CONSTRUCTION LOAN AGREEMENT

     This  Agreement  made  as of  this  _____  day  of  July,  by  and  between
Thermodynetics,  Inc., a Delaware corporation with a principal place of business
at 651 Day Hill Road, Windsor,  Connecticut 06095, (the "Borrower") and USTrust,
a Massachusetts trust company with a usual place of business at 30 Court Street,
Boston, Massachusetts 02108 ("Bank").

                               W I T N E S E T H :

     WHEREAS,  Borrower  wishes  to  borrow  up to the  aggregate  amount of One
Million Seven Hundred Fifty Thousand  ($1,750,000.00) Dollars to satisfy certain
obligations of the Borrower to the Bank and for the  improvement of certain real
property  located  in  651  Day  Hill  Road,  Windsor,  Connecticut  06095  (the
"Premises"); and

     WHEREAS,  subject  to the terms and  conditions  herein  provided,  Bank is
willing to extend such loan.

     NOW, THEREFORE, the parties hereby agree:


                                    ARTICLE I

                                   Definitions

     For the  purposes  of this  Agreement,  the  capitalized  words and phrases
defined in this Article and in the  introductory  paragraph above shall have the
meanings herein ascribed to them.

     1.01  "Advance(s)"  shall  mean a sum of money  loaned by Bank to  Borrower
pursuant  to  Article  II  of  this  Agreement  for  the   construction  of  the
Improvements on the Premises.

     1.02 "Architect"  shall mean any architect engaged by Borrower and approved
by Bank in connection with construction of the Improvements.

     1.03  "Availability  Period"  shall  mean  the  period  commencing  on  the
Commencement Date and ending on the Conversion Date.

     1.04  "Banking  Day"  shall  mean  any  business  day on  which  banks  are
authorized to be and are open for business in Boston, Massachusetts.

     1.05  "Borrowing  Date"  shall mean and refer to that date  specified  in a
Notice of  Borrowing as the date on which an Advance is to be made and that date
on which Bank shall make an Advance pursuant to Article II.

     1.06 "Closing Date" shall mean the date hereof.

     1.07  "Commencement  Date"  shall  mean  the date  the  Borrower  commences
construction of the Improvements, but not later than _______________, 1999.

     1.08  "Construction  Amount"  shall  mean  up to One  Million  Fifty  Eight
Thousand Four Hundred Thirty-Nine ($1,058,439.00) Dollars.

<PAGE>


     1.09 "Construction Contracts" shall mean all contracts between Borrower and
other persons pursuant to which such other persons will furnish labor, materials
and/or services in connection with the  construction  of the  Improvements,  and
shall  include  contracts  between  Borrower  and  any  Architect.   A  list  of
Construction Contracts is attached hereto as Exhibit D.

     1.10  "Construction  Loans" shall mean the aggregate  unpaid balance of the
principal  amount of all Advances (plus the amount used to payoff the Borrower's
Term  Note to the Bank in the  original  principal  mount of  $875,000,000  (the
"Payoff")).

     1.11  "Construction  Note" shall mean the  Construction  to Permanent  Note
executed  by  Borrower  of even  date in the face  amount of One  Million  Seven
Hundred Fifty Thousand  ($1,750,000.00) Dollars evidencing Borrower's obligation
to repay the Construction Loans, executed and delivered by Borrower to Bank.

     1.12 "Conversion Date" shall mean December 1, 1999.

     1.13 "Cost  Breakdown/Disbursement  Schedule"  shall mean the  construction
budget  and  disbursement  schedule  attached  hereto  as  Exhibit  A which is a
proposed budget relating to the construction of the Improvements.

     1.14 "Events of Default"  shall mean those events set forth in Article X of
this Agreement.

     1.15 "General  Conditions  Precedent" shall mean those conditions set forth
in Article VI of this Agreement.

     1.16 "Improvements"  shall mean the construction of certain improvements on
the Premises pursuant to the Plans.

     1.17 "Independent  Engineer" shall mean an independent engineer,  architect
or contractor  hired by Borrower with Bank approval at Borrower's  sole cost and
expense, to monitor the progress and quality of construction of the Improvements
and perform such other consulting responsibilities as Bank may require.

     1.18  "Interest  Payment  Date"  shall mean the first day of each  calendar
month, commencing with the first of such dates next succeeding the date hereof.

     1.19 "Mortgage"  shall mean the Open-End  Mortgage  executed by Borrower of
even date encumbering the Premises and securing the Obligations.

     1.20 "Notice of Borrowing"  shall mean a written request by Borrower for an
Advance and Independent Engineer's Certificate in the form of Exhibit C attached
hereto.

     1.21   "Obligations"   shall  mean  all  loans,   advances,   indebtedness,
liabilities, indemnity agreements and amounts, liquidated or unliquidated, owing
from  Borrower  to Bank at any time  including  without  limitation  obligations
arising under the Construction  Note, each of every kind, nature and description
arising under this Agreement or arising under any mortgage,  security  agreement
or other  agreement,  instrument  or  document  now or  hereafter  executed  and
delivered to Bank pursuant hereto or in connection herewith, and whether secured
or  unsecured,  direct or indirect  (that is,  whether the same are due directly
from Borrower to Bank, or as an endorser or a guarantor) absolute or contingent,
due or to become due, now existing or hereafter contracted. Said term shall also
include all interest, fees and other charges chargeable to Borrower by Bank from
time  to time  hereunder  and  all  covenants,  agreements  or  undertakings  of
Borrower,  whether  for the  payment of money or  otherwise  arising  under this
Agreement or arising under any mortgage,  security agreement or other agreement,
instrument or document now or hereafter  executed and delivered to Bank pursuant
hereto or in connection herewith.

     1.22  "Permanent  Loan" shall mean the aggregate  principal  balance of the
Construction Loans (on the Conversion Date), plus all accrued interest, fees and
other charges outstanding.

<PAGE>


     1.23 "Permits" shall mean all licenses and permits required by any federal,
state,  municipal  or  other  governmental  authority  in  connection  with  the
construction of the Improvements including all Certificates of Occupancy. A list
of Permits is attached hereto as Exhibit E

     1.24 "Plans" shall mean the plans and specifications relating to the design
and  construction of the  Improvements  which are attached or more  particularly
described on Exhibit F attached hereto.

     1.25 "Specific Conditions  Precedent" shall mean those conditions set forth
in Article V of this Agreement.


                                   ARTICLE II

                               Construction Loans

     2.01 Subject to and upon the terms and  conditions  herein  provided,  Bank
may, in its discretion, make Advances to Borrower during the Availability Period
upon Borrower's  request and provided that each of the following  conditions are
met as of the Borrowing Date:

     (a) After giving effect to such Advance,  the Advances shall not exceed the
Construction Amount.

     (b) Borrower has complied with all General Conditions Precedent.

     (c) Borrower has complied with all Specific Conditions Precedent.

     (d) No Event of Default has  occurred  (which has not been waived or cured)
and no event has occurred which upon the passage of time or the giving of notice
or both would constitute an Event of Default.

     (e) Bank has  received  from  Borrower,  not less than two (2) Banking Days
prior to the  Borrowing  Date, a Notice of  Borrowing,  in the form of Exhibit B
attached  hereto or such other form as Bank may require,  requesting an Advance.
Borrower  may  submit no more than one (1)  Notice of  Borrowing  requesting  an
Advance in any thirty (30) day period.  Advances shall be in minimum  increments
of $50,000.00.  Each Notice of Borrowing  shall be accompanied by the following:
to the  extent  any  portion  of the  requested  Advance is to be paid for costs
incurred in connection with construction of the  Improvements,  a requisition on
the  appropriate  AIA Form together with copies of all invoices  related thereto
and  appropriate  mechanics'  lien  waivers.  Except as  specifically  agreed to
between  Borrower and Bank,  each such  requisition  shall be net of  retainage,
which retainage shall be in the amount of ten (10%) percent of any such Advance.

     2.02 Advances shall be made in accordance  with the provisions of Article V
hereof,  by crediting the amount thereof to Borrower's  loan account  maintained
with  Bank;  provided,  however,  that Bank  retains  the right to issue a check
comprising the Advance made payable directly to the intended payee.


                                   ARTICLE III

                                    Repayment

     3.01 The Construction Loans shall bear interest at the variable rate of the
Bank's Base Lending Rate plus one (1%) percent per annum. Interest only shall be
paid  monthly in  arrears  commencing  on the first day of the first  month next
succeeding the date hereof until the Conversion Date. Interest shall be computed
on the basis of a 360-day year for the actual number of days elapsed.

<PAGE>


     3.02 On the  Conversion  Date,  provided no Event of Default  has  occurred
hereunder which has not been waived or cured, the outstanding  principal balance
of the Construction  Loans,  plus all accrued  interest,  fees and other charges
outstanding  shall be amortized over a twenty  (20)-year  schedule for a term of
five (5) years,  based upon  either (i) a fixed rate equal to the Bank's cost of
funds on that date plus two hundred  twenty-five  basis points or (ii)  interest
shall  continue to be paid at the Base  Lending  Rate plus one (1%)  percent per
annum.  Borrower shall make such election  prior to the Conversion  Date for the
balance of the term of the  Construction  Note.  Interest shall be calculated on
the basis of a 360-day year for the actual number of days elapsed.

     3.03 Interest  payable by the Borrower to the Bank on any Obligation  after
maturity  or upon the  occurrence  of Event of  Default  shall be payable at the
default rate set forth in the Construction Note.

     3.04 The Borrower  shall pay late charges in  accordance  with the terms of
the Construction Note.

     3.05 The  Construction  Loan may be  prepaid  only in  accordance  with and
subject to the prepayment provisions contained in the Construction Note.

     3.06 All  payments  to be made by Borrower  to Bank  hereunder,  whether of
principal,  interest,  premium, fees or of any other kind, shall be paid to Bank
at its offices at the address set forth above,  or at such other  address  which
Bank may request by written notice to Borrower.

     3.07 Borrower hereby authorizes Bank to charge any and all amounts due from
Borrower to Bank  pursuant to this  Agreement or otherwise,  to Borrower's  loan
account maintained with Bank.


                                   ARTICLE IV

              Security, Guarantees and Supplementary Documentation

     4.01 As  security  for the  payment  and  performance  of the  Obligations,
Borrower shall grant to Bank the following  rights and interests,  each of which
shall be more  particularly  described  in certain  instruments  which  shall be
executed   contemporaneously   herewith  or  hereafter  and  in  any  extension,
modification or amendment thereof:

     (a) A mortgage  of  Borrower's  interest  in the  Premises  which  shall be
subject to no prior mortgage, lien, encumbrance or charge of any kind or nature,
except as set forth on Schedule B of the Title Policy.

     (b) An  assignment  of, and  security  interest  in, all rights of Borrower
under all Construction Contracts,  which assignment shall be subject to no prior
assignment,  security  interest,  lien,  encumbrance  or  charge  of any kind or
nature.

     (c) An assignment of, and security  interest in, all rights of Borrower in,
to and  under  all  Permits,  which  assignment  shall  be  subject  to no prior
assignment,  security  interest,  lien,  encumbrance  or  charge  of any kind or
nature.

     (d) An assignment  of, and security  interest in, all rights of Borrower in
and to the Plans,  which  assignment  shall be  subject to no prior  assignment,
security interest, lien, encumbrance or charge of any kind or nature.

     (e) A  security  interest  in all  personal  property  assets  of  Borrower
including all construction materials, fixtures, machinery and equipment.

     (f) An assignment,  security  interest,  and/or mortgage of all proceeds of
the foregoing,  subject to no prior  security  interest,  mortgage,  assignment,
lien, encumbrance or charge of any kind or nature.

     4.02 Any and all deposits or other sums at any time credited by or due from
Bank to Borrower shall,  at all times,  constitute  additional  security for all
Obligations and

<PAGE>


may be set off against any of the  Obligations  at any time after the occurrence
of an Event of Default,  whether or not other security held by Bank is deemed to
be adequate.  Any and all instruments,  documents,  policies and certificates of
insurance,  securities,  goods, accounts receivable,  choses in action,  chattel
paper, cash,  personal property and the proceeds thereof owned by Borrower or in
which  Borrower  has an  interest  which  now or  hereafter  are at any  time in
possession  or  control of Bank or in transit by mail or courier to or from Bank
or in the possession of any third party acting in Bank's behalf,  without regard
to whether  Bank  received  the same in  pledge,  for  safekeeping  as agent for
collection  or  transmission  or  otherwise  or whether  Bank has  conditionally
released the same, shall constitute  additional security for the Obligations and
may be applied at any time, after the occurrence of an Event of Default,  to the
Obligations,  whether  or not  other  security  held  by Bank  is  deemed  to be
adequate.

     4.03 All  Obligations of the Borrower to the Bank shall be guaranteed on an
unlimited,  joint and several basis,  by Turbotec  Products,  Inc., TPI Systems,
Inc. and National Energy Systems,  Inc. (each a "Corporate  Guarantor") pursuant
to a certain Multi-Entity Guaranty dated May 24, 1993 (the "Guaranty").


                                    ARTICLE V

                          Specific Conditions Precedent

     5.01 Prior to making an  Advance,  Bank may  require an  inspection  of the
Premises by its  employees  and/or the  Independent  Engineer for the purpose of
assuring that the progress and quality of the  construction is as represented by
the Notice of Borrowing  requesting  such Advance,  and, until such  inspection,
Bank need not make the  Advances  therein  requested.  The Bank  shall make such
inspection within two (2) Banking Days after receipt of any Notice of Borrowing.
If such inspection does not furnish such assurance to Bank, Bank may reject such
Notice of Borrowing  and need not make the Advance  therein  requested.  If such
inspection is not completed on or before the  Borrowing  Date  specified in said
Notice of  Borrowing,  Bank may defer any action as to that Notice of  Borrowing
for a reasonable  time until such  inspection is completed.  Such inspection and
determination  is solely for the  benefit of Bank,  and the making of an Advance
with or without such  inspection  shall not be a  representation  by Bank of any
kind or  nature  nor a waiver by Bank of any  rights  Bank may have  under  this
Agreement.  Borrower  shall provide Bank or the  Independent  Engineer with such
further information,  certifications, surveys (including foundation surveys) and
other assurances as Bank or the Independent Engineer may require.

     5.02 If at any time during the course of construction of the  Improvements,
Bank, in its sole judgment,  should determine that the unadvanced portion of the
Construction  Amount  is  insufficient  to  complete  the  construction  of  the
Improvements  in accordance  with the Plans,  then, on Bank's  demand,  Borrower
shall  deposit with Bank such amount as Bank shall require so that the aggregate
of such deposited  amount and the then  unadvanced  portion of the  Construction
Amount  shall  equal the amount  necessary,  as  determined  by Bank in its sole
judgment, to complete the construction as aforesaid.  Such deposit shall be held
by Bank as security for the Obligations. Subsequent Notice(s) of Borrowing shall
first request a release of such deposit,  and no Advance shall be made hereunder
until the entirety of such deposit shall have been released. Borrower shall meet
any demand made by Bank under this Section  within ten (10) days, and until such
demand is met, Bank shall have no  obligation to make any Advance  hereunder and
failure to meet such demand will  constitute an Event of Default under Article X
hereof.

     5.03 Advances made by Bank hereunder  shall be used by Borrower  solely for
the  payment  of costs  pursuant  to the Cost  Breakdown/Disbursement  Schedule,
unless otherwise authorized by Bank, in its sole discretion.

     5.04 Subject to the conditions set forth in Article II, Bank shall make the
final Advance  (including  all  retainage  held by Bank) at such time as (a) the
Improvements  are  substantially  completed  to  the  satisfaction  of  Bank  in
accordance  with the terms and  conditions  set forth  herein;  (b) Borrower has
delivered to Bank an as-built survey of the Premises;  (c) a final unconditional
Certificate  of  Occupancy  has  been  issued  by  the  appropriate   government
authority;  (d) the Improvements are free of all liens other than those of Bank,
those  accrued for real estate taxes not yet due and payable and those set forth
on Schedule B of the Title Policy; and (e) all applicable statutory lien periods
have expired or appropriate lien waivers have been delivered to Bank.

<PAGE>


                                   ARTICLE VI

                          General Conditions Precedent

     6.01  Borrower  shall  execute and deliver to Bank on or before the Closing
Date,  all  instruments  and  documents to be executed and delivered by Borrower
pursuant to the terms of this Agreement.

     6.02 Bank's rights in and to all mortgages, security interests, assignments
and pledges shall be perfected.

     6.03 Borrower shall deliver to Bank on or before the Closing Date, evidence
of insurance pertaining to the Premises naming Bank as mortgagee, loss payee and
additional insured.

     6.04  Borrower  shall  furnish to Bank on or before the Closing Date a Cost
Breakdown/Disbursement  Schedule,  a copy of which is attached hereto as Exhibit
A. Such Cost Breakdown/Disbursement  Schedule shall be acceptable to Bank in all
respects  and  shall  contain  a  complete  budget  for the  entire  cost of the
Improvements,   including,   without   limitation:   (i)  the  direct  costs  of
constructing and equipping the Improvements;  (ii) all indirect costs including,
but not limited to, interest, real estate taxes, insurance,  and legal fees; and
(iii) a trade breakdown for all construction costs on an appropriate AIA form.

     6.05  Borrower  shall  deliver to Bank on or before the Closing  Date,  all
Construction  Contracts,  a list of which is  attached  hereto as Exhibit D. All
Construction  Contracts  shall  contain  such  terms  and  provisions  which are
acceptable  to Bank  including,  but not  limited  to,  provisions  relating  to
retainage, performance bonds and insurance.

     6.06  Borrower  shall  deliver to Bank on or before the Closing  Date,  all
permits (except for the  Certificate of Occupancy),  a list of which is attached
hereto  as  Exhibit  E. All such  Permits  shall  be  acceptable  to Bank in all
respects.

     6.07  Borrower  shall  deliver to Bank on or before the Closing  Date,  all
Plans, which Plans are more particularly described on Exhibit F attached hereto.
All such Plans shall be acceptable to Bank in all respects.

     6.08 Borrower shall deliver to Bank on or before the Closing Date, a survey
of the Premises. Such survey shall show the dimensions and area of the Premises,
dimensions  and  locations  of  all  improvements,   utilities,  parking  areas,
driveways,  easements, zoning district zones, adjoining streets, distance to and
name of  nearest  intersecting  street,  whether  the  Premises  is located in a
Federal Flood Hazard Zone and such other  information as Bank may require and as
appropriate under the circumstances.

     6.09  Borrower  shall  furnish to Bank on or before  the  Closing  Date,  a
certificate  of the  architect,  in form  and  substance  satisfactory  to Bank,
stating (as appropriate) that: (i) all utility  facilities,  including,  without
limitation,  electrical, gas, water, sewer, septic, telephone and storm drainage
facilities  are  available at the  Premises,  as a matter of right,  without the
requirement of any governmental approvals;  and (ii) such utilities are adequate
to  serve  the  entire  Premises  upon  completion  of the  construction  of the
Improvements.

     6.10 In the event the  Premises is located in a Federal  Flood Hazard Zone,
Borrower  shall  obtain and furnish to Bank on or before the Closing  Date,  and
thereafter maintain,  flood insurance with respect to the Premises acceptable to
Bank in all respects.


                                   ARTICLE VII

                         Warranties and Representations

<PAGE>


     7.01 To induce Bank to enter into this  Agreement and to provide  financing
to the Borrower  hereunder,  Borrower  makes the following  representations  and
warranties,  each of which  shall be deemed to be newly  made on each  Borrowing
Date:

     (a)  Borrower  has  good  and  clear  record  and  marketable  title to the
Premises,  free and clear of all mortgages,  liens, pledges,  charges,  security
interests  and  encumbrances,  other than those being  granted to Bank  pursuant
hereto,  and those  reflected on Schedule B of the ALTA title  insurance  policy
delivered to Bank (the "Title Policy").

     (b) No event has occurred and no condition exists which, upon the execution
and delivery of this Agreement, would constitute an Event of Default hereunder.

     (c) To the best of Borrower's knowledge, Borrower is not required to obtain
any consent,  approval or authorization  of, or file,  register or qualify with,
any  governmental  authority  in order  to  validly  execute  and  deliver  this
Agreement or any instrument,  agreement or document contemplated  hereunder,  or
perform  Borrower's  obligations  under this  Agreement or any such  instrument,
agreement or document.

     (d) The Cost  Breakdown/Disbursement  Schedule  truly and  accurately  sets
forth the projected budget for construction of the Improvements.

     (e) The  Construction  Contracts  delivered  to Bank are true and  complete
copies of all Construction Contracts available to Borrower and such Construction
Contracts have not been materially altered or amended.

     (f) To the best of  Borrower's  knowledge,  the Permits  delivered  to Bank
constitute all licenses and permits required by any federal, state, municipal or
other  governmental  authority  in  connection  with  the  construction  of  the
Improvements (except a final Certificate of Occupancy).

     (g) The Plans  delivered  to Bank are complete in all respects and have not
been materially altered or amended.


                                  ARTICLE VIII

                              Affirmative Covenants

     8.01 Borrower hereby covenants and agrees that it shall:

     (a) Pay to Bank all Obligations when due.

     (b)  Promptly,  punctually  and  faithfully  perform or observe any and all
terms, covenants and agreements to be performed or observed on its part pursuant
to  this  Agreement  or  any  instrument,  document  or  agreement  executed  in
connection herewith.

     (c) Keep  proper  books of  account  relating  to the  construction  of the
Improvements  and the operation of the Premises in which full,  true and correct
entries will be made of its  transactions in accordance with generally  accepted
accounting principles consistently applied.

     (d) Make its books and records  available  in its  offices for  inspection,
examination  and copying by Bank and Bank's  representatives  at all  reasonable
times,  and  shall  permit  inspection  of  the  Premises  by  Bank  and  Bank's
representatives at all reasonable times.

     (e) Furnish such information and statements as Bank may reasonably request.

<PAGE>


     (f) Comply with all laws and regulations  imposed by the federal,  state or
local  government  or any other  governing  authority  which are  applicable  to
Borrower and/or the Premises.

     (g) Pay all real and personal  property taxes,  assessments and charges and
all franchise, income,  unemployment,  old age benefit,  withholding,  sales and
other taxes assessed  against  Borrower or payable by Borrower at such times and
in such manner to prevent any penalty  from  accruing or any lien or charge from
attaching to  Borrower's  properties.  The  provisions of this Section shall not
preclude  Borrower from contesting in good faith and diligently  prosecuting any
such tax; provided,  however,  that Borrower shall upon request of Bank, deposit
with Bank funds  sufficient  to discharge  such tax in the event such contest is
resolved against  Borrower.  Borrower shall not be in default under this Section
by reason of the existence of a lien for taxes not then due.

     (h) Put and  maintain the  Premises  and the  Improvements  thereon in good
repair, working condition, and order, and, from time to time, make all necessary
and proper repairs, renewals and replacements.

     (i)  Maintain,  at all times,  insurance  relating to the  Premises and the
personal  property  located  thereon  covering such risks and in such amounts as
Bank may reasonably require,  all such insurance to be in such form and for such
periods and written by such companies as shall be acceptable to Bank.

     (j) Pay or reimburse Bank, on demand, for all expenses (including,  without
limitation, reasonable attorneys' fees and expenses) incurred or paid by Bank in
connection  with the  preparation,  interpretation,  amendment,  administration,
enforcement  or defense of this  Agreement,  and any  instrument,  agreement  or
document to be delivered pursuant hereto.

     (k)  Punctually  and  promptly  make all  payments  and  perform  all other
obligations  which may be required of Borrower with respect to any  indebtedness
(whether for money borrowed,  goods purchased,  services  rendered or otherwise)
owing to any persons, firms or corporations other than Bank, including,  without
limitation,  indebtedness  which may be secured by a security interest in assets
of Borrower, or property of Borrower, and all obligations under the terms of any
lease in which Borrower is the lessee.  The provisions of this Section shall not
preclude  Borrower from contesting in good faith and diligently  prosecuting any
such indebtedness or obligation.

     (l) Cause the construction of the Improvements to be completed on or before
the end of the  Availability  Period in accordance with the Plans, in a good and
workmanlike manner, and with materials of the quality called for in the Plans.

     (m) Pay or reimburse  Bank,  on request,  for all costs,  expenses and fees
incurred or paid by Bank in connection  with the retention and employment of the
Independent  Engineer  to review  the  Plans,  Construction  Contracts  and Cost
Breakdown/ Disbursement Schedule, and to inspect and certify the progress at the
construction  of  the   Improvements   and  to  perform  such  other  consulting
responsibilities as Bank may from time to time require.


                                   ARTICLE IX

                               Negative Covenants

     9.01 Borrower shall not:

     (a)  Transfer,  sell or dispose of the  Premises or any legal or  equitable
interest  therein (or in the  Borrower) or any of Borrower's  personal  property
located thereon or used in connection therewith, except as set forth on Schedule
B of the Title Policy.

     (b) Grant or suffer to exist,  without  Bank's prior written  consent,  any
mortgage, pledge, title retention agreement,  security interest, lien, charge or
encumbrance with respect to the Premises, or any of Borrower's personal property
located thereon or used in connection therewith, except as set forth on Schedule
B of the Title Policy.

<PAGE>


     (c) Make any alterations or amendments to the Construction  Contracts which
would,  in the  aggregate,  result in a change of more  than  $20,000.00  in the
projected cost of constructing the Improvements,  unless Borrower obtains Bank's
prior consent.

     (d) Make any  alterations  or amendments  to the Plans which would,  in the
aggregate,  result in a change of more than  $20,000.00 in the projected cost of
constructing the Improvements, unless Borrower obtains Bank's prior consent.

     (e) Use, without Bank's prior written consent,  any portion of the proceeds
of any Advance for any purpose  other than  payment of costs as set forth in the
Cost Breakdown/Disbursement Schedule or as authorized by Bank.


                                    ARTICLE X

                                     Default

     10.01  Upon  the  occurrence  of any one or more  of the  following  events
(herein, "Events of Default"), any and all Obligations of Borrower to Bank shall
become immediately due and payable,  at the option of Bank and without notice or
demand.  The  occurrence  of any such  Event of Default  shall also  constitute,
without notice or demand, a default under all other agreements  between Bank and
Borrower and  instruments  and papers  given to Bank by  Borrower,  whether such
agreements, instruments, or papers now exist or hereafter arise, namely:

     (a) The  failure by Borrower  to pay the  Obligations  within ten (10) days
after the date when due.

     (b) The failure by Borrower to promptly, punctually and faithfully perform,
or observe  any term,  covenant  or  agreement  on its part to be  performed  or
observed pursuant to any of the provisions of this Agreement.

     (c) The failure by Borrower to construct, or cause the construction of, the
Improvements  in a  workmanlike  manner  in  accordance  with the  Plans  and to
complete such construction as evidenced by the issuance of a final unconditional
Certificate of Occupancy on or before the Conversion Date.

     (d) The failure of the Borrower to commence  construction  on or before the
Commencement Date.

     (e)  The  determination  by  Bank  that  any   representation  or  warranty
heretofore,  now or  hereafter  made  by  Borrower  to  Bank,  in any  document,
instrument, agreement, or paper was not materially true or accurate when given.

     (f) The occurrence of any event of default under any agreement between Bank
and  Borrower  or  instrument  or paper  given Bank by  Borrower,  whether  such
agreement,  instrument, or paper now exists or hereafter arises (notwithstanding
that Bank may not have  exercised  its rights upon default  under any such other
agreement, instrument or paper).

     (g) The occurrence of any event such that any  indebtedness  of Borrower to
anyone  other  than  Bank  could  be  accelerated,   notwithstanding  that  such
acceleration has not taken place.

     (h) The  attachment  and failure to have such  attachment  released  within
thirty  (30) days of filing or such  longer  period as agreed to by Bank at that
time so  long  as  Bank  is  satisfied  with  Borrower's  efforts  to have  such
attachment released, levy or seizure of any of Borrower's property.

     (i) The termination of existence, dissolution, or liquidation of Borrower.

<PAGE>


     (j) Any act by,  against,  or  relating  to  Borrower,  or its  property or
assets,  which act constitutes the application for, consent to, or sufferance of
the appointment of a receiver, trustee or other person, pursuant to court action
or otherwise, over all or any part of Borrower's property; provided, however, if
such act is commenced against the Borrower,  the Borrower shall have a period of
thirty (30) days to cause the same to be  dismissed,  unless such act  commenced
against the Borrower  was  commenced  pursuant to Title 11 of the United  States
Code entitled  "Bankruptcy"  (commonly  referred to as the "Bankruptcy Code") in
which event the same shall immediately constitute an Event of Default.

     (k) The granting of any trust  mortgage or execution of an  assignment  for
the  benefit  of the  creditors  of  Borrower,  or the  occurrence  of any other
voluntary  or  involuntary  liquidation  or  extension  of  debt  agreement  for
Borrower; the failure by Borrower to generally pay the debts of Borrower as they
mature; adjudication of bankruptcy or insolvency relative to Borrower; the entry
of an order for  relief  or  similar  order  with  respect  to  Borrower  in any
proceeding pursuant to Title 11 of the United States Code entitled  "Bankruptcy"
(the "Bankruptcy  Code") or any other federal  bankruptcy law; the filing of any
complaint, application, or petition by or against Borrower initiating any matter
in which  Borrower  is or may be granted  any relief  from the debts of Borrower
pursuant to the Bankruptcy  Code or any other  insolvency  statute or procedure;
the calling or sufferance of a meeting of creditors of Borrower;  the meeting by
Borrower of a formal or informal creditor's committee; the offering, or entering
into, by Borrower of any composition, extension or any other arrangement seeking
relief or extension  for the debts of Borrower,  or the  initiation of any other
judicial or  non!judicial  proceeding  or  agreement  by,  against or  including
Borrower  which seeks or intends to accomplish a  reorganization  or arrangement
with creditors.

     (l) The entry of any  judgment  against  Borrower in excess of  $50,000.00,
which  judgment is not  satisfied  or appealed  from (with  execution or similar
process stayed) within thirty (30) days of its entry.

     (m) The entry of any court order  which  enjoins,  restrains  or in any way
prevents Borrower from conducting all or any part of its business affairs in the
ordinary course of business.

     (n) The  occurrence  of any  material  uninsured  loss,  theft,  damage  or
destruction to any material asset(s) of Borrower.

     (o) Any act by or against,  or relating to Borrower or its assets  pursuant
to which any  creditor of Borrower  seeks to reclaim or repossess or reclaims or
repossesses  all or a portion of  Borrower's  assets having a value in excess of
$50,000.00.

     (p) The  occurrence of any event or  circumstance  with respect to Borrower
such that Bank shall  believe in good faith that the  prospect of payment of all
or any  part of the  Obligations  or the  performance  by  Borrower  under  this
Agreement or any other agreement  between Bank and Borrower is impaired or there
shall occur any material  adverse change in the business or financial  condition
of Borrower.

     (q)  The  cessation  of  construction  of the  Improvements  for  ten  (10)
consecutive  business days, except for cessation resulting from impossibility of
performance due to force majeure.

     (r) The failure of the Borrower to deposit any funds required under Section
5.02 hereof upon demand.

     (s) The  occurrence of any of the foregoing  Events of Default with respect
to any guarantor,  endorser,  or surety to Bank of the  Obligations,  as if such
guarantor, endorser or surety, were the "Borrower" described herein.

     (t) The termination of any guaranty by any guarantor of the Obligations.

     (u) The  occurrence  of an Event of Default  under or  termination  for any
reason  of the  Amended  and  Restated  Loan and  Security  Agreement  (Accounts
Receivable and Inventory)  dated October 31, 1994, as amended,  between the Bank
and Turbotec Products, Inc.

<PAGE>


     10.02 Upon the  occurrence  of an Event of  Default,  Bank may  declare any
obligation  Bank may have hereunder to be canceled,  declare all  Obligations of
Borrower to be due and payable and proceed to enforce payment of the Obligations
and to exercise  any and all of the rights and  remedies  afforded to Bank under
the terms of this Agreement or otherwise.


                                   ARTICLE XI

                               Special Provisions

     11.01 In  addition to any and all rights and  remedies  which Bank may have
pursuant  to this  Agreement,  any other  instrument  or  document  executed  in
connection  herewith or  applicable  law, Bank may,  after the  occurrence of an
Event of Default,  in its sole  discretion,  take  immediate  possession  of the
Premises,   manage  and  operate  the  Premises  and  proceed  to  complete  the
Improvements. In connection with the foregoing rights, Bank may do all things it
deems  advisable,  in its sole  discretion,  including,  but not limited to, the
following:  (a) make any payments with respect to any  Obligation of Borrower to
Bank or any  obligation of Borrower to any other person in  connection  with the
construction of the  Improvements;  (b) make additions and changes in the Plans;
(c) employ  contractors,  subcontractors,  architects,  engineers  and others in
connection with construction of the Improvements;  (d) pay, settle or compromise
all existing  bills and claims which are or may be liens against the Premises or
may be  necessary or  desirable  for the  completion  of the  Improvements;  (e)
purchase and maintain insurance, including title insurance; (f) lease or license
the  Premises to others,  in whole or in part;  (g) use and operate the Premises
itself,  or through a subsidiary  or  affiliate,  including the operation of any
business  or  other  activity  similar  to  that  previously  engaged  in on the
Premises;  (h)  prosecute and defend all actions and  proceedings  in connection
with the construction of the Improvements;  (i) discontinue  construction of the
Improvements  and refuse to make  further  payments to any other  person for the
account of Borrower;  and (j) demolish any Improvements on the Premises,  either
in whole or in part.  The foregoing  rights and remedies may be executed by Bank
in its sole discretion, but under no circumstance shall Bank be deemed obligated
to exercise any of such rights or remedies.  Borrower  hereby  appoints  Bank as
Borrower's  irrevocable  attorney in fact coupled  with an  interest,  with full
powers of  substitution,  to act in Borrower's name and on Borrower's  behalf in
connection with any of the foregoing  rights and remedies.  Any expenses paid or
incurred by Bank in connection with exercising the foregoing  rights or remedies
shall be  treated  as an Advance  and added to the  Construction  Loans due from
Borrower  to Bank,  and  Borrower  agrees to repay to Bank all such  amounts  on
demand, with interest as herein provided, notwithstanding that such Construction
Loans may exceed the Construction  Amount.  In addition,  Borrower agrees to pay
Bank for services  rendered in connection with completion of the construction of
the  Improvements  in an amount  equal to ten (10%)  percent of the cost of such
completion.  Any income or other receipts resulting from exercise by Bank of the
foregoing  rights  shall be for the account of Borrower  and shall be applied to
the  Obligations  in  such  manner  as  Bank,  in  its  sole  discretion,  deems
appropriate.  Bank's exercise of any of the foregoing  rights and remedies shall
be  undertaken  by Bank as a  mortgagee-in-possession  for the  maintenance  and
preservation  of its  collateral and not as a successor to any business or other
activities of Borrower.


                                   ARTICLE XII

                                  Miscellaneous

     12.01 All  communications  herein provided shall be in writing and shall be
sufficient if actually  received or if sent by certified  mail,  return  receipt
requested,  or by a recognized overnight carrier and addressed to the respective
parties at the addresses set forth in the beginning of this Agreement or at such
other addresses as the parties hereto may request in writing, with copies to:

<PAGE>


     If to the Bank: USTrust
                    30 Court Street
                    Boston, MA 02108
                    Attn: James H. Herzog, Jr., Vice President

     With copies to: Shapiro, Israel & Weiner, P.C.
                    100 North Washington Street
                    Boston, MA   02114
                    Attn:   Brian T. Garrity, Esq.

     If to the Borrower: Thermodynetics, Inc.
                    Post Office Box 40
                    651 Day Hill Road
                    Windsor, CT 06095
                    Attn:   Robert I. Lieberman
                         Treasurer and Chief Financial Officer

     With copies to: Kenneth B. Lerman, Esquire
                    651 Day Hill Road
                    Windsor, CT 06095-0040

     12.02  Borrower  will,  from time to time,  execute and deliver to Bank all
such other  instruments  and  documents and take or cause to be taken such other
action as Bank may  reasonably  request in order to  effectuate  the  agreements
contemplated herein.

     12.03 Bank shall not be deemed to have  waived any of its rights  hereunder
unless such waiver is in writing and duly executed by an  authorized  officer of
Bank.  No waiver on Bank's part on any one occasion  shall be deemed a waiver on
any other occasion.

     12.04 This  Agreement  may be amended only by an  instrument in writing and
duly executed by Borrower and an authorized officer of Bank.

     12.05 All covenants,  agreements,  representations and warranties contained
in this Agreement shall bind Borrower and its successors and assigns,  and shall
inure to the benefit of Bank and its successors and assigns. Notwithstanding the
foregoing, Borrower may not assign any of its rights hereunder.

     12.06 All rights and remedies of Bank hereunder  shall be  cumulative,  and
may be exercised by Bank, in its sole discretion, at any time, in any manner and
in any order.

     12.07 If any  provisions  of this  Agreement  shall be  deemed  illegal  or
unenforceable for any reason, such illegality or  unenforceability  shall relate
solely to such provision and shall not affect the remainder of this Agreement.

     12.08 This Agreement shall be construed and enforced in accordance with the
laws of the  Commonwealth of  Massachusetts  except with respect to the recorded
real estate documents which will be construed in accordance with the laws of the
State of Connecticut.

     12.09 This Agreement shall take effect as an instrument under seal.

     12.10 The captions herein contained are inserted as a matter of convenience
only and such  captions  do not form a part of this  Agreement  and shall not be
utilized in the construction hereof.

<PAGE>


                                  ARTICLE XIII

                                Jury Trial Waiver

     13.01  BORROWER  WAIVES ANY RIGHT TO TRIAL BY JURY BORROWER MAY HAVE IN ANY
ACTION OR  PROCEEDING,  IN LAW OR EQUITY,  IN  CONNECTION  WITH THIS  AGREEMENT.
BORROWER AND BANK EACH HEREBY KNOWINGLY,  VOLUNTARILY AND  INTENTIONALLY  WAIVES
ANY  RIGHT IT MAY NOW OR  HEREAFTER  HAVE TO A TRIAL BY JURY IN  RESPECT  OF ANY
SUIT,  ACTION OR PROCEEDING  ARISING OUT OF, UNDER,  OR IN CONNECTION  WITH THIS
AGREEMENT. BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF BANK HAS
REPRESENTED,  EXPRESSLY OR  OTHERWISE,  THAT BANK WOULD NOT, IN THE EVENT OF ANY
SUCH SUIT,  ACTION OR  PROCEEDING,  SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY
TRIAL PROVISION.  BORROWER ACKNOWLEDGES THAT BANK HAS BEEN INDUCED TO ENTER INTO
THIS  AGREEMENT  WITH  BORROWER BY, AMONG OTHER THINGS,  THE  PROVISIONS OF THIS
PARAGRAPH.

     EXECUTED  as an  instrument  under seal as of the day and year first  above
written.

WITNESS:                           USTrust


_________________________          By   _______________________________________
                                        James H. Herzog, Jr.
                                        Vice President

                                                Thermodynetics, Inc.


_________________________          By   _______________________________________
                                        Robert I. Lieberman
                                        Treasurer and Chief Financial Officer