LOAN AGREEMENT

                          Dated as of December 1, 1999

                                     Among

                     VERMONT ECONOMIC DEVELOPMENT AUTHORITY

                                      and

                          VERMONT PURE HOLDINGS, LTD.

                                      and

                           VERMONT PURE SPRINGS, INC.

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                              TABLE OF CONTENTS

                                                                            Page

ARTICLE I ............      DEFINITIONS                                        2
Section 1.01  ........      Definitions                                        2
Section 1.02  ........      Content of Certificates and Opinions               2
Section 1.03  ........      Interpretation                                     3
ARTICLE II ...........      THE LOAN; USE OF PROCEEDS                          3
Section 2.01  ........      Loan of Funds to the Company                       3
Section 2.02  ........      Use of Proceeds                                    3
Section 2.03  ........      Establishment of Completion Date                   3
Section 2.04  ........      Covenants for Benefit of Bondholders and Bank      4
ARTICLE III ..........      PAYMENT PROVISIONS                                 4
Section 3.01  ........      Loan Payments                                      4
Section 3.02  ........      Letters of Credit                                  5
Section 3.03  ........      Time of Loan Payments                              5
Section 3.04  ........      Additional Payments; Taxes; Utility Charges        6
Section 3.05  ........      Acceleration of Payment to Redeem Bonds            7
Section 3.06  ........      No Defense or Set-Off                              7
Section 3.07  ........      Termination Upon Payment or Defeasance of Bonds    7
Section 3.08  ........      Assignment of Authority's Rights                   8
Section 3.09  ........      Assignment by Company                              8
Section 3.10  ........      Indemnity Against Claims                           8
Section 3.11  ........      Authority is Conduit Issuer; Company is Real
                            Party in Interest; Covenant Not to Sue            10
ARTICLE IV    ........      COMPANY OBLIGATIONS; ASSIGNMENT TO TRUSTEE        10
Section 4.01  ........      General Obligation of the Company                 10
Section 4.02  ........      Assignment to Trustee                             10
Section 4.03  ........      Maintenance and Operation of the Project
                            Facilities                                        11
Section 4.04  ........      Maintenance of Existence                          11
Section 4.05  ........      Compliance with Laws                              11
Section 4.06  ........      Notice of Bankruptcy Case Commencement            12
Section 4.07  ........      Substitute Letter of Credit                       12

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                               TABLE OF CONTENTS
                                  (continued)

                                                                            Page

ARTICLE V     ........      TAX MATTERS                                       12
Section 5.01  ........      Prohibited Uses                                   12
Section 5.02  ........      Covenants and Representations with Respect
                            to Arbitrage                                      13
ARTICLE VI    ........      INSURANCE; DESTRUCTION, DAMAGE, EMINENT DOMAIN    13
Section 6.01  ........      Insurance to be Maintained                        13
Section 6.02  ........      Destruction, Damage and Eminent Domain            13
Section 6.03  ........      Notice of Property Loss                           14
Section 6.04  ........      Disposition of Casualty Insurance and
                            Condemnation Award Proceeds                       14
ARTICLE VII   ........      ADDITIONAL COVENANTS OF THE COMPANY               14
Section 7.01  ........      Compliance with Laws                              14
Section 7.02  ........      Power to Perform Obligations                      15
Section 7.03  ........      Inspection                                        15
Section 7.04  ........      Additional Information                            15
ARTICLE VIII  ........      EVENTS OF DEFAULT AND REMEDIES                    15
Section 8.01  ........      Events of Default                                 15
Section 8.02  ........      Acceleration                                      16
Section 8.03  ........      Payment of Loan Payments on Default;
                            Suit Therefor                                     16
Section 8.04  ........      Other Remedies                                    17
Section 8.05  ........      Waiver                                            17
Section 8.06  ........      Cumulative Rights                                 17
Section 8.07  ........      No Exercise of Remedies Without Consent of Bank   18
Section 8.08  ........      Determination of Taxability Not a Default         18
ARTICLE IX    ........      OPTIONS TO TERMINATE AGREEMENT                    18
Section 9.01  ........      Option to Terminate Upon Defeasance               18
Section 9.02  ........      Option to Terminate Upon the Occurrence
                            of Certain Events                                 18
ARTICLE X     ........      MISCELLANEOUS                                     20
Section 10.01 ........      Approval of Indenture                             20
Section 10.02 ........      Illegal Provisions Disregarded                    20
Section 10.03 ........      Limitation of Liability of the Agency             20

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                               TABLE OF CONTENTS
                                  (continued)

                                                                            Page

Section 10.04 ........      No Recourse as to the Agency                      20
Section 10.05 ........      Reference to Statute or Regulation                21
Section 10.06 ........      Notices                                           21
Section 10.07 ........      Applicable Law                                    22
Section 10.08 ........      Amendments                                        22
Section 10.09 ........      Term of Agreement                                 22
Section 10.10 ........      Amounts Remaining in Bond Fund                    22
Section 10.11 ........      Survival of Covenants, Conditions and
                            Representations                                   22
Section 10.12 ........      Multiple Counterparts                             22
Section 10.13 ........      Consent                                           22

















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     THIS LOAN  AGREEMENT  dated December 1, 1999 (the  "Agreement"),  is by and
among  VERMONT  ECONOMIC  DEVELOPMENT   AUTHORITY  (with  its  successors,   the
"Authority"),  VERMONT PURE  HOLDINGS,  LTD., a Delaware  corporation  (with its
successors,  "Holdings") and VERMONT PURE SPRINGS,  INC., a Delaware corporation
(with  its  successors,   "Springs,"  and,   collectively  with  Holdings,   the
"Company").

                              W I T N E S S E T H :

     WHEREAS,  the  Authority  is a body  corporate  and  politic  and a  public
instrumentality  of the State,  organized  and  existing  under the Act,  and is
authorized under the Act to finance industrial facilities; and

     WHEREAS,  the Company has requested the Authority to finance a project (the
"Project")  that consists of, among other things (i)  construction,  acquisition
and improvement of an approximately 38,000 square foot addition to the Company's
existing spring water  production and bottling  facility  located on Route 66 in
the Catamount Industrial Park within the Town of Randolph, together with related
machinery and equipment therefor; and (ii) the payment of a portion of the costs
of issuance of the Bonds; and

     WHEREAS,  in order to provide funds for and toward the payment of a portion
of the costs of the Project,  the Authority has authorized the issuance and sale
of its Bonds; and

     WHEREAS,  the Bonds are to be issued under and secured by a Trust Indenture
dated as of December 1, 1999 (the  "Indenture")  between the  Authority  and the
Trustee; and

     WHEREAS,  this Agreement provides that the Authority will loan the proceeds
of the Bonds to the Company to finance  the Project and the Company  will agree,
among other things, to repay the loan in installments  equal to payments of debt
service on the Bonds when due; and

     WHEREAS,  the Trustee has agreed under the Indenture to draw on the Letters
of Credit for the Series A Bonds and the Series A-T Bonds, respectively, at such
times and in such amounts as shall be  sufficient  to pay when due the principal
of, premium,  if any, interest and Purchase Price on the Bonds and to credit all
amounts paid under such Letters of Credit  against the  Company's  obligation to
make loan repayments under this Agreement for such items; and

     WHEREAS,  execution  and  delivery  of  this  Agreement  and  the  issuance
hereunder  and  under the Act of the Bonds  have been in all  respects  duly and
validly authorized by resolution of the board of directors of the Authority duly
adopted prior to such execution and delivery; and

     WHEREAS, as security for the full and prompt payment and performance of all
its obligations under the Indenture, including,  specifically,  without limiting
the generality of the foregoing, its obligation to make payment of principal of,
premium,  if any,  Purchase  Price and  interest  on the  Bonds,  when due,  the
Authority  has,  pursuant to the  provisions of the  Indenture,  assigned to the
Trustee all of its right,  title and  interest  in, to and under this  Agreement
(except  its  right to  indemnification  and to  receive  its fees and  expenses
hereunder),  including  without  limitation,  the right to receive loan payments
payable by the Company hereunder; and

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     WHEREAS,  in order to assure  full and prompt  payment  of the  Bonds,  the
Company,  among other things, has caused the Bank to issue its Letters of Credit
to assure payment of principal of, Purchase Price and interest on the Bonds when
due (subject to reduction and reinstatement as provided therein) pursuant to the
Reimbursement Agreement.

     NOW, THEREFORE,  THIS LOAN AGREEMENT  WITNESSETH:

     That the  parties  hereto,  intending  to be  legally  bound  hereby and in
consideration of the mutual covenants hereinafter contained,  DO HEREBY AGREE to
all the terms and  conditions set forth in this  Agreement.  This Agreement is a
financing  document  in  accordance  with  Chapter 12 of Title 10 of the Vermont
Statutes Annotated, as amended (the "Act").

                                   ARTICLE I.

                                  DEFINITIONS

     Section  1.01.  Definitions.  Terms used as defined  terms in the  recitals
shall  have the same  meanings  throughout  this  Agreement,  and,  in  addition
thereto,  capitalized  terms used and not defined herein shall have the meanings
assigned to such terms in the Indenture,  unless the context  clearly  indicates
otherwise.

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

     Any  such  certificate  or  opinion  made or  given  by an  officer  of the
Authority  or the  Company  may be  based,  insofar  as it  relates  to legal or
accounting  matters,  upon a  certificate  or  opinion of or  representation  by
Counsel or an  accountant,  unless such  officer  knows,  or in the  exercise of
reasonable   care  should  have  known,   that  the   certificate,   opinion  or
representation  with  respect to the  matters  upon which  such  certificate  or
statement may be based,  as aforesaid,  is erroneous.  Any such  certificate  or
opinion made or given by Counsel or an  accountant  may be based,  insofar as it
relates  to  factual  matters  (with  respect  to  which  information  is in the
possession  of the  Authority  or  the  Company,  as the  case  may  be)  upon a
certificate  or opinion of or  representation  by an officer of the Authority or
the Company,  unless such  Counsel or  accountant  knows,  or in the exercise of
reasonable  care  should  have  known,   that  the  certificate  or  opinion  or
representation with respect to the matters upon which such certificat or opinion
or representation may be based, as aforesaid, is erroneous.  The same officer of
the Authority or the Company, or the same Counsel or accountant, as the case may

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be, need not certify to all of the matters  required to be  certified  under any
provision of this Agreement, but different officers,  Counsel or accountants may
certify to different matters, respectively.

     Section 1.03.  Interpretation.

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

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

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

          (d) Whenever in this  Agreement it is required  that notice be provide
to the Bank or that consent of the Bank be obtained,  such  provisions  shall be
effective  only when (i) the Letters of Credit are in effect,  (ii) the Bank, in
its capacity as provider of the Letters of Credit, is the Holder of any Bonds or
(iii)  any  amounts  are due and  owing  to the  Bank  under  the  Reimbursement
Agreement.

                                  ARTICLE II.

                           THE LOAN; USE OF PROCEEDS

     Section 2.01.  Loan of Funds to the Company.  The  Authority  hereby agrees
that simultaneously  with the execution and delivery of this Agreement,  it will
loan to the Company,  upon the terms and conditions  specified herein and in the
Indenture,  the  proceeds of the sale of the Bonds,  and the  Company  agrees to
receive such loan from the Authority,  for the purposes  provided  herein and in
the Indenture.

     Section 2.02. Use of Proceeds. The proceeds of the Bonds shall be deposited
with the Trustee and applied as provided in the Indenture and in this  Agreement
to finance the Project.

     Section 2.03.  Establishment  of Completion Date. The Completion Date shall
be  evidenced to the  Authority  and the Trustee by a  certificate  signed by an
Authorized Representative of the Company stating in effect that (i) construction
of the Project has been  completed and all costs of labor,  services,  materials
and supplies used in connection with such  construction have been paid; (ii) all
equipment  for the Project has been  acquired  and  installed  and all costs and
expenses  incurred in connection  therewith  have been paid; and (iii) all other
facilities  necessary  in  connection  with  the  Project  have  been  acquired,
constructed,  improved  and  equipped  and all costs and  expenses  incurred  in
connection  therewith  have  been  paid.  Notwithstanding  the  foregoing,  such
certificate shall state that it is given without prejudice to any rights against
third  parties  which  exist  at the  date  of such  certificate  or  which  may

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subsequently  come into being.  Forthwith  upon  completion of the Project,  the
Company  agrees to cause such  certificate  to be furnished to the Authority and
the Trustee. Upon receipt of such certificate,  the Trustee shall give notice to
the Company of the amount of funds remaining  unspent in the Construction  Fund.
Any  remaining  moneys on deposit in the  Construction  Fund shall be  forthwith
applied to the payment of the Costs of the Project,  or if not so applied  shall
be  promptly  transferred  by the  Trustee  into the  Bond  Fund and used by the
Trustee in accordance with the terms of Section 6.08 of the Indenture.

     Section 2.04. Covenants for Benefit of Bondholders and Bank. This Agreement
is  executed  in part to induce (a) the  purchase by others of the Bonds and (b)
the issuance by the Bank of the Letters of Credit,  and the participation by the
Bank in the funding of advances  under the Letters of Credit.  Accordingly,  all
covenants and  agreements on the part of the Company and the  Authority,  as set
forth in this Agreement, are hereby declared to be for the benefit of the Owners
from time to time of the Bonds and for the benefit of the Bank.

                                  ARTICLE III.

                               PAYMENT PROVISIONS

     Section 3.01. Loan Payments.

          (a) The  Company  hereby  agrees  to pay duly and  punctually  (i) the
principal,  premium, if any, and interest due and payable on the Bonds; (ii) the
Purchase Price of the Bonds,  and (iii) any other amounts due and payable by the
Company  under this  Agreement or the  Indenture.  The Company shall be given an
immediate  credit in the amount of (i) all draws paid to the  Trustee  under the
Letters of Credit and (ii) the proceeds of the  remarketing of Bonds used to pay
the Purchase Price of the Bonds pursuant to Article V of the Indenture,  against
the loan payments due hereunder. Any portion of the loan payments due under this
Agreement  which is not timely  paid (upon  proper  demand  under the Letters of
Credit by the  Trustee)  from draws under the Letters of Credit shall be paid to
the Trustee  directly by the Company as  provided in Section  3.03  hereof.  Any
other  amounts  required  to be paid under this  Agreement  shall be paid by the
Company  to the party  entitled  to  receive  same  hereunder  and in the manner
provided  for  herein.  Loan  payments  shall  be made by the  Company  with the
Company's  funds,  except to the  extent a credit in  respect  thereof  has been
granted  pursuant to the terms of this  Agreement.  It is the  intention  of the
Authority  and the Company  that,  notwithstanding  any other  provision of this
Agreement,  the  Authority  shall  receive  funds  from the  Company  under this
Agreement at such times and in such amounts as will enable the Authority to meet
all of its  obligations  under the Bonds and the  Indenture,  including any such
obligations  surviving  the  payment  of the  Bonds  and the  defeasance  of the
Indenture.  The loan payments  required by this Section 3.01(a) shall be reduced
after  payment of the  principal,  premium if any and  interest  on the Bonds in
accordance with the terms of the Indenture has been made.

          (b) All loan  payments and other sums due and payable to the Authority
or the Trustee under this Agreement  shall be absolutely net to the Authority or
the Trustee,  as  applicable,  free of any taxes,  costs,  liabilities  or other
deductions   whatsoever   with  respect  to  the  Project   Facilities  and  the
maintenance,  repair,  rebuilding,  use or  occupation  thereof  or any  portion

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thereof, so that this Agreement shall yield all amounts due hereunder net to the
Authority or the Trustee throughout the term hereof.

     Section  3.02.  Letters of Credit.  Concurrently  with the  issuance by the
Authority of the Bonds,  the Company  shall cause to be delivered to the Trustee
the Letters of Credit issued by the Bank,  authorizing the Trustee to make draws
on the Bank,  up to an aggregate  stated  amount of Four Million  Three  Hundred
Eighty-Four Thousand Seventy-Two Dollars and Eighty-Eight Cents ($4,384,072.88),
of which Four Million Three Hundred  Thousand Dollars  ($4,300,000)  shall be in
respect of aggregate principal on the Bonds and Eighty-Four Thousand Seventy-Two
Dollars  and  Eighty-Eight  Cents  ($84,072.88)  shall  be in  respect  of up to
forty-six (46) days' aggregate  interest accrued on the Bonds on or prior to the
maturity thereof.

     Section 3.03. Time of Loan Payments.

          (a) The Company shall pay to the Trustee, as assignee of the Authority
(but only to the extent such amounts have not been advanced to the Trustee under
the  Letters of  Credit),  on the dates and times  hereinafter  set  forth,  for
deposit in the Bond Fund, the following sums:

               (i) On any  Interest  Payment  Date or any  other  date  that any
          payment of interest,  premium,  if any, or principal is required to be
          made in  respect of the Bonds  pursuant  to the  Indenture,  until the
          principal  of,  premium,  if any, and interest on the Bonds shall have
          been fully paid or provision  for the payment  thereof shall have been
          made in accordance with the Indenture, in immediately available funds,
          a sum which,  together  with any moneys  available for such payment in
          the Bond Fund,  will enable the  Trustee to pay the amount  payable on
          such date as principal of (whether at maturity or upon  redemption  or
          acceleration or otherwise), premium, if any, and interest on the Bonds
          as provided in the Indenture;  provided,  however, that the obligation
          of the Company to make any payment hereunder shall be deemed satisfied
          and discharged to the extent of the corresponding  payment made by the
          Bank to the Trustee under the Letters of Credit.

         It is  understood  and agreed that all payments  payable by the Company
under  subsection  (a)(i) of this Section 3.03 are assigned by the  Authority to
the  Trustee  for the  benefit of the Owners of the Bonds,  as  applicable.  The
Company assents to such assignment. The Authority hereby directs the Company and
the Company  hereby agrees to pay to the Trustee at the Principal  Office of the
Trustee all payments payable by the Company pursuant to this subsection.

               (ii) The Company covenants,  for the benefit of the Owners of the
          Bonds,  to pay or cause to be paid, to the Tender Agent,  such amounts
          as shall be  necessary  to enable the Tender Agent to pay the Purchase
          Price  of  the  Bonds  delivered  to it  for  purchase,  all  as  more
          particularly  described  in  Sections  5.01,  5.03  and  5.04  of  the
          Indenture;  provided,  however,  that the obligation of the Company to
          make any such payment  under this  subsection  (a)(ii) with respect to
          the Bonds shall be reduced by the amount of moneys  available for such
          payment  described in subsection (i) or (ii) of Section 5.05(a) of the
          Indenture;  and provided,  further, that the obligation of the Company

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          to make any payment under this  subsection  (ii) shall be deemed to be
          satisfied and  discharged to the extent of the  corresponding  payment
          made by the Bank under the Letters of Credit.

               (iii)  Additionally,  from time to time,  the Company  shall make
          such payments as shall be necessary to make up any deficiency in or to
          fund fully any of the funds established under the Indenture.

     Section 3.04.  Additional  Payments;  Taxes; Utility Charges. As Additional
Payments hereunder, the Company, during the term of this Agreement, shall pay or
cause to be paid the  following:

           (a) To the  public  officers  charged  with the  collection  thereof,
promptly as the same become due, all taxes (or contributions or payments in lieu
thereof),  including but not limited to income, profits or property taxes, which
may now or  hereafter be imposed by the United  States of America,  any state or
municipality  or any political  subdivision  or  subdivisions  thereof,  and all
assessments for public improvements or other assessments,  levies, license fees,
charges for publicly  supplied  water or sewer  services,  excises,  franchises,
imposts and charges, general and special,  ordinary and extraordinary (including
interest,  penalties and all costs  resulting from delayed payment of any of the
foregoing) of whatever  name,  nature and kind and whether or not now within the
contemplation  of the  parties  hereto  and  which are now or may  hereafter  be
levied, assessed,  charged or imposed or which are or may become a lien upon the
payments  due  under  this  Agreement,  the  Project  Facilities  or the  use or
occupation  thereof,  or  upon  the  Company  or  the  Authority,  or  upon  any
franchises, businesses,  transactions, income, earnings and receipts (gross, net
or otherwise) of the Company in connection with the Project  Facilities,  or its
earnings, profits or receipts from, or its leasing or subleasing of, the Project
Facilities;  provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any tax,  assessment,  lien or other
matter  hereunder  so long as the  validity  thereof is being  contested in good
faith and by appropriate legal proceedings  diligently  pursued,  so long as the
operation of the Project  Facilities  or the receipt of income  therefrom is not
adversely affected by reason thereof;

          (b) All  reasonable  fees,  charges and expenses of the  Trustee,  the
Remarketing  Agent,  the Placement  Agent, the Tender Agent and the Bank, as and
when the same  become due and  payable,  as agreed to by the  Company  under the
provisions of the agreements governing such fees, charges and expenses;

          (c) The reasonable fees and expenses of such accountants, consultants,
attorneys and other experts as may be engaged by the  Authority,  the Trustee or
the Tender Agent to prepare audits, financial statements,  reports,  opinions or
provide such other  services  required or permitted  under this Agreement or the
Indenture; and

          (d) The  reasonable  fees and expenses of the  Authority in connection
with this Agreement, the Bonds, the Indenture, the Tender Agent Agreement or the
Remarketing  Agreement,  and any and all other  expenses  incurred in connection
with the  authorization,  issuance,  sale  and  delivery  of any  such  Bonds or
incurred by the Authority in  connection  with any  litigation  which may at any
time be instituted involving this Agreement,  the Bonds, the Indenture or any of

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the other  documents  contemplated  thereby,  or incurred in connection with the
administration  of  this  Agreement,   or  otherwise  in  connection  with  this
Agreement, the Indenture, the Bonds, the Tender Agent Agreement, the Remarketing
Agreement or any of the other documents, instruments or agreements in connection
therewith.

          Such Additional Payments shall be billed to the Company,  from time to
time, by the Authority,  the Trustee, the Remarketing Agent, the Tender Agent or
the Bank,  as the case may be,  together  with a statement  certifying  that the
amount  billed has been paid or incurred  and  attaching  reasonable  supporting
documentation  indicating  that the amount  billed has been paid or incurred for
one or more of the above items. After such a demand,  amounts so billed shall be
paid by the Company  within  thirty  (30) days after  receipt of the bill by the
Company.

     Section 3.05.  Acceleration of Payment to Redeem Bonds.  Whenever the Bonds
are subject to optional  redemption or extraordinary  redemption pursuant to the
Indenture  and the  provisions  hereof,  the  Authority  will,  upon the written
request of the Company,  direct the Trustee to call the same for  redemption  as
provided in the Indenture.  Whenever any Bond is subject to mandatory redemption
pursuant to the Indenture, the Company will cooperate with the Authority and the
Trustee in effecting such redemption. In the event of any mandatory, optional or
extraordinary  redemption of the Bonds, the Company will pay or cause to be paid
to  the  Trustee  an  amount  equal  to the  applicable  redemption  price  as a
prepayment of that portion of the loan payment  corresponding to the Bonds to be
redeemed  together with interest accrued to the date of redemption and will also
pay all fees and expenses of the Authority and the Trustee  arising with respect
to such  redemption or otherwise due and owing  hereunder or under the Indenture
at such times and in such  amounts  as are  required  to effect  the  mandatory,
optional  or  extraordinary  redemption  of the  Bonds  under  the  terms of the
Indenture.

     Section 3.06. No Defense or Set-Off. The obligations of the Company to make
loan payments shall be absolute and unconditional without any defense or set-off
for any reason,  including,  without limitation,  any acts or circumstances that
may constitute failure of consideration, destruction of or damage to the Project
Facilities,  invalidity or unenforceability of Bonds,  commercial frustration of
purpose or failure  of the  Authority  to perform  and  observe  any  agreement,
whether express or implied, or any duty,  liability or obligation arising out of
or connected with this Agreement, it being the intention of the parties that the
payments required of the Company hereunder will be paid in full when due without
any delay or diminution whatsoever.

     Section 3.07.  Termination  Upon Payment or  Defeasance of Bonds.  When (a)
interest on, and principal or the redemption  price (as the case may be) of, all
Series A Bonds or Series A-T Bonds issued under the Indenture, together with all
other amounts due and payable by the Company  hereunder and under the Indenture,
shall have been paid, or (b) there shall have been deposited with the Trustee an
amount  evidenced  by moneys or  Government  Obligations,  the  principal of and
interest on which,  when due,  without  reinvestment,  will  provide  sufficient
moneys to fully pay the principal or  redemption  price (as the case may be) of,
and all accrued  interest on, all Bonds then  Outstanding,  as well as all other
sums  payable or to become  payable by the  Company  under  this  Agreement,  as
evidenced by a verification report from an Accountant, delivered to the Trustee,
no further loan payments shall be payable hereunder and, with the consent of the
Bank (if any Letter of Credit remains  outstanding or if any amounts are due and

                                       7

<PAGE>

owin to the Bank under the  Reimbursement  Agreement or any of the other Related
Documentation  (as such term is defined in the Reimbursement  Agreement)),  this
Agreement shall  thereupon be terminated,  and the Authority (i) shall cause the
Trustee to pay over to the Company any  additional  moneys then remaining in any
funds or accounts under the Indenture (and which will not be required to pay any
amounts as set forth immediately above in this Section 3.07), and (ii) shall pay
over to the Company any additional  moneys which may be paid to the Authority by
the Trustee;  provided,  however, that in each such case moneys remaining in any
fund or account under the Indenture or any additional moneys shall be first paid
to the Bank to the extent of any moneys  then due and owing from the  Company to
the  Bank  under  the  Reimbursement  Agreement  or  any of  the  other  Related
Documentation (as such term is defined in the Reimbursement Agreement).

     Section 3.08. Assignment of Authority's Rights. As security for the payment
of the Bonds and amounts payable under this Agreement, the Authority will assign
to the Trustee all of the Authority's  rights (except the Authority's  rights to
indemnification and the payment of its fees and expenses and the reasonable fees
and expenses of its attorneys  and other  professionals)  under this  Agreement.
Subject to the prior  assignment  made to the  Trustee to secure the Bonds,  the
Authority  will also assign all the  Authority's  rights under this Agreement to
the Bank to secure all of the  obligations  of the Company to the Bank under the
Reimbursement  Agreement. The Company consents to such assignments and agrees to
make the loan payments  under  Section 3.01 and Section 3.05 hereof  directly to
the  Trustee  without  defense or set-off by reason of any  dispute  between the
Company and the Trustee or the  Authority.  Whenever  the Company is required to
obtain the consent of the Authority hereunder, the Company shall also obtain the
written consent of the Bank.

     Section  3.09.  Assignment  by Company.  This  Agreement may be assigned in
whole or in part by the Company  without the  necessity of obtaining the consent
of the  Trustee  or the  Owners  of  the  Bonds;  provided,  however,  any  such
assignment  shall require the prior written  consent of the Bank (as long as the
Bank is not in  default  under the  Letters of Credit)  and the  Authority;  and
further  provided  that no  assignment  pursuant to this  Section  shall be made
otherwise  than in  accordance  with the Act and the  Code as from  time to time
amended.  The Company shall,  within thirty (30) days after  execution  thereof,
furnish or cause to be  furnished to the  Authority,  the Trustee and the Bank a
true and complete copy of each such  assignment  together with any instrument of
assumption.

     Section 3.10.  Indemnity Against Claims.

          (a) The Company  agrees that at all times it will protect and hold the
Authority and the Trustee and their officers,  directors, members, employees and
agents harmless and indemnified from and against all claims for losses,  damages
or injuries to others,  including death,  personal injury and property damage or
loss,  arising  during the term hereof or during any other period arising out of
the  acquisition,  construction,  installment,  equipping  or  operation  of the
Project  Facilities;  and the  Authority and the Trustee shall not be liable for
any loss,  damage or injury to the  Person or  property  of the  Company  or its
agents,  servants or  employees or any other Person who or which may be upon the
Project  Facilities or damaged or injured as a result of any condition  existing
or activity  occurring upon the Project Facilities or any other matter connected
directly or  indirectly  therewith  due to any act or  negligence of any Person,

                                       8

<PAGE>

excepting  only  willful  misconduct  of the  Authority  or the Trustee or their
officers, directors, agents, members or employees. The indemnity provided for in
this  Section  3.10(a)  shall  be  effective  only to the  extent  that any loss
sustained by the Authority or the Trustee or their officers, directors, members,
employees and agents shall be in excess of the net proceeds  actually  recovered
and  received  by,  or on behalf  of,  the  Authority  or the  Trustee  from any
insurance carried with respect to the loss sustained.

          (b) The Company hereby covenants and agrees that it will indemnify and
hold  harmless the Trustee and its  directors,  officers,  agents and  employees
(collectively,  the "Indemnitees") harmless from and against any and all claims,
liabilities,   losses,  damages,  fines,  penalties,  and  expenses,   including
out-of-pocket,  incidental expenses,  legal fees and expenses, and the allocated
costs and expenses of in-house  counsel and legal staff  ("Losses")  that may be
imposed on, incurred by, or asserted against, the Indemnitees or any of them for
following  any  instructions  or other  directions  upon  which the  Trustee  is
authorized to rely pursuant to the terms of this Agreement and the Indenture. In
addition to and not in limitation of the  immediately  preceding  sentence,  the
Company  also  agrees to  indemnify  and hold the  Indemnitees  and each of them
harmless  from and against  any and all Losses that may be imposed on,  incurred
by, or asserted  against the  Indemnitees  or any of them in connection  with or
arising out of the Trustee's  performance under this Agreement or the Indenture,
provided the Trustee has not acted with gross  negligence  or engaged in willful
misconduct.

          (c) The Company will indemnify, hold harmless and defend the Authority
and the Trustee,  counsel to the  Authority  and the Trustee and the  respective
officers,  members,  directors,  officials and employees of each of them against
all losses, costs, damages, expenses, suits, judgments,  actions and liabilities
of whatever  nature  including,  specifically,  any liability under any state or
federal  securities  laws  (including  but not limited to reasonable  attorneys'
fees, litigation and court costs, amounts paid in settlement and amounts paid to
discharge  judgments) directly or indirectly resulting from or arising out of or
related  to:  (i)  the  design,  construction,   installation,  operation,  use,
occupancy,  maintenance  or  ownership  of  the  Project  Facilities  (including
compliance with laws, ordinances and rules and regulations of public authorities
relating thereto); or (ii) any statements or representations with respect to the
Company, the Project Facilities,  this Agreement,  the Bonds, the Indenture, the
Letters  of  Credit,  the  Reimbursement  Agreement  or any other  documents  or
instruments  delivered at or in connection  with the closing held on the Closing
Date  (including any statements or  representations  made in connection with the
offer or sale  thereof)  made or  given to the  Authority,  the  Trustee  or any
underwriters  or  purchasers  of any of the Bonds,  by the Company or any of its
officers,  agents or  employees,  including,  but not limited to,  statements or
representations of facts,  financial information or Company affairs. The Company
also will pay and  discharge  and  indemnify and hold harmless the Authority and
the  Trustee  from (x) any lien or charge  upon  payments  by the Company to the
Authority  and the Trustee under this  Agreement  and (y) any taxes  (including,
without  limitation,   any  ad  valorem  taxes  and  sales  taxes,  assessments,
impositions  and  other  charges  in  respect  of any  portion  of  the  Project
Facilities).  If any such  claim is  asserted,  or any such lien or charge  upon
payments,  or any such  taxes,  assessments,  impositions  or other  charges are
sought to be imposed,  the  Authority or the Trustee will give prompt  notice to
the Company,  and the Company  will have the sole right and duty to assume,  and
will assume,  the defense  thereof,  with full power to litigate,  compromise or
settle the same in its sole discretion.

                                       9
<PAGE>

          (d) If the  indemnification  provided  heretofore  is for  any  reason
determined to be unavailable to the Authority or the Trustee, then, with respect
to any such loss, claim,  demand or liability,  including expenses in connection
therewith, the Authority and the Trustee, as appropriate, shall be entitled as a
matter of right to contribution  by the Company.  The provisions of this Section
3.10 shall survive the  termination  of this Agreement and the Indenture and the
resignation or removal of the Trustee for any reason.

     Section  3.11.  Authority  is  Conduit  Issuer;  Company  is Real  Party in
Interest; Covenant Not to Sue.

          (a) The Company hereby expressly  acknowledges that the Authority is a

conduit issuer and that all of the right, title and interest of the Authority in
and to this  Agreement,  but not the  obligations  of the  Authority,  are to be
assigned on a first  priority basis to the Trustee and then,  subordinately,  to
the Bank (except for the right of the Authority to receive its  reasonable  fees
and expenses and the  reasonable  fees and expenses of its  attorneys  and other
professionals  and to  indemnification),  naming the  Trustee  and the Bank,  as
applicable,  its true and lawful  attorney  for and in its name to  enforce  the
terms and  conditions of this  Agreement.  Notwithstanding  any other  provision
contained  herein,  the  Company  hereby  expressly  agrees,   acknowledges  and
covenants  that it shall duly and  punctually  perform or cause to be  performed
each and every duty and  obligation of the  Authority  under and pursuant to the
Indenture, which the Company is reasonably able to perform.

          (b) The Company  covenants  and agrees  that it shall  neither sue the
Authority,  counsel  to the  Authority  or any of its board  members,  officers,
agents or  employees,  past,  present or future,  for any claim,  loss,  demand,
action or nonaction based upon this financing nor ever raise as a defense in any
proceedings  whatsoever  that  the  Authority  is the true  party  in  interest.
Notwithstanding the provisions of the foregoing  sentence,  the Company shall be
entitled to (i) bring an action of specific performance against the Authority to
compel any action  required to be taken by the Authority  hereunder or an action
to enjoin the Authority from performing any action prohibited hereunder or under
any other  documents,  by this  instrument or any other  agreement  executed and
delivered in connection with the issuance of the Bonds, but no such action shall
in any way  impose  pecuniary  liability  upon  the  Authority,  counsel  to the
Authority or any of its board members,  officers,  agents or employees, and (ii)
join the Authority in any  litigation if such joinder is necessary to pursue any
of the Company's rights,  provided that prior to such joinder, the Company shall
post such security as the Authority may  reasonably  require to protect  further
the Authority from loss.

                                   ARTICLE IV.

                   COMPANY OBLIGATIONS; ASSIGNMENT TO TRUSTEE

     Section 4.01. General Obligation of the Company. This Agreement constitutes
a general obligation of the Company and the full faith and credit of the Company
is pledged to the payment of all amounts due hereunder.

     Section 4.02.  Assignment to Trustee. The Authority,  immediately following
execution and delivery hereof, shall assign this Agreement and all loan payments

                                       10

<PAGE>

payable  hereunder  (except its right to receive its fees and  expenses  and the
reasonable  fees and expenses of its  attorneys and other  professionals  and to
indemnification) to the Trustee pursuant to the Indenture,  IN TRUST, to be held
and applied  pursuant  to the  provisions  of the  Indenture,  and,  subject and
subordinate  to the prior  assignment to the Trustee,  to the Bank. The Company:
(1) consents to such  assignments and accepts notice thereof with the same legal
effect as  though  such  acceptances  were  embodied  in  separate  instruments,
separately  executed  after  execution  of such  assignments;  (2) agrees to pay
directly  to the  Trustee  or the Bank,  as  applicable,  all  payments  payable
hereunder for  application  to amounts then due and payable or to become due and
payable  hereunder or under the Indenture or the Reimbursement  Agreement,  such
payments to be paid by the Company to the  Trustee or the Bank,  as  applicable,
without any defense,  set-off or counterclaim  arising out of any default on the
part of the Authority under the Agreement or any transaction between the Company
and the  Authority  or the  Company  and the  Trustee;  and (3) agrees  that the
Trustee and the Bank, as applicable,  may exercise any and all rights and pursue
any and all remedies granted the Authority hereunder.

     Section 4.03. Maintenance and Operation of the Project Facilities.

          (a) During the term of this  Agreement,  the  Company  will at its own

cost and expense keep and maintain, or cause to be kept and maintained,  in good
repair and condition (excepting reasonable wear and tear) the Project Facilities
and all additions and  improvements  thereto,  and pay, or cause to be paid, any
utility charges and other costs and expenses arising out of its use or occupancy
of the Project Facilities.

          (b) The  Company  agrees to  timely  pay for any  improvements  to the
Project  Facilities  lawfully  done  or  lawfully  ordered  to be  done  by  any
municipal,  state or federal authority and to comply in all material respects at
its own cost and  expense  with all  lawful  and  enforceable  notices  received
(whether by the Authority or the Company) from public authorities from and after
the date hereof that affect the  Project  Facilities  and the use and  operation
thereof, other than those improvements, orders and notices, the amount, validity
or application of which is at the time being contested,  in whole or in part, in
good  faith  by  appropriate   proceedings  promptly  initiated  and  diligently
conducted.

     Section 4.04.  Maintenance of Existence.  Except as otherwise  permitted in
the Reimbursement  Agreement,  the Holdings and Springs each agrees that it will
maintain its existence as a Delaware corporation, will maintain its status as an
entity  authorized  to conduct  business  in the  State,  will not  dissolve  or
otherwise  dispose  of all or  substantially  all of its  assets  and  will  not
consolidate  with or merge  into  another  entity  except  as  permitted  by the
Reimbursement Agreement.

     Section 4.05.  Compliance with Laws. With respect to the Project Facilities
and any additions,  alterations or improvements thereto, the Company will at all
times comply with all applicable  requirements of federal,  state and local laws
and with all applicable lawful requirements of any agency,  board, or commission
created  under  laws  of the  State  or of any  other  duly  constituted  public
authority,  and will use, and permit the use of, the Project Facilities only for
such purposes as are lawful under the Act; provided,  however,  that the Company
shall be deemed in compliance with this Section 4.05 so long as it is contesting
in good faith any such requirement by appropriate legal proceedings.

                                       11
<PAGE>

     Section 4.06. Notice of Bankruptcy Case Commencement. The Company covenants
and agrees  that it shall  immediately  notify the  Authority,  the Bank and the
Trustee of the  commencement  of any case by or against it under the  Bankruptcy
Code.

     Section 4.07.  Substitute Letter of Credit. The Company may provide for the
delivery to the Trustee of a  Substitute  Letter of Credit upon thirty (30) days
prior written notice to the Trustee, the Tender Agent, the Remarketing Agent and
the Authority, which notice shall state the proposed Substitution Date and shall
be  revocable  by the Company  prior to delivery  of such  Substitute  Letter of
Credit.  Any  Substitute  Letter of Credit shall be delivered to the Trustee not
later than the  thirtieth  (30th)  Business Day prior to the  expiration  of the
Letter of Credit it is being  issued to  replace.  On or before the fifth  (5th)
Business  Day prior to the  delivery of any  Substitute  Letter of Credit to the
Trustee,  as a condition to the acceptance of any Substitute Letter of Credit by
the Trustee,  the Company  shall furnish to the  Authority,  the Trustee and the
Remarketing Agent (i) written evidence that the issuer of such Substitute Letter
of Credit is a commercial bank organized and doing business in the United States
o a branch or agency of a foreign  commercial bank located and doing business in
the  United  States  and  subject  to  regulation  by state or  federal  banking
regulatory  authorities  and that it has been assigned the same or better rating
as the  Letter of Credit it is being  issued to  replace  in effect  immediately
prior to the substitution of the Substitute Letter of Credit, (ii) an opinion of
nationally  recognized  bond  counsel to the effect  that the  delivery  of such
Substitute Letter of Credit is authorized under this Agreement and the Indenture
and the Act and complies  with the terms  hereof,  and, an opinion to the effect
that the delivery of such Substitute  Letter of Credit does not adversely affect
the exclusion  from gross income of the interest on the Bonds for federal income
tax purposes,  and (iii) an opinion of Counsel  satisfactory to the Trustee, the
Authority,  the  Company  and the  Remarketing  Agent  to the  effect  that  the
Substitute  Letter of Credit is a legal,  valid and  binding  obligation  of the
issuer (or, in the case of a branch or agency of a foreign  commercial bank, the
branch or agency)  issuing the same,  enforceable in accordance  with its terms,
that payments of principal, premium, if any (if such Substitute Letter of Credit
secures the payment of premium),  or Purchase  Price of or interest on the Bonds
from the  proceeds  of a drawing  on the  Substitute  Letter of Credit  will not
constitute  voidable  preferences  under the Bankruptcy Code or other applicable
laws and  regulations  and that it is not  necessary to register the  Substitute
Letter of Credit under the Securities Act of 1933, as amended.  In the case of a
Substitute Letter of Credit issued by a branch or agency of a foreign commercial
bank there shall also be  delivered an opinion of Counsel,  satisfactory  to the
Trustee,  the Authority,  the Company and the Remarketing  Agent and licensed to
practice  law in the  jurisdiction  in which  the head  office  of such  bank is
located,  to the effect that the Substitute Letter of Credit is the legal, valid
and binding  obligation of such bank  enforceable in accordance  with its terms.
The Trustee shall accept any such Substitute Letter of Credit only in accordance
with the terms, and upon the  satisfaction of the conditions,  contained in this
Section 4.07 and any other  provisions  applicable to acceptance of a Substitute
Letter of Credit under this Agreement and the Indenture.

                                   ARTICLE V.

                                  TAX MATTERS

     Section 5.01.  Prohibited  Uses.  The Company  covenants and agrees that it
will not  knowingly  take or authorize  or permit,  to the extent such action is

                                       12

<PAGE>

within the control of the  Company,  any action to be taken with  respect to the
Project  and the  Project  Facilities,  the  proceeds  of the  Bonds  (including
investment  earnings  thereon) or any insurance,  condemnation or other proceeds
derived  directly or indirectly  in  connection  with the Project or the Project
Facilities  which will  result in the loss of the  exclusion  of interest on the
Series A Bonds from federal  gross income under  Section 103 of the Code (except
for any Series A Bonds  during  any  period  while such Bond is held by a person
referred  to in  Section  147(a) of the  Code);  and the  Company  also will not
knowingly  omit to take any action in its power which,  if omitted,  would cause
such result.  The Company covenants for the benefit of the Bondholders to comply
with all of the  requirements  of Section  6.13 and 7.09 of the  Indenture.  The
preceding  sentence shal control in case of conflict or ambiguity with any other
provision  of this  Agreement.  The Company  covenants  and agrees to notify the
Trustee and the  Authority of the  occurrence  of any event of which the Company
has notice and which event  would  require the Company to prepay the amounts due
hereunder  because of a redemption of the Series A Bonds upon a Determination of
Taxability.

     Section 5.02. Covenants and Representations with Respect to Arbitrage.  The
Authority, to the extent it has control over proceeds of the Series A Bonds, and
the Company  covenant and  represent to each other and to and for the benefit of
the  Holders  of the  Series A Bonds  that so long as any of the  Series A Bonds
remain Outstanding,  moneys on deposit in any fund in connection with the Series
A Bonds,  whether  such moneys were derived from the proceeds of the sale of the
Series A Bonds or from any  other  sources,  will not be used in a manner  which
will  cause the Series A Bonds to be  "arbitrage  bonds"  within the  meaning of
Section 148 of the Code and any lawful regulations  promulgated  thereunder,  as
the same  exist on this  date or may from  time to time  hereafter  be  amended,
supplemented  or revised.  The  Company  also  covenants  for the benefit of the
Holders of the Series A Bonds to comply  with all of the  provisions  of the Tax
Certificate of the Company. The Company reserves the right, however, to make any
investmen of such moneys permitted by the laws of the State, if, when and to the
extent that said  Section 148 or  regulations  promulgated  thereunder  shall be
repealed  or  relaxed  or shall be held  void by  final  judgment  of a court of
competent  jurisdiction,  but only upon  receipt  of an  opinion  of  nationally
recognized  bond counsel to the effect that such  proposed  investment  will not
adversely  affect the  exclusion  from gross  income of interest of the Series A
Bonds for federal income tax purposes.

                                   ARTICLE VI.

                 INSURANCE; DESTRUCTION, DAMAGE, EMINENT DOMAIN

     Section 6.01. Insurance to be Maintained.  The Company covenants to provide
and maintain continuously,  unless otherwise herein provided, adequate insurance
on the Project  Facilities as shall be mutually  agreed upon by the Bank and the
Company. Each insurance policy with respect to the Project Facilities shall name
the Bank and the Trustee as additional insureds.

     Section  6.02.  Destruction,  Damage and  Eminent  Domain.  If the  Project
Facilities  shall be wholly or  partially  destroyed or damaged by fire or other
casualty covered by insurance, or shall be wholly or partially condemned,  taken
or injured by any Person,  including any Person possessing the right to exercise

                                       13

<PAGE>

the power of or a power in the nature of eminent  domain or shall be transferred
to such a Person by way of a conveyance  in lieu of the exercise of such a power
by such a Person,  the Company  covenants that it will take all actions and will
do all things  which may be  necessary  to enable  recovery to be made upon such
policies of insurance or on account of such  taking,  condemnation,  conveyance,
damage or injury.  The Company is authorized,  in its own name, as trustee of an
express trust,  to demand,  collect,  sue,  settle  claims,  receipt and release
monies which may be due and payable  under  policies of insurance  covering such
damage or destruction or on account of such condemnations, damage or injury. Any
moneys  recovered  (i)  on  policies  of  insurance  required  to be  maintained
hereunder or (ii) as a result of any taking, condemnation, conveyance, damage or
injury shall be deposited in the Construction Fund held by the Trustee under the
Indenture and shall be applied in accordance with the provisions of Section 6.04
hereof; provided,  however, that as long as the Bank is not in default under the
terms  of any  of the  Letters  of  Credit,  the  applicable  provisions  of the
Reimbursement  Agreement shall control the disposition of casualty insurance and
condemnation award proceeds.

          Any appraisement or adjustment of loss or damage and any settlement or

payment therefor,  shall be agreed upon by the Company, the Bank (as long as the
Bank is not in default  under any of the Letters of Credit) and the  appropriate
insurer  or  condemnor  or  Person,  and shall be  evidenced  to the Bank by the
certificate  and  approvals  set  forth  in the  Indenture.  The  Bank  may rely
conclusively upon such certificates.

     Section  6.03.  Notice of Property  Loss.  After the  occurrence of loss or
damage  to,  or  after  receipt  of  notice  of  condemnation  of,  the  Project
Facilities,  the Company shall within five (5) Business Days thereof  notify the
Authority, the Trustee and the Bank, in writing, of such damage.

     Section 6.04.  Disposition  of Casualty  Insurance and  Condemnation  Award
Proceeds.  If the Bank is in  default  under the terms of any of the  Letters of
Credit,  and as long as the  Company is not in  default  under the terms of this
Agreement,  the  Company  may  elect,  in its  discretion,  whether to apply the
proceeds of any casualty  insurance coverage and/or  condemnation  awards to (i)
the repair,  reconstruction  or  replacement  of damaged,  destroyed  or injured
property  comprising  the Project  Facilities  or (ii) the  redemption  of Bonds
pursuant to the applicable provisions of the Indenture.  Absent timely direction
from the Company as to the application of any casualty insurance coverage and/or
condemnation  awards or if the  Company  shall be in default  under the terms of
this  Agreement,  the  proceeds  thereof  shall be applied to the  extraordinary
redemption  of the  Bonds  at par  plus  accrued  interest  through  the date of
redemption.  For purposes of the preceding  sentence,  "timely  direction" shall
mean 60 days after the Compan has agreed,  in  connection  with any damage to or
condemnation  of the Project  Facilities,  upon the  settlement  or payment with
respect to any appraisement or adjustment of loss or damage, as appropriate.

                                  ARTICLE VII.

                      ADDITIONAL COVENANTS OF THE COMPANY

     Section 7.01.  Compliance with Laws. The Company covenants that all actions
heretofore  and  hereafter  taken by the  Company or by the  Authority  upon the

                                       14

<PAGE>

recommendation or request of any officer of the Company to acquire and carry out
the Project have been and will be in full  compliance  with all pertinent  laws,
ordinances,  rules,  regulations  and  orders  applicable  to  the  Company.  In
connection  with the  operation,  maintenance,  repair  and  replacement  of the
Project  Facilities,  the  Company  covenants  that it  shall  comply  with  all
applicable ordinances,  laws, rules, regulations and orders of the government of
the United States of America,  the State,  and any other  applicable  government
unit  having  jurisdiction  over it,  and any  requirement  of any board of fire
underwriters  having  jurisdiction or of any insurance company writing insurance
on the Project Facilities;  provided, however, that nothing herein shall prevent
or  prohibit  the  Company  from  contesting  in good  faith and by  appropriate
proceedings  the  legality  or  reasonableness  of any  such  standards,  or the
imposition of any such standards upon it with respect to the Project  Facilities
so long as the  operation  of the  Project  Facilities  or the receipt of income
therefrom would not be adversely affected by reason thereof. The Company further
covenants and represents that the Project  Facilities are in compliance with all
applicable  zoning,  subdivision,  building,  land  use  and  similar  laws  and
ordinances.  The Company  covenants that it shall not take any action or request
the Authority to execute any release which would cause the Project Facilities to
be in violation  of such laws or  ordinances  or such that a  conveyance  of the
Project  Facilities or of any portion of the Project  Facilities  would create a
violation of such laws and ordinances.  The Company acknowledges that any review
by the  Authority  or  Counsel to the  Authority  of any  action  heretofore  or
hereafter  taken by the Company has been or will be solely for the protection of
the  Authority.  Such reviews shall not prevent the Authority from enforcing any
of the covenants made by the Company.

     Section  7.02.  Power to Perform  Obligations.  The Company  covenants  and
represents  that it has full power and legal right to enter into this  Agreement
and  perform  its  obligations  hereunder.  The  making and  performance  of the
Agreement by the Company has been duly  authorized by all  necessary  action and
will not  conflict  with or  constitute  a breach of or default  under any bond,
contract,  indenture,  agreement or any other instrument by which the Company or
any of its properties is or may be bound.

     Section 7.03. Inspection.  The Company covenants that the Authority, by its
duly authorized representatives, at reasonable times and with reasonable notice,
for purposes of determining compliance with the Agreement,  may inspect any part
of the Project Facilities.

     Section  7.04.  Additional   Information.   The  Company  agrees,  whenever
requested by the  Authority,  to provide and certify or cause to be provided and
certified  such  information  concerning the Project  Facilities,  to enable the
Authority  to make  any  reports  or  supply  any  information  required  by the
Indenture, law, governmental regulation or otherwise.

                                 ARTICLE VIII.

                         EVENTS OF DEFAULT AND REMEDIES

     Section  8.01.  Events of Default.  The following  events shall  constitute
"Events of Default" under this  Agreement:

          (a) if the  Company  fails to make any  payment  required  by Sections
3.01, 3.03, 3.04 or 3.05 hereof when due; or

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<PAGE>

          (b) if the Company fails to make any other payment required hereby and
such failure  continues  for 30 days after the  Authority  or the Trustee  gives
written notice to the Company that such payment is due and unpaid; or

          (c) if the  Company  fails to perform  any of its other  covenants  or
conditions or fails to perform any of its obligations hereunder and such failure
continues  for 60 days after the  Authority  or the  Trustee  gives the  Company
written notice thereof;  provided,  however,  that if such performance  requires
work to be done,  actions to be taken,  or conditions  to be remedied,  which by
their nature cannot  reasonably be done, taken or remedied,  as the case may be,
within such 30 day period,  no Event of Default shall be deemed to have occurred
or to exist if, and so long as, the  Company  shall  commence  such  performance
within such  60-day  period and shall  diligently  and  continuously  proceed to
completion; or

          (d) if the Company commits any act of bankruptcy  under the Bankruptcy

Code or any state  bankruptcy  law or any law  providing for  reorganization  or
relief for debtors or files or has filed  against it a petition in bankruptcy or
for  arrangement  or  reorganization  pursuant to the  Bankruptcy  Code or other
similar  law,  federal or state,  or if, by the  decree of a court of  competent
jurisdiction,  is  adjudicated  a bankrupt  or declared  insolvent,  or makes an
assignment  for the benefit of creditors,  or admits in writing its inability to
pay  its  debts  generally  when or as  they  become  due,  or  consents  to the
appointment of a trustee,  receiver or to the  liquidation of all or any part of
the Project Facilities,  provided that, if any such proceeding is commenced by a
Person  other  than the  Company,  there  shall be no Event of  Default  if such
proceedings  are  dismissed  within 60 days of the filing of  initial  pleadings
therein; or

          (e) the  declaration  by the Bank of an Event of Default  under and as
defined in the Reimbursement Agreement;

     Section 8.02.  Acceleration.  Subject to the provisions of this  Agreement,
upon the  occurrence  of any  "Event  of  Default"  by the  Authority  under the
Indenture  caused or resulting  directly or indirectly  by the  occurrence of an
Event of Default by the Company  hereunder,  the Trustee (with the prior written
consent of the Bank as long as the Bank is not in default under the terms of any
of the Letters of Credit),  may, and upon the written  request of the Holders of
25% in principal amount of the Bonds then Outstanding shall, pursuant to Section
8.02 of the Indenture,  declare the principal of the then-Outstanding  Bonds and
accrued interest immediately due and payable, but such Trustee shall not declare
the  principal  due and  payable if such  acceleration  is  annulled  as therein
provided.  Upon such declaration by the Trustee,  there shall become immediately
due and payable  hereunder as then current  damages of the Authority  under this
Agreement,  an  amount  equal (i) to all  amounts  then due and  payable  by the
Authority to the Trustee  under such Section 8.02 of the  Indenture and (ii) all
other amounts due and owing as loan payments hereunder.

     Section 8.03. Payment of Loan Payments on Default; Suit Therefor.

          (a) Upon the  occurrence of an Event of Default under this  Agreement,
then, upon demand of the Authority or its assignee,  the Company will pay to the
Authority or its assignee the whole amount of the loan  payments that then shall
have  become due and  payable  hereunder  and to the extent  such loan  payments
represent  payments  due on the  Bonds,  such  payments  shall be applied to the

                                       16

<PAGE>

payment  of the  Bonds,  as  applicable,  in  accordance  with the  terms of the
Indenture;  and, in addition thereto, such further amount as shall be sufficient
to pay the costs and expenses of collection,  including reasonable  compensation
based upon actual time  expended by the  Authority  and its  assignee  and their
respective agents and attorneys, and any expenses or liabilities incurred by the
Authority or its assignee  (other than through the Authority's or its assignee's
own gross negligence or bad faith).  In case the Company shall fail forthwith to
pay such  amounts  upon such demand,  the  Authority  or its  assignee  shall be
entitled  and  empowered to institute  any actions or  proceedings  at law or in
equity for the  collection of the sums so due and unpaid,  and may prosecute any
such action or proceeding to judgment or final decree,  and may enforce any such
judgment or final decree against the Company and collect in the manner  provided
by law out of the  property of the  Company the money  adjudged or decreed to be
payable.

          (b) In case there shall be pending  proceedings  in  bankruptcy or for
the  reorganization  of the  Company  under  the  Bankruptcy  Code or any  other
applicable  law, or in case a receiver or trustee shall have been  appointed for
the benefit of the  creditors or the property of the Company,  or in the case of
any other similar judicial proceedings relative to the Company, the Authority or
its  assignee  shall  be  entitled  and  empowered,   by  intervention  in  such
proceedings  or  otherwise,  to file and prove a claim or  claims  for the whole
amount of the loan payments and other payments due hereunder, including interest
owing and unpaid in respect thereof,  and, in case of any judicial  proceedings,
to file such proofs of claim and other  papers or  documents as may be necessary
or  advisable  in order to have the  claims  of the  Authority  or its  assignee
allowed,  and to collect  and receive  any moneys or other  property  payable or
deliverable  on any such claims,  and to distribute the same after the deduction
of its charges and expenses; and any receiver, assignee or trustee in bankruptcy
or reorganization is hereby authorized to make such payments to the Authority or
its assignee,  and to pay to the Authority or its assignee any amount due it for
compensation  based upon actual time  expended and expenses,  including  counsel
fees and expenses incurred by it up to the date of such distribution.

     Section 8.04.  Other  Remedies.  Upon the occurrence of an Event of Default
hereunder,  the  Authority or its assignee may pursue  whatever  remedies may be
available  at law or in equity as may appear  necessary  or desirable to collect
the amounts  payable by the Company  hereunder,  or to enforce  performance  and
observance  of any  obligation,  agreement or covenant of the Company under this
Agreement.

     No action taken pursuant to this Section 8.04 shall relieve the Company (i)
of  any  of  the  Company's  obligations,  duties,  liabilities,  covenants  and
representations  contained herein or (ii) of any condition contained herein, all
of which shall survive any such action.

     Section  8.05.  Waiver.  The Company  hereby  waives and  relinquishes  the
benefits of any present or future law  exempting  the  Project  Facilities  from
attachment,  levy or sale on execution, or any part of the proceeds arising from
the sale thereof, and all benefit of stay of execution or other process.

Section

     8.06.  Cumulative  Rights.  No remedy  conferred  upon or  reserved  to the
Authority or its  assignee by this  Agreement is intended to be exclusive of any
other  available  remedy or  remedies,  but each and every such remedy  shall be

                                       17

<PAGE>

cumulative  and shall be in  addition  to every  other  remedy  given under this
Agreement  or now or  hereafter  existing at law or in equity or by statute.  No
waiver by the  Authority  or its assignee of any breach by the Company of any of
its  obligations,  agreements  or covenants  hereunder  shall be a waiver of any
subsequent breach, and no delay or omission to exercise any right or power shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised  from time to time and as often as may
be deemed expedient.

     Section   8.07.   No  Exercise  of  Remedies   Without   Consent  of  Bank.
Notwithstanding  anything to the contrary  contained in this Agreement,  neither
the  Authority  nor any assignee of the  Authority  under this  Agreement  shall
exercise  or  pursue  remedies  or  declare  an  Event  of  Default  or cause an
acceleration  of the obligations  contained in this Agreement  without the prior
written  consent  of the Bank as long as the Bank shall not be in default of its
obligations  under the terms of any of the Letters of Credit or a  voluntary  or
involuntary  case has not been  commenced by the filing of a petition  under the
Bankruptcy   Code  or  any  other  law  relating  to   insolvency,   bankruptcy,
reorganization,  winding-up or  composition or adjustment of debts by or against
the Bank.

     Section 8.08.  Determination  of Taxability Not a Default.  Notwithstanding
anything to the contrary  contained in this Agreement,  in the event of a breach
or inaccuracy of any  applicable  statutory or  regulatory  requirement  or of a
covenant or  representation  of the Company relating to the exclusion from gross
income  of  interest  on the  Series A Bonds  for  purposes  of  federal  income
taxation,  such breach or inaccuracy shall not be considered an Event of Default
hereunder so long as the Company performs all of its obligations  arising out of
the breach or  inaccuracy  including,  without  limitation,  the  payment of all
amounts  due  under  Sections  3.01,  3.04 and 3.05  hereof  if such  breach  or
inaccuracy  results in a Determination  of Taxability with respect to the Bonds.
Pursuant to the  provisions of Section  4.01(b)(1) of the Indenture the Series A
Bonds are subject to  mandatory  redemption  at any time,  in whole,  within one
hundred eighty (180) days after the occurrence of a Determination of Taxability.

                                  ARTICLE IX.

                         OPTIONS TO TERMINATE AGREEMENT

     Section 9.01. Option to Terminate Upon Defeasance.  The Company shall have,
and is hereby  granted,  the  option to  terminate  its  obligations  under this
Agreement prior to full payment of the Bonds by providing for the payment of all
of the Outstanding Bonds in accordance with Article XI of the Indenture.

     Section 9.02.  Option to Terminate Upon the  Occurrence of Certain  Events.
The Company  shall have,  and is hereby  granted,  the option to  terminate  its
obligations  under this  Agreement  if any of the events set forth  below  shall
occur:

               (A) The Project Facilities or any portion thereof shall have been
          damaged  or  destroyed  (1) to  such  extent  that it  cannot,  in the
          Company's judgment,  be reasonably restored within a period of six (6)
          months to the condition thereof  immediately  preceding such damage or
          destruction,  or (2) to  such  extent  that  the  Company  is  thereby

                                       18

<PAGE>

          prevented,  in the Company's reasonable judgment, from carrying on its
          normal  operations at the Project  Facilities  for a period of six (6)
          months or more;

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

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

               (D) As a result of any changes in the  Constitution  of the State
          or the  Constitution of the United States of America or of legislative
          or  administrative  action  (whether  state  or  federal)  or by final
          decree, judgment or order of any court or administrative body (whether
          state or federal)  entered after the contest thereof by the Company in
          good faith, this Agreement shall have become void and unenforceable or
          impossible of performance  in accordance  with the intent and purposes
          of the parties as expressed in this Agreement, or unreasonable burdens
          or  excessive  liabilities  shall have been  imposed on the Company in
          respect to the  Project  Facilities,  including,  without  limitation,
          federal, state or other ad valorem,  property,  income, or other taxes
          not being imposed on the date of this Agreement.

     To  exercise  such  option,  the  Company  shall  within  ninety  (90) days
     following the event  authorizing such  termination,  give written notice to
     the  Authority  and the  Trustee  and  shall  specify  therein  the date of
     redemption of the Bonds  pursuant to Section 4.01 of the  Indenture,  which
     date shall be the next  Interest  Payment  Date in respect of the Bonds for
     which the  required  notice of  redemption  can  practicably  be given.  In
     accordance  with  the  terms  of the  Indenture,  the  Company  shall  make
     arrangements  for the Trustee to give the  required  notice of  redemption.
     Payment of the  redemption  price of the Bonds  redeemed  pursuant  to this
     Section 9.02 will be made in accordance with the terms of the Indenture.

                                       19
<PAGE>

                                   ARTICLE X.

                                 MISCELLANEOUS

     Section 10.01. Approval of Indenture.  The Company acknowledges that it has
received  executed copies of the Indenture,  the other Bond Documents and a copy
of the  Letters of Credit and that it is  familiar  with their  provisions,  and
agrees that it will take all such actions as are required or  contemplated of it
under the Indenture to preserve and protect the rights of the Trustee thereunder
and that it will not take any action  which would cause a default or an Event of
Default  thereunder.  It is agreed by the  Company  and the  Authority  that any
redemption  of the Bonds prior to maturity  shall be effected as provided in the
Indenture.

     Section 10.02.  Illegal  Provisions  Disregarded.  If any term or provision
hereof or the application  thereof for any reason or  circumstance  shall to any
extent be held to be invalid or  unenforceable,  this Agreement shall be invalid
or unenforceable only to the extent of such invalidity or  unenforceability  and
such  invalidity or  unenforceability  shall not  invalidate the balance of such
provision  or the  remaining  terms  or  provisions  of  this  Agreement  or the
application  of such terms or provisions to Persons other than those as to which
it has been held invalid or unenforceable;  each term and provision hereof shall
be valid and  enforceable to the fullest  extent  permitted by law, and shall be
liberally construed in favor of the Authority or its assignee in order to effect
the intent of this Agreement.

     Section 10.03.  Limitation of Liability of the Agency.  In the event of any
default  by the  Authority  hereunder,  and  notwithstanding  any  provision  or
obligation to the contrary  hereinbefore or hereinafter set forth, the liability
of the Authority shall be limited to its interest in the Project Facilities, the
improvements  thereon, the rents, issues and profits therefrom,  and the lien of
any judgment shall be restricted thereto.  The Authority does not assume general
liability  nor  specific  liability  for the  repayment of any mortgage or other
loan, or for the costs, fees, penalties, taxes, interest, commissions,  charges,
insurance  or any other  payments  therein  recited  or therein  set  forth,  or
incurred in any way in connection therewith. Other than as set forth hereinabove
in this Section 10.03,  there shall be no other recourse for damages of any kind
or nature by the Company or any other Person against the  Authority,  counsel to
the Authority, its incorporator,  officers, members, agents and employees, past,
present or future, or any of the property or other assets now or hereafter owned
by it or them, either directly or indirectly; and all such recourse or liability
is hereby  expressly  waived and released as a condition of and in consideration
for execution and delivery of this Agreement by the Authority.

     Section 10.04. No Recourse as to the Agency.  Except as expressly  provided
in Section 10.03 above,  no recourse under or upon any  obligation,  covenant or
agreement  contained  herein or in any Bond shall be had against the  Authority,
counsel to the  Authority  or any  member,  officer,  employee  or agent,  past,
present or future,  of the Authority or of any successor of the Authority  under
this Agreement,  any other agreement, any rule of law, statute or constitutional
provision,  or by  enforcement  of any  assessment  or by any legal or equitable
proceeding  or  otherwise,  it expressly  being agreed and  understood  that the
obligations of the Authority hereunder,  and under the Bonds and elsewhere,  are
solely corporate obligations of the Authority to the extent specifically limited
in the Act and that no personal liability whatsoever shall attach to or shall be
incurred by the Authority,  counsel to the Authority or such members,  officers,

                                       20

<PAGE>

employees  or  agents,  past,  present  or future,  of the  Authority  or of any
successor of the Authority,  or any of them,  because of such indebtedness or by
reason of any obligation,  covenant or agreement  contained herein, in the Bonds
or implied therefrom.

     Section 10.05. Reference to Statute or Regulation.  A reference herein to a
statute or to a regulation issued by a governmental  agency includes the statute
or regulation in force as of the date hereof,  together with all  amendments and
supplements  thereto and any statute or regulation  substituted for such statute
or  regulation,  unless the  specific  language or the context of the  reference
herein  clearly  includes only the statute or regulation in force as of the date
hereof.  A  reference  herein  to  a  governmental  agency,  department,  board,
commission  or other  public body or to a public  officer  includes an entity or
officer  which or who  succeeds to  substantially  the same  functions  as those
performed  by such  public  body or  officer as of the date  hereof,  unless the
specific  language or the context of the reference  herein clearly includes only
such  public  body or  public  officer  as of the date  hereof.  Section  10.06.
Notices.  All notices  required or  authorized  to be given by the Company,  the
Authority or the Trustee under the Indenture or pursuant to this Agreement shall
be in  writing  and  shall be sent by  registered  or  certified  mail,  postage
prepaid, to the following addresses:

          to the Authority to:

               Vermont  Economic  Development  Authority
               58 East  State  Street
               Montpelier, Vermont 05602
               Attention: Manager

          to the Company to:

               Vermont Pure Holdings,  Ltd.
               66 Catamount Center
               Randolph  Center,  VT 05061

               Attention: Bruce MacDonald, Chief Financial Officer

               Vermont Pure Springs, Inc.
               66 Catamount Center
               Randolph Center, VT 05061

               Attention:  Bruce MacDonald, Chief Financial Officer

          to the Trustee to:

               First Union National Bank
               123 S. Broad Street
               Philadelphia, Pennsylvania 19109

               Attention:  James Matthews, Assistant Vice President

or to such other addresses as may from time to time be furnished to the parties,
effective upon the receipt of notice  thereof given as set forth above.  Each of
the above  agrees  that it shall send a duplicate  copy or executed  copy of all

                                       21

<PAGE>

certificates, notices, correspondence or other data and materials required to be
sent to one of the above to all other  parties and in  addition,  to the Bank at
2240 Butler Pike, Plymouth Meeting,  Pennsylvania 19462, Attention: Carl Goeltz,
Vice President.

     Section  10.07.  Applicable  Law.  This  Agreement  shall be deemed to be a
contract made in the State and governed by the law of the State.

     Section 10.08.  Amendments.  This Agreement may not be amended except by an
instrument in writing signed by the parties and, if such amendment  occurs after
the issuance of the Bonds,  consented to by the Trustee and the Bank, so long as
the Bank is not in default under the terms of any of the Letters of Credit.

     Section 10.09. Term of Agreement.  Except as provided in Section 3.10, this
Agreement and the respective  obligations of the parties hereto shall be in full
force and effect from the date hereof until all principal and Purchase Price of,
premium,  if any, and interest on the Bonds and all other  amounts due hereunder
and under the Indenture shall have been paid or provision for such payment shall
have been made pursuant to the terms and provisions hereof and of the Indenture.

     Section 10.10.  Amounts Remaining in Bond Fund. It is agreed by the parties
hereto  that any  amounts  remaining  in the Bond  Fund  established  under  the
Indenture upon expiration or sooner  termination of this Agreement after payment
in full of the Bonds (or  provision  for  payment  thereof  having  been made in
accordance  with the provisions of the  Indenture) and of the fees,  charges and
expenses of the Trustee and the Authority in accordance  with this Agreement and
the Indenture,  shall, to the extent of any unreimbursed draws under the Letters
of Credit,  or any other  Obligations owing by the Company to the Bank under the
Reimbursement Agreement or any of the other Related Documentation (as defined in
the  Reimbursement  Agreement),  be paid to the Bank. Any remaining moneys shall
belong to and be paid to the Company by the Trustee.

     Section  10.12.  Multiple  Counterparts.  This Agreement may be executed in
multiple  counterparts,  each of which shall be regarded  for all purposes as an
original and such counterparts shall constitute but one and the same instrument.

     Section  10.13.  Consent.  Whenever  the  consent of the  Authority  or its
assignee is given  pursuant to the terms of this  Agreement,  such consent shall
create no liability or  responsibility  upon the Authority or its assignee,  and
whenever required, shall not be unreasonably withheld.

                                       22
<PAGE>

         IN WITNESS  WHEREOF,  the VERMONT  ECONOMIC  DEVELOPMENT  AUTHORITY has
caused  this  Agreement  to be  executed  in its name and on its  behalf  by its
Manager under seal,  and VERMONT PURE  HOLDINGS,  LTD. and VERMONT PURE SPRINGS,
INC.  each have  caused  this  Agreement  to be  executed in its name and on its
behalf by its  authorized  Officer under seal as of the day and year first above
written.

(SEAL)                        VERMONT ECONOMIC DEVELOPMENT AUTHORITY

                              By_______________________________________________
                                Rosalea Bradley
                                Manager

(SEAL)                        VERMONT PURE HOLDINGS, LTD.

                              By_______________________________________________
                                Authorized Officer

 (SEAL)                       VERMONT PURE SPRINGS, INC.

                              By_______________________________________________
                                Authorized Officer





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