Amended and Restated
                               Security Agreement

THIS  AGREEMENT  is made this 28th day of  January,  2000,  between  First Union
National Bank (successor by merger to CoreStates Bank,  N.A.), for itself and as
administrative  agent for the "Lenders" (the "Bank"), and Vermont Pure Holdings,
Ltd.  (the  "Debtor").

     1.   DEFINITIONS.  As used herein and in any separate agreement between the
          Bank and the Debtor in connection with this  Agreement.

          (a)  "Account"  means any right to payment for goods sold or leased or
               for services  rendered which is not evidenced by an Instrument or
               Chattel  Paper,  whether or not it has been earned by performance
               including all rights to payment under a charter or other contract
               involving the use or hire of a vessel and all rights  incident to
               such charter or contract.

          (b)  "Qualified  Account" means any Account  meeting all the following
               specifications:  (i)  it is  lawfully  owned  by the  Debtor  and
               subject to no lien,  security interest or prior  assignment,  and
               the Debtor has the right of  assignment  thereof and the power to
               grant  a  security  interest  therein;  (ii)  it is a  valid  and
               enforceable Account,  representing the undisputed indebtedness of
               an Account  Debtor to the Debtor;  (iii) it is not subject to any
               defense, set-off, counter-claim, credit, allowance or adjustment;
               (iv) no  substantial  part of any  goods,  the sale of which  has
               given rise to the Account, has been returned,  rejected,  lost or
               damaged;  (v) if it arises  from the sale of goods by the Debtor,
               such  sale  was an  absolute  sale and not on  consignment  or on
               approval  or on a sale or return  basis nor  subject to any other
               repurchase or return agreement,  and such goods have been shipped
               to the Account Debtor;  (vi) if it arises from the performance of
               services,  such services have actually been  performed;  (vii) it
               arose in the ordinary course of the Debtor's business;  (viii) no
               notice   of   the   Bankruptcy,   receivership,   reorganization,
               insolvency,  or financial embarrassment of the Account Debtor has
               been  received;  (ix) the Account  Debtor is not a subsidiary  or
               affiliate of the Debtor,  does not control the Debtor, and is not
               under the control of or under common control with the Debtor; and
               (x) the Account meets such other  specifications and requirements
               which  may from  time to time be  established  by the  Bank.

          (c)  "Account  Debtor" means the Person who is obligated on an Account
               or General  Intangible.

          (d)  "Chattel Paper" means a writing or writings which evidence both a
               monetary  obligation  and a  security  interest  in or a lease of
               specific goods.

          (e)  "Collateral" means (i) all of the Debtor's Inventory now owned or
               hereafter  acquired;  (ii) all of the Debtor's Documents of Title
               now  owned  or  hereafter  acquired;  (iii)  all of the  Debtor's
               Accounts  now  existing  or  hereafter  arising;  (iv) all of the
               Debtor's Farm Products now existing or hereafter arising; (v) all
               of the Debtor's Investment Property, General Intangibles, Chattel

<PAGE>

               Paper and  Instruments  now  existing  or  hereafter  acquired or
               arising;  (vi) all guarantees of the Debtor's existing and future
               Accounts and General  Intangibles  and all other security held by
               the Debtor for the  payment or  satisfaction  thereof;  (vii) the
               goods or the services,  the sale or lease or performance of which
               gave rise to any  Account or General  Intangible  of the  Debtor,
               including  any  returned  goods;   (viii)  all  of  the  Debtor's
               Equipment  now owned or hereafter  acquired;  (ix) any balance or
               share  belonging  to the Debtor of any  deposit,  agency or other
               account  with any bank and any other  amounts  which may be owing
               from time to time by any bank to the  Debtor;(x)  all property of
               any  nature  whatsoever  of the Debtor  now or  hereafter  in the
               possession  of or  assigned or  hypothecated  to the Bank for any
               purpose; (xi) all of the Debtors rights,  privileges and licenses
               relating to springs,  spring  rights,  water rights and rights to
               extract water from any property; and (xii) all Proceeds of all of
               the  foregoing,  including  all  Proceeds of other  Proceeds.

          (f)  "Debtor"  means the Person who executes  this  Agreement as such.
               The Debtor may be either a borrower  from the Bank or a guarantor
               of the indebtedness of another to the Bank, and in either case is
               the Person obligated to pay the Liabilities  secured hereby.

          (g)  "Document of Title" means a bill of lading,  dock  warrant,  dock
               receipt,  warehouse  receipt or order for the  delivery of goods,
               and also  any  other  document  which in the  regular  course  of
               business or financing is treated as  adequately  evidencing  that
               the Person in possession  of it is entitled to receive,  hold and
               dispose of the document and the goods it covers.

          (h)  "Equipment"  means tangible  personal property held by the Debtor
               for use primarily in business and includes equipment,  machinery,
               furniture,  fixtures,  dies, tools, and all accessories and parts
               now or hereafter affixed thereto.

          (i)  "Farm  Products"  means crops or  livestock  or supplies  used or
               produced in farming  operations or products of crops or livestock
               in their unmanufactured states (such as ginned cotton,  woolclip,
               maple syrup,  milk and eggs),  if they are in the possession of a
               Debtor  engaged in raising,  fattening,  grazing or other farming
               operations.

          (j)  "General  Intangibles"  means personal property of every kind and
               description of Debtor other than goods, Accounts,  Chattel Paper,
               Documents of Title,  Instruments and money,  and includes without
               limitation choses in action, books, records, customer lists, tax,
               insurance  and  other  kinds  of  refunds,  patents,  trademarks,
               copyrights,  trade  names,  plans,  licenses  and other rights in
               personal property.

          (k)  "Instrument"  means a negotiable  instrument or a security or any
               other writing which evidences a right to the payment of money and
               is not  itself a  security  agreement  or lease  and is of a type
               which is, in ordinary course of business, transferred by delivery
               with any necessary  endorsement  or assignment.

          (l)  "Inventory"  means tangible  personal property held by the Debtor
               for sale or lease or to be furnished  under contracts of service,
               tangible  personal  property  which the  Debtor  has so leased or

                                      -2-

<PAGE>

               furnished, and raw materials, work in process and materials used,
               produced  or consumed in  Debtor's  business,  and shall  include
               tangible personal property represented by Documents of Title. All
               equipment, accessories and parts at any time attached or added to
               items  of  Inventory  or used in  connection  therewith  shall be
               deemed to be part of the Inventory.

          (m)  "Investment  Property"  has the meaning given to that term in the
               Pennsylvania  Uniform  Commercial  Code.

          (n)  "Lenders"  has  the  meaning  given  to  that  term  in the  Loan
               Agreement  and  includes,   as  of  the  date  of  this  Security
               Agreement,   First  Union  National  Bank  and  KeyBank  National
               Association.

          (o)  "Liabilities"  means the  "Obligations",  as  defined in the Loan
               Agreement.

          (p)  "Loan  Agreement"  means that certain Amended and Restated Credit
               Agreement dated of even date between Vermont Pure Holdings,  Ltd.
               and Vermont Pure Springs,  Inc.,  as  Borrowers,  and First Union
               National  Bank,  as  Lender  and  administrative  agent  for  the
               Lenders,  as the foregoing  agreement  may be amended,  restated,
               modified or supplemented from time to time.

          (q)  "Person"  means an  individual,  a  corporation,  a government or
               governmental subdivision or agency or instrumentality, a business
               trust,  an estate,  a trust,  a partnership,  a  cooperative,  an
               association,  two or  more  Persons  having  a  joint  or  common
               interest,  or any other legal or commercial entity.

          (r)  "Proceeds  means  whatever is received  when  Collateral is sold,
               exchanged,  collected or otherwise disposed of, including without
               limitation insurance proceeds.

     2.   SECURITY  INTEREST IN  COLLATERAL.  As Security for the payment of the
          Liabilities  the Debtor  hereby  assigns to the Bank and grants to the
          Bank,  and confirms its prior  assignment and granting of, a lien upon
          and security  interest in the Collateral.  Without the written consent
          of the Bank,  the Debtor will not create,  incur,  assume or suffer to
          exist any other liens or security interests in the Collateral,  except
          the liens  and  encumbrances  disclosed  in the  financial  statements
          mentioned in Section 6.1(o) of the Loan Agreement, or set forth on the
          schedule attached as Schedule 10.3 to the Loan Agreement.

     3.   COLLECTION  OF  ACCOUNTS.  The Bank  hereby  authorizes  the Debtor to
          collect  all  Accounts  from the  Account  Debtors.  The  Proceeds  of
          Accounts so collected b y the Debtor shall be received and held by the
          Debtor in trust for the Bank.  After a default  hereunder,  the Debtor
          shall deliver to the Bank within one day of the receipt thereof by the
          Debtor all  Proceeds in the form of cash,  checks,  drafts,  notes and
          other  remittances  received in payment of or on account of any of the
          Debtor's  Accounts.  Such  proceeds  shall be  deposited  in a special
          non-interest  bearing  bank account  (the "Cash  Collateral  Account")
          maintained with the Bank over which the Bank alone shall have power of
          withdrawal.  All  Proceeds  other  than  cash  shall be  deposited  in
          precisely the form in which received,  except for the addition thereto
          of the  endorsement of the Debtor when necessary to permit  collection

                                      -3-

<PAGE>

          of the items,  which endorsement the Debtor agrees to make. The Debtor
          will not commingle  any such  Proceeds with any of the Debtor's  other
          funds or property but will hold them separate and apart from any other
          funds or property and upon an express trust for the Bank until deposit
          thereof is made in the Cash Collateral Account.  Periodically,  at the
          Bank's  discretion,  the  Bank  will  apply  all  or any  part  of the
          collected  Proceeds  of  Accounts  on deposit  in the Cash  Collateral
          Account to the  payment in full or in part of such of the  Liabilities
          and in such order as the Bank may elect. The authority hereby given to
          the Debtor to collect  the  Proceeds of Accounts in trust for the Bank
          may be  terminated  by the Bank at any time.  The Bank  shall have the
          right at any time,  acting if it so chooses in the Debtor's  name,  to
          collect the Debtor's  accounts itself,  to sell,  assign,  compromise,
          discharge or extend the time for payment of any Account,  to institute
          legal action for the collection of any Account, and to do all acts and
          things necessary or incidental thereto. The Debtor hereby ratifies all
          that the Bank  shall do by  virtue  hereof.  The Bank may at any time,
          after  default  hereunder,  without  notice to the Debtor,  notify any
          Account  Debtor that the Account  payable by such  Account  Debtor has
          been  assigned to the Bank and is to be paid  directly to the Bank. At
          the Bank's  request  the Debtor  shall so notify  Account  Debtors and
          shall  indicate  on all  billings  to Account  Debtors  that  payments
          thereon are to be made to the Bank. Without the written consent of the
          Bank, the Debtor shall not compromise,  discharge, extend the time for
          payment of or otherwise grant any indulgence or allowance with respect
          to any Account, except for immaterial discounts,  credits,  rebates or
          reductions  in the ordinary  course of business  consistent  with past
          practice.


     4.   PROCESSING  AND SALES OF  INVENTORY.  So long as the  Debtor is not in
          default  hereunder,  the Debtor  shall have the right,  in the regular
          course of its business, to process and sell its Inventory.

     5.   OTHER  AGREEMENTS  OR DEBTOR.

          (a)  The Debtor shall keep complete and accurate books and records and
               make all  necessary  entries  therein to reflect the  quantities,
               costs,  values and location of its Inventory and  Equipment,  and
               the  transactions  and  facts  giving  rise to its  Accounts  and
               General  Intangibles  and all payments,  credits and  adjustments
               applicable  thereto.  The  Debtor  shall  keep the Bank fully and
               accurately  informed  as to the  location  of all such  books and
               records  pertaining to the Collateral and shall permit the Bank's
               agents to have  access to the same extent as set forth in Section
               8.11 of the Loan Agreement, to all such books and records and any
               other records  pertaining to the Debtor's business which the Bank
               may request and, if deemed necessary by the Bank, after a default
               hereunder,  to remove them from the Debtor's place of business or
               any other  place  where the same may be found for the  purpose of
               examining,  auditing  and copying the same.  Any of the  Debtor's
               books and  records  so  removed  by the  Bank's  agents  shall be
               returned to the Debtor by the Bank as soon as the Bank shall have
               completed  its  inspection,  audit or copying  thereof.  The Bank
               shall have the right to  communicate  with  Account  Debtors  and
               Debtor's accountant to the extent reasonably  necessary to verify
               account balances and any information  provided by the Debtor. The
               Bank's right to take possession of the Debtor's books and records
               pertaining  to the  Collateral  shall  be  enforceable  at law by
               action of replevin or by any other  appropriate  remedy at law or
               in  equity,  and the  Debtor  consents  to the entry of  judicial

                                      -4-

<PAGE>

               orders or injunctions  enforcing such right without any notice to
               the Debtor or any opportunity to be heard.

          (b)  In the event that any lien,  assessment or tax liability  against
               the Debtor shall arise,  whether or not entitled to priority over
               the  security  interest of the Bank  created  hereby,  the Debtor
               shall give prompt notice thereof in writing to the Bank. The Bank
               shall have the right (but  shall be under no  obligation)  to pay
               nay tax or other  liability  of the Debtor  deemed by the Bank to
               affect its interest.  The Debtor shall repay to the Bank any sums
               which the Bank shall have so paid, together with interest thereon
               at the rate payable by the Debtor,  at the time of payment by the
               Bank,  with respect to the Liabilities (or the highest such rate,
               if there be more than one), but in no event less than six percent
               (6%) per annum and the  Debtor's  liability  to the Bank for such
               repayment with interest shall be included in the Liabilities.  In
               addition,  the Bank  shall be  subrogated  to the  extent  of the
               payment made by it to all rights of the recipient of such payment
               against the assets of the Debtor. The Debtor shall furnish to the
               Bank at such  times  as the  Bank may  reasonably  require  proof
               satisfactory  to the Bank of the making of  payments  or deposits
               required by  applicable  law with respect to amounts  withheld by
               the Debtor  from wages and  salaries  of  employees  and  amounts
               contributed  by the Debtor on account of federal and other income
               or wage  taxes  and  amounts  due  under  the  Federal  Insurance
               Contributions  Act.  The Debtor  represents,  warrants and agrees
               that,  in respect to all employee  pension or other benefit plans
               maintained by the Debtor or any of its  subsidiaries,  the Debtor
               is in full  compliance,  and will continue to comply fully,  with
               the Employee  Retirement  Income Security Act of 1974, as amended
               and all rules and  regulations  adopted  thereunder  or  pursuant
               thereto.  The Debtor continuously  represents and warrants to the
               Bank that all  Collateral  consisting  of goods has been and will
               continue to be produced in compliance  with the  requirements  of
               the Fair Labor  Standards  Act,  including  Sections  206 and 207
               thereof,  and will  immediately  notify  Bank if  Debtor  has any
               reason to believe otherwise.

          (c)  If any of the Debtor's Accounts or General Intangibles arises out
               of a contract with the United States or any department, agency or
               instrumentality  thereof,  the Debtor will immediately notify the
               Bank thereof in writing and execute any  instruments and take any
               steps required by the Bank in order that the security interest of
               the Bank hereunder in the Debtor's General Intangibles under such
               contract  and  in  all  Accounts  arising  thereunder  and in the
               Proceeds  thereof shall be perfected  under the provisions of the
               Federal  Assignment  of Claims  Act.

          (d)  If any of the  Debtor's  Accounts  is or becomes  evidenced  by a
               promissory  note, a trade  acceptance or any other instrument for
               the  payment of money,  the Debtor  will  promptly  deliver  such
               instrument  to the  Bank  appropriately  endorsed  to the  Bank's
               order.  Regardless  of the form of such  endorsement,  the Debtor
               hereby waives presentment,  demand,  notice of dishonor,  protest
               and notice of protest and all other notices with respect thereto.


          (e)  The Debtor will keep its Inventory and Equipment  insured against
               such casualties and in such amounts as the Bank shall  reasonably
               require.  All insurance policies shall be written for the benefit
               of the  Debtor as the  insured,  and shall  name the Bank as loss

                                      -5-

<PAGE>

               payee,  and such  policies  shall be delivered to and held by the
               Bank.  All such policies of insurance  shall provide for at least
               ten  days'  advance   notice  in  writing  to  the  Bank  of  any
               cancellation  thereof,  and shall insure Bank notwithstanding the
               act or neglect to act of Debtor.  If the Debtor  fails to pay the
               premiums  on any such  insurance,  the Bank  shall have the right
               (but shall be under no  obligation)  to pay such premiums for the
               Debtor's  account.  The Debtor  shall  repay to the bank any sums
               which the Bank shall have so paid, together with interest thereon
               at the rate payable by the Debtor,  at the time of payment by the
               Bank,  with respect to the Liabilities (or the highest such rate,
               if there be more than one), but in no event less than six percent
               (6%) per annum and the  Debtor's  liability  to the Bank for such
               repayment with interest shall be included in the Liabilities. The
               Debtor hereby assigns to the Bank any return or unearned  premium
               which may be due upon  cancellation  of any such policies for any
               reason whatsoever and directs the insurers to pay to the Bank any
               amounts so due.  The Debtor's  rights to receive  payment of such
               return  or  unearned  premiums  and  the  proceeds  of  any  such
               insurance  are  included in the  Liabilities.  The Debtor  hereby
               assigns to the Bank any return or unearned  premium  which may be
               due  upon  cancellation  of any  such  policies  for  any  reason
               whatsoever  and  directs  the  insurers  to pay to the  Bank  any
               amounts so due.  The Debtor's  rights to receive  payment of such
               return  or  unearned  premiums  and  the  proceeds  of  any  such
               insurance  are included in the  Accounts and General  Intangibles
               which are hereby subjected to a security interest.

          (f)  The Debtor will  maintain  the  equipment in good  condition  and
               repair  (subject to ordinary wear and tear) and will pay the cost
               of  repairs  to or  maintenance  of the same and will not  permit
               anything  to be done that may impair the value of the  Equipment.


          (g)  Upon  default  hereunder,  the Bank  shall have the right to take
               possession of any Inventory and the Debtor hereby  assigns tot he
               Bank  its  right of  stoppage  in  transit  with  respect  to any
               Inventory.  All costs of  transportation,  packing,  storage  and
               insurance  of any  Inventory  which  the Bank  may take  into its
               possession  shall be  promptly  repaid to the Bank by the Debtor,
               together with interest thereon at the rate payable by the Debtor,
               at  the  time  of  payment  by  the  Bank,  with  respect  to the
               Liabilities  (or the  highest  such  rate,  if there be more than
               one),  but in no event less than six  percent  (6%) per annum and
               the  Debtor's  liability  to the  Bank for  such  repayment  with
               interest  shall be  included  in the  Liabilities.  If any oft he
               Debtor"  Inventory  is or becomes  represented  by a Document  of
               Title,  the Bank may  require  that such  Document of Title be in
               such  form as to  permit  the Bank or anyone to whom the Bank may
               negotiate   the  same  to  obtain   delivery  of  the   Inventory
               represented  thereby, and that it b delivered into the possession
               of the Bank.

          (h)  At such  intervals  as the Bank may  require,  the  Debtor  shall
               submit  to the Bank a  schedule  reflecting  in form  and  detail
               reasonably  satisfactory  to the  Bank the  quantities,  cost and
               value of its Inventory and Equipment,  and the amounts of all its
               outstanding  Accounts  and the amount of the  Accounts  which are
               Qualified Accounts and the value of all its General  Intangibles.
               The Bank may also require the Debtor to submit to the Bank copies

                                      -6-

<PAGE>

               of the  invoices  pertaining  to all or any of its  Accounts  and
               evidence  of  shipment  of the  Inventory  the sale or leasing of
               which  have  given rise to such  Accounts.

          (i)  The Debtor shall  promptly  notify the Bank of any event  causing
               deterioration,  loss or  depreciation in value of any substantial
               portion of the Debtor's Inventory and Equipment and the amount of
               such loss or  depreciation.  The Debtor  shall  permit the Bank's
               agents to have access to its Inventory and Equipment from time to
               time, as reasonably requested by the Bank, or at any time after a
               default hereunder, for purposes of examination,  inspection,  and
               appraisal  thereof  and  verification  of  the  Debtor's  records
               pertaining thereto.  Upon default by the Debtor, the Debtor shall
               assemble the Inventory  and Equipment and make them  available to
               the Bank at such place as may be  designated by the Bank which is
               reasonably  convenient  to both  parties.  At the  request of the
               Bank,  the Debtor shall lease  warehousing  space in the Debtor's
               own premises to the Bank for the purpose of taking any  Inventory
               into the custody of the Bank  without  removal  thereof from such
               premises  and will erect such  structures  and post such signs as
               the Bank may require in order to place such  Inventory  under the
               exclusive  control  of the Bank.

          (j)  The Debtor  will  promptly  notify  the Bank (i) of any  material
               adverse  change in the  Debtor's  financial  condition  or in the
               financial   condition   of   any   Account   Debtor   or  in  the
               collectibility  of any  of  its  Accounts,  (ii)  of all  claims,
               rejections,  returns  and  adjustments  which  may  result  in  a
               reduction of the  liability of any Account  Debtor on an Account,
               and which have a material  adverse  effect on Debtor's  financial
               condition,  and (iii) of any Qualified  Account which shall cease
               for any  reason  to meet  the  specifications  fixed  hereby  for
               Qualified  Accounts.

          (k)  The Debtor warrants that the Debtor's chief executive  office and
               all of its  offices  where it keeps its  records  concerning  the
               Collateral,  all  locations at which it keeps its  Inventory  and
               Equipment  and all  locations  at which it  maintains  a place of
               business are listed in Section 18 hereof. Debtor further warrants
               that Debtor has no plans for the removal of the Collateral to any
               location not set forth in Section 18. The Debtor  shall  promptly
               notify the Bank in writing  of any change in the  Debtor's  name,
               chief executive  office or the location of the Debtor's  records,
               of any change in the location of the Collateral, of any change in
               the location of any place of business and of the establishment of
               any new place of business. If any of the Collateral or any of the
               Debtor's records  concerning the Collateral are at any time to be
               located on premises  leased by the Debtor or on premises owned by
               the Debtor, subject to a mortgage or other lien, the Debtor shall
               obtain and  deliver  to the Bank,  prior to the  delivery  of any
               Collateral or records concerning the Collateral to said premises,
               an  agreement  in form  satisfactory  to the  Bank,  waiving  the
               landlord's or mortgagee's or  lienholder's  rights to enforce any
               claim against the Debtor for moneys due under the lease, mortgage
               or other lien by levy of distraint or other  similar  proceedings
               against the  Collateral or the Debtor's  records  concerning  the
               Collateral  and assuring the Bank's ability to have access to the
               Collateral and the Debtor's records  concerning the Collateral in
               order  to  exercise  its  rights  hereunder  to  take  possession
               thereof.

                                      -7-
<PAGE>

          (l)  The Debtor shall pay to the Bank on demand,  with interest at the
               rate  payable by the Debtor,  at the time of payment by the Bank,
               with respect to the  Liabilities  (or the highest  such rate,  if
               there be more than one),  but in no event  less than six  percent
               (6%)  per  annum,  any and  all  expenses  (including  reasonable
               attorney's  fees and legal  expenses,  filing fees,  searches and
               termination costs),  which may have been incurred by the Bank (i)
               to enforce  payment of any  Account  or to  enforce  any  General
               Intangibles  or to  enforce  any of the  Liabilities,  whether as
               against an Account Debtor,  the Debtor or any guarantor or surety
               of  any  Account  Debtor  or  of  the  Debtor;  or  (ii)  in  the
               enforcement,  prosecution or defense of any action growing out of
               or  connected  with the  subject  matter of this  Agreement,  the
               Liabilities,  the  Collateral or any of the Bank's rights therein
               or thereto;  (iii) in connection with the custody,  preservation,
               use,  operation,  preparation for sale or sale of any Collateral;
               or (iv) in connection  with  preparation  and  completion of this
               Agreement and any and all related  agreements and consummation of
               the financing  arrangements described herein and any modification
               or  extension  hereof;  or (v) with  respect to the  enforcement,
               protection or preservation from time to time of the Bank's rights
               under this Agreement or with respect the Collateral. The Debtor's
               liability to the Bank for such  repayment  with interest shall be
               included in the Liabilities and is secured by the Collateral.

          (m)  The Debtor shall provide the Bank with all  financial  statements
               or other financial documents as and when required under this Loan
               Agreement.  The Debtor  further  covenants  and agrees to execute
               from time to time any and all agreements and documents (including
               financing  statements)  which  the Bank may  request  in order to
               perfect its lien on the  Collateral  and otherwise  carry out the
               provisions of this Agreement.  The Debtor further  authorizes the
               Bank to file a carbon, photographic or other reproduction of this
               Agreement or a financing  statement  previously  filed under this
               Agreement  as a  financing  statement  in  any  jurisdiction.  If
               certificates  of title are issued or outstanding  with respect to
               any of  the  Collateral,  the  Debtor  will  cause  the  security
               interest  of the  Bank to be  properly  noted  thereon  and  will
               promptly  deliver such  certificates to the Bank.

          (n)  Without the prior written  consent of the Bank,  the Debtor shall
               not  sell or  otherwise  dispose  of its  Equipment,  other  than
               dispositions  made in the ordinary course of business of obsolete
               or worn out  equipment,  and,  except in the  ordinary  course of
               business, the Debtor shall not sell or dispose of its Inventory.

     6.   ENVIRONMENTAL  MATTERS.

          (a)  As used in this  Agreement,  the  following  terms shall have the
               following  meanings:  (i) "Environmental  Laws" means any and all
               applicable federal, state and local environmental laws, rules and
               regulations whether now or existing or hereafter enacted together
               with all amendments,  modifications and supplements  thereof; and
               (ii)  "Hazardous  Materials"  means any  contaminants,  hazardous
               substances,  regulated substances,  or hazardous wastes which may
               be the subject of liability  pursuant to any  Environmental  Law.


          (b)  The  Debtor  represents  and  warrants  that  to the  best of its
               knowledge,  no  property  owned or  leased  by the  Debtor or any
               subsidiary  of the Debtor is in  violation  of any  Environmental

                                      -8-

<PAGE>

               Laws,  no  Hazardous  Materials  are present on said  property in
               violation of any Environmental Law and neither the Debtor nor nay
               subsidiary of the Debtor has been  identified in any  litigation,
               administrative  proceedings  or  investigation  as a  responsible
               party for any liability  under and  Environmental  Laws.

          (c)  The Debtor shall not use, generate,  treat, store,  dispose of or
               otherwise  introduce,  or permit any subsidiary to use, generate,
               treat, store,  dispose of or otherwise  introduce,  any Hazardous
               Materials  into or on any property owned or leased by the Debtor,
               and will not,  and will not  permit  any  subsidiary  to,  cause,
               suffer,  allow  or  permit  anyone  else to do so,  except  in an
               environmentally  safe  manner  through  methods  which  have been
               approved  by  and  meet  all  of the  standards  of  the  federal
               Environmental  Protection Agency and any other federal,  state or
               local agency with  authority to enforce  Environmental  Laws. The
               Debtor  hereby agrees to  indemnify,  reimburse,  defend and hold
               harmless  the  Bank  and  its  directors,  officers,  agents  and
               employees  ("Indemnified  Parties")  for,  from and  against  all
               demands,  liabilities,  damages,  costs, claims,  suits, actions,
               legal or administrative  proceedings,  interest, losses, expenses
               and  reasonable  attorney's  fees  (including  any such  fees and
               expenses incurred in enforcing this indemnity)  asserted against,
               imposed  on or  incurred  by  any  of  the  Indemnified  Parties,
               directly  or  indirectly  pursuant to or in  connection  with the
               application  of any  Environmental  Law,  to  acts  or  omissions
               occurring at any time on or in connection with any property owned
               or leased by the  Debtor or any  subsidiary  of the Debtor or any
               business conducted thereon.

     7.   DEFAULT.  The Debtor shall be in default hereunder upon the occurrence
          of any "Event of Default" as defined in the Loan Agreement  (after the
          expiration of any applicable notice and cure periods).

     8.   ACCELERATION AND ENFORCEMENT  RIGHTS.  Whenever the Debtor shall be in
          default as  aforesaid,  (i) the Bank may  declare  the  entire  unpaid
          amount of such of the  Liabilities  as are not then due and payable to
          become  immediately due and payable without notice to or demand on any
          Obligor;  and (ii) the Bank may at its  option  exercise  from time to
          time nay or all rights and remedies  available to it under the Uniform
          Commercial Code or otherwise  available to it,  including the right to
          collect, receipt for, settle,  compromise,  adjust, sue for, foreclose
          or otherwise  realize upon any of the Collateral and to dispose of any
          of the Collateral at public or private  sale(s) or other  proceedings,
          with or without advertisement,  and the Debtor agrees that the Bank or
          its nominee may become the purchaser at any such  sale(s).  Bank shall
          have the unconditional  right to retain and obtain the full benefit of
          all  Collateral  until all  Liabilities  of the Debtor to the Bank are
          paid  and  satisfied  in  full.  If  nay   notification   of  intended
          disposition of the Collateral is required by law, such notice shall be
          deemed  reasonable fi mailed at least 10 days before such  disposition
          addressed  to the  Debtor at its  Address  shown  herein.  If any Note
          secured hereby is payable on demand,  Bank's right to require  payment
          shall not be restricted or impaired by the absence,  non-occurrence or
          waiver of an Event of Default,  and it is understood that if such Note
          is payable on demand, the Bank may require payment at any time.

                                      -9-
<PAGE>

     9.   APPLICATION OF COLLATERAL.  The Proceeds of any Collateral received by
          the Bank at any time  before or after  default,  whether  from sale or
          Collateral or  otherwise,  may be applied to the payment in full or in
          part of such of the  Liabilities  and in such  order  as the  Bank may
          elect.  The  Debtor,  to the extent  that it has any  right,  title or
          interest in any of the Collateral,  authorized Bank to proceed against
          the  Collateral  in nay order that Bank may  determine  and waives and
          releases  any  right  to  require  the  Bank  to  collect  any  of the
          Liabilities  from any source other than from the Collateral  under any
          theory of  marshalling  of  assets,  or  otherwise,  and  specifically
          authorizes the Bank to proceed  against any of the Collateral in which
          the Debtor has a right,  title or interest  with respect to any of the
          Liabilities in any manner that the Bank may determine.

     10.  POWER OF ATTORNEY. The Debtor does hereby appoint any officer or agent
          of the Bank as the  Debtor's  true and lawful  attorney-in-fact,  with
          power to  endorse  the name of the  Debtor  upon  any  notes,  checks,
          drafts,  money orders,  or other  instruments of payment or Collateral
          that may come into possession of Bank; to sign and endorse the name of
          the Debtor  upon any  invoices,  freight or  express  bills,  bills of
          lading, storage or warehouse receipts, drafts against Account Debtors,
          assignments,  verifications  and notices in connection  with Accounts,
          and any instruments or documents  relating  thereto or to the Debtor's
          rights  therein;  and to  give  written  notice  to  such  office  and
          officials of the United States Postal Service to effect such change or
          changes  of address  so that all mail  addressed  to the Debtor may be
          delivered  directly  to Bank (Bank will return all mail not related to
          the  Liabilities  or the  Collateral);  granting  unto  Debtor's  said
          attorney full power to do any and all things necessary to be done with
          respect to the above  transactions  as fully and effectually as Debtor
          might or could do, and hereby  ratifying all that said attorney  shall
          lawfully  do or  cause  to be done by  virtue  hereof.  This  power of
          attorney shall be  irrevocable  for the term of this Agreement and all
          transactions hereunder.

     11.  TERM. The term of this  Agreement  shall commence with the date hereof
          and end upon the full and final  payment of the  Liabilities,  and the
          Bank shall  deliver to Debtor,  at the Debtor's  request,  such of the
          Collateral  as shall  not have  been  sold or  otherwise  disposed  of
          pursuant to this Agreement or the Loan Agreement.

     12.  SUCCESSORS  AND  ASSIGNS.  All  provisions  herein shall inure to, and
          become binding upon, the heirs, executors, administrators, successors,
          representatives,  receivers,  trustees  and  assigns  of the  parties,
          provided,  however, that this Agreement shall not be assignable by the
          Debtor without the prior written approval of the Bank.

     13.  THE DEBTOR'S  AUTHORITY AND CAPACITY,  ETC. The Debtor  represents and
          warrants that the Bank is obtaining and shall  maintain at all times a
          first  lien  on all of the  Collateral,  except  as  disclosed  by the
          financial statements mentioned in Section 6.1(o) of the Loan Agreement
          or as set forth on the Schedule  attached as Schedule 10.3 to the Loan
          Agreement.  If  the  Debtor  is  a  corporation,  the  Debtor  further
          represents  and  warrants  that  it  is  duly  organized,  validly  in
          existence and in good standing in its state of  incorporation  and any
          other  state  where the  nature or  extent  of its  business  requires
          qualification,  that the  execution and  performance  by the Debtor of
          this  Agreement  and  any  related  agreements  is  authorized  by the
          Debtor's  Board of  Directors  and does not  violate  the  Articles of
          Incorporation  or  By-Laws  of the  Debtor or any other  Agreement  or
          contract  by which the  Debtor is bound.  The  Debtor  represents  and
          warrants  that  this  Agreement  is  the  legal,   valid  and  binding

                                      -10-

<PAGE>

          obligation of the Debtor enforceable  against the Debtor in accordance
          with its terms.

     14.  CONSENT TO JURISDICTION AND VENUE. IN ANY LEGAL PROCEEDING  INVOLVING,
          DIRECTLY OR  INDIRECTLY,  ANY MATTER ARISING OUT OF OR RELATED TO THIS
          AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER,  EACH UNDERSIGNED
          PARTY HEREBY IRREVOCABLY  SUBMITS TO THE NONEXCLUSIVE  JURISDICTION OF
          ANY STATE OR FEDERAL COURT  LOCATED IN ANY COUNTY IN THE  COMMONWEALTH
          OF  PENNSYLVANIA  WHERE THE BANK MAINTAINS AN OFFICE AND AGREES NOT TO
          RAISE  ANY  OBJECTION  TO  SUCH  JURISDICTION  OR  TO  THE  LAYING  OR
          MAINTAINING OF THE VENUE OF ANY SUCH  PROCEEDING IN SUCH COUNTY.  EACH
          UNDERSIGNED   PARTY  AGREES  THAT  SERVICE  OF  PROCESS  IN  ANY  SUCH
          PROCEEDING MAY BE DULY EFFECTED UPON ITS BY MAILING A COPY THEREOF, BY
          REGISTERED MAIL, POSTAGE PREPAID, TO EACH UNDERSIGNED PARTY.

     15.  WAIVER OF JURY TRIAL.  EACH UNDERSIGNED  PARTY HEREBY WAIVES,  AND THE
          BANK BY ITS  ACCEPTANCE  HEREOF THEREBY  WAIVES,  TRIAL BY JURY IN ANY
          LEGAL  PROCEEDING  INVOLVING,   DIRECTLY  OR  INDIRECTLY,  ANY  MATTER
          (WHETHER  SOUNDING IN TORT,  CONTRACT OR OTHERWISE) IN ANY WAY ARISING
          OUT OF OR RELATED TO THIS  AGREEMENT OR THE  RELATIONSHIP  ESTABLISHED
          HEREUNDER.  THIS  PROVISION IS A MATERIAL  INDUCEMENT  FOR THE BANK TO
          ENTER INTO, ACCEPT OR RELY UPON THIS AGREEMENT.

     16.  MISCELLANEOUS.  The construction and  interpretation of this Agreement
          and all agreements  shall be governed by the laws of the  Commonwealth
          of   Pennsylvania.   No  modification   hereof  shall  be  binding  or
          enforceable  unless in writing  and signed by the party  against  whom
          enforcement  is  sought.   If  any  provision  of  this  Agreement  is
          determined to be unenforceable or invalid,  such  determination  shall
          not affect or impair the  remaining  provisions of the  Agreement.  No
          rights are  intended  to be created  hereunder  for the benefit of any
          third party  beneficiary  hereof.  The  individual  signatory(ies)  on
          behalf of the Debtor  represents that he(they)  is(are)  authorized to
          execute  this  Agreement  on  behalf  of the  Debtor.  This  Agreement
          supplements  the Debtor's  obligations  under any promissory  notes or
          separate  agreements with the Bank. This Security Agreement amends and
          restates,  but does not supercede the Liabilities or other obligations
          of the Debtor under,  that previous  security  agreement  executed and
          delivered  by  the    Debtor    to    CoreStates     Bank,    N.A.,
          predecessor-in-interest to First Union National Bank on or about April
          8, 1998.

     17.  LOCATIONS  OF DEBTOR.  The Debtor  represents  and  warrants  that the
          following addresses (together with any additional  addresses which may
          be shown on any  attached  schedule)  correctly  set  forth all of the
          locations where the Debtor maintains a place of business,  its records
          or  the  Collateral.

          Chief Executive Office:

                                      -11-
<PAGE>

               Route66, Paramount Industrial Park,
               Randolph, Vermont 05060

          Other Locations: None.

     18.  NAME OF DEBTOR.  The Debtor  represents  and warrants that the name of
          the Debtor shown on this Agreement is the correct,  full legal name of
          the Debtor and that the Debtor has not at any time  changed  its name,
          identity or corporate structure,  been the surviving  corporation in a
          merger,  acquired any other business,  or engaged in business under an
          assumed name or trade name except as set forth below.

IN WITNESS WHEREOF,  this Agreement has been duly executed by the parties hereto
under seal and  intending  to be legally  bound on the day and year first  above
written.

                                        First Union  National Bank  (successor
                                        by merger to CoreStates Bank, N.A.), for
                                        itself and as administrative agent for
                                        the "Lenders"


VERMONT PURE HOLDINGS, LTD.
-------------------------------------  By--------------------------------------
(Name of Corporate or Partnership        (Signature)
 Debtor)


By-----------------------------------  ----------------------------------------
  Timothy Fallon, Chief Executive      David W. Mills, Vice President
  Officer and President


-------------------------------------  Address
 Bruce MacDonald, Chief Financial
 Officer and Secretary


                                      -12-