISE OF JURISDICTION
OVER IT BY ANY STATE OR FEDERAL COURT IN THE  COMMONWEALTH OF  PENNSYLVANIA  AND
THAT ANY ACTION OR PROCEEDING BROUGHT BY THE COMPANY UNDER THIS AGREEMENT OR ANY
BASIC DOCUMENT AGAINST BANK SHALL BE BROUGHT IN SUCH COURTS.

SECTION 21 - COUNTERPARTS.  This Agreement may be executed simultaneously in two
or more  counterparts,  each of which shall be deemed an original,  and it shall
not be  necessary  in making  proof of this  Agreement to produce or account for
more than one such counterpart.

SECTION 22 - HEADINGS.  Section  headings in this Agreement are included  herein
for  convenience  of  reference  only and  shall not  constitute  a part of this
Agreement for any other purpose.

SECTION 23 - WAIVER OF JURY TRIAL.  BORROWER  AND BANK WAIVE ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE,  WHETHER SOUNDING IN CONTRACT,  TORT,
OR OTHERWISE,  BETWEEN OR AMONG,  AS THE CASE MAY BE, BANK, OR BORROWER  ARISING
OUT OF, IN  CONNECTION  WITH,  RELATED  TO, OR  INCIDENTAL  TO THE  PREPARATION,
EXECUTION,  ADMINISTRATION  OR  ENFORCEMENT  OF THIS  AGREEMENT,  THE  LETTER OF
CREDIT,  THE BASIC DOCUMENTS OR ANY AGREEMENT OR DOCUMENT EXECUTED IN CONNECTION
WITH ANY OF THE FOREGOING.

      IN WITNESS  WHEREOF,  the parties  hereto have caused this Agreement to be
duly  executed  and  delivered  by  their  respective  officers  thereunto  duly
authorized as of the date first above written.

(CORPORATE SEAL)               PIERCING PAGODA, INC.



ATTEST:_______________________
By:__________________________________
        Name:                    Name:
        Title:                        Title:


CORESTATES BANK, N.A., for itself and as
Agent and Administrative Agent for the Lenders



By:_______________________________________
Name:
Title:


SUMMIT BANK, for itself and as Agent for the Lenders


By:_______________________________________
Name:
Title:


FIRST UNION NATIONAL BANK



By:_______________________________________
Name:
Title:


PHIL1\106185-5