SECURITY AGREEMENT


                  This  Security  Agreement,  dated as of January  6,  1998,  is
granted by Vermont Pure Springs,  Inc., a Delaware corporation,  ("Debtor"),  to
Sagamon Spring Water of Vermont, Inc., Inc., a Vermont corporation ("Creditor").

                  1.       Security Interest.

                           1.1      Debtor hereby grants to Creditor a security 
interest in all of the assets described on Schedule A annexed hereto and any
proceeds  thereof  (collectively, the  "Collateral")  as security  for the 
payment of all debts,  liabilities  and obligations of Debtor to Creditor under
a Promissory  Note of even date herewith issued by Debtor to Creditor in the 
face  amount of  $65,000.00  and any and all renewals or extensions thereof, and
arising under this Agreement  (collectively, the "Secured  Obligations"). Debtor
further agrees that the Collateral  secures the  payment of any  amounts 
received  by  Creditor  for  payment of any of the Secured  Obligations  which 
are repaid by Creditor or recovered from Creditor in any  bankruptcy  or  
insolvency  proceedings,  whether  by  court  order  or any agreement,  and the 
Collateral  shall remain as security for such amounts to the same extent as if 
Creditor had never received such amounts.

                           1.2      This Agreement is in addition to and without
limitation of any right of Creditor under the Note.

                           1.3      Subject to Section 1.4, this Agreement is
absolute and without any conditions,  and Creditor can enforce its rights in the
Collateral  immediately upon an Event of Default as defined  herein  without 
having first to attempt any collection from Debtor.

                           1.4      This Agreement is subordinated to the lien 
of Chittenden Bank,



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 Vermont  Economic  Development  Authority,  and the town of Randolph,  Randolph
National Bank, (the "Senior Lenders") in the Collateral as of the date hereof.

                  2.       Representation, Warranties and Covenants.

                           2.1      Debtor represents and warrants that, except 
for the security interest granted to the Senior Lenders and purchase money
security  interest,  Debtor has granted no  currently  effective  security  
interests in the  Collateral  to any person other than to Creditor,  and no
financing  statement in favor of any such other person as a secured party 
covering any of the  Collateral or any proceeds thereof is on file in any public
office, and the Collateral is free and clear of any charge or encumbrance, 
except pursuant to and under this Agreement.

                           2.2      Debtor agrees that Creditor may examine and 
inspect the Collateral at any reasonable time and wherever located. Debtor 
agrees not to relocate all or any  portion of the  Collateral  except in the  
ordinary course of business without Creditor's prior written consent which shall
not be  unreasonably withheld.
 
                          2.3      Debtor will from time to time upon demand, 
and within reasonable period of time,  furnish to Creditor such further  
information and will execute, acknowledge and deliver to Creditor such financing
statements and  assignments and other  papers  and will do such  other  acts and
things as  Creditor shall reasonably request and may be necessary or appropriate
to establish, perfect and maintain a valid security interest in the Collateral 
as security for the Secured Obligations.  Debtor will use its best  efforts to 
cause all persons or entities in possession of any of the  Collateral to execute
and deliver such documents or take such other action as is necessary to perfect
Creditor's  security interest in the Collateral.

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                  3.       Events of Default.

                           3.1      An "Event of Default" means:  (i) any event,
condition or act which constitutes  a default or an event of default in the 
Notes,  and (ii) any breach by Debtor of any of its  obligations  under  this 
Agreement  which is not cured within thirty (30) days of notice thereof by 
Creditor.

                           3.2      Upon the occurrence of an Event of Default, 
subject to the terms of the Lender Agreement, Creditor shall have all of the 
rights, powers and remedies set forth in the Notes and this Agreement, together
with the rights and remedies of a secured party under the Uniform  Commercial 
Code, as amended and adapted in Vermont from time to time (the "UCC"), 
including without limitation,  the right to sell, lease or otherwise dispose of
any or all of the Collateral, and to take possession of the Collateral,  and for
that purpose Creditor may enter peaceably any  premises on which the  Collateral
or any part  thereof may be situated and remove the same  therefrom  and Debtor 
will not resist or  interfere  with such action.  Creditor  may require  Debtor 
to assemble  the  Collateral  and make it available  to  Creditor  at a  place 
to be  designated by Creditor which is reasonably convenient to both parties. 
Debtor hereby agrees that the place or places of location of the Collateral are
places  reasonably  convenient to it to assumable the  Collateral. Creditor will
send Debtor  reasonable  notice of the time and place of any public sale or  
reasonable  notice of the time after which any private sale or any other 
disposition thereof is to be made. The requirement of sending  reasonable notice
shall be met if such  notice is mailed,  postage prepaid,  to  Debtor  at least 
ten  (10)  days  before  the time of the sale or disposition.

                           3.3      Upon demand by Creditor after an Event of 
Default, Debtor will 


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immediately  deliver to Creditor all proceeds of Collateral,  including  without
limitation,  all  checks,  drafts,  cash and  other  remittances,  notes,  trade
acceptances  or  other  instruments  or  contracts  for the  payment  of  money,
appropriately  endorsed  to  Creditor's  order  and,  regardless  of the of such
endorsement,  Debtor  hereby  waives  presentment,  demand,  notice of dishonor,
protest and notice of protest and all other  notices with respect  thereof;  and
Debtor  hereby  appoints  Creditor,  effective  upon  occurrence  of an Event of
Default and for such period of time s such Event of Default remains uncured,  as
Debtor's agent and attorney-in-fact to make such endorsement on behalf of and in
the name of Debtor upon ten (10) days prior notice  Creditor to Debtor.  Pending
such deposit,  Debtor agrees that it will not commingle any such checks, drafts,
cash and other remittances with any of the Debtor's funds or property,  but will
hold them  separate and apart  therefrom  and upon an express trust for Creditor
until delivery thereof is made to Creditor.

                           3.4      Creditor may exercise its rights with 
respect to Collateral without resorting to or regard to other collateral or
sources of reimbursement for the Secured Obligations.

                  4.       Severability. The invalidity, illegality or
unenforceability or any provision of this Agreement shall not render invalid, 
illegal or unenforceable any other provision hereof.

                  5.       Costs of Collection.  Debtor agrees to pay all
reasonable out-of- pocket expenses of Creditor (including reasonable fees of its
counsel) in connection with the 



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 enforcement of any provision of this Agreement (including this Section 5).

                  6. No Waiver of  Remedies.  No failure or delay on the part of
Creditor in the exercise of any power or right in this  Agreement  shall operate
as a waiver thereof,  and no exercise or waiver of any single power or right, or
the partial exercise thereof, shall affect Creditor's rights with respect to any
and all other rights and powers.

                  7.       Notices. All notices, requests, demands and other 
communications under this Agreement shall be in writing and shall be deemed 
given when delivered in the manner described in the Asset Purchase Agreement of 
even date herewith among Debtor and Creditor. 

                  8.       Successors and Assigns. This Agreement shall inure to
the benefit of Creditor and its successors and assigns.

                  9.       Headings and Captions. Any headings or captions 
preceding the text of the separate sections hereof are intended solely for
convenience of reference and shall not constitute a part of this Agreement, nor
shall they affect its meaning, construction or effect. 

                  10.      Governing Law. This Agreement shall be governed by 
the laws of the State of Vermont without reference to its principles of 
conflicts of law.



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                  IN WITNESS  WHEREOF,  Debtor has caused this  Agreement  to be
executed by its duly  authorized  officer or  representative  as of the date and
year first above written.

                                                 VERMONT PURE SPRINGS, INC.

                                             By:
                                             Timothy G. Fallon, President and
                                             Chief Executive Officer

ACCEPTED:

                                                   SAGAMON SPRING WATER
                                                     OF VERMONT, INC..

                                              By:
                                              Name:
                                              Title:


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