COMMERCIAL SECURITY AGREEMENT


Borrower: VERMONT PURE HOLDINGS, LTD.(TIN: 13-3576606), VERMONT PURE SPRINGS,
INC. (TIN: 03-0330521) P.O. BOX C RANDOLPH, VT 05060


Lender: CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN BANK Burlington Two Burlington
Square Burlington, VT 05401


THIS COMMERCIAL SECURITY AGREEMENT Is entered Into between VERMONT PURE
HOLDINGS, LTD. (TIN: 13-3576606), VERMONT PURE SPRINGS, INC. (TIN: 03-0330521)

(referred to below as "Grantor");  and CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN
BANK (referred to below as "Lender"). For valuable consideration, Grantor grants
to Lender a security  interest In the Collateral to secure the  Indebtedness and
agrees that Lender shall have the rights stated in this  Agreement  with respect
to the Collateral, in addition to all other rights which Lender may have by law.

DEFINITIONS.  The following words shall have the following meanings when used in
this  Agreement.  Terms not otherwise  defined in this Agreement  shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar  amounts  shall mean amounts in lawful  money of the United  States of
America.

    Agreement. The word "Agreement" means this Commercial Security Agreement, as
    this Commercial  Security  Agreement may be amended or modified from time to
    time,  together with all exhibits and schedules  attached to this Commercial
    Security Agreement from time to time.

      Collateral.  The word "Collateral" means the following  described property
      of Grantor, whether now owned or hereafter acquired,  whether now existing
      or hereafter arising, and wherever located:

         All inventory, accounts, equipment, general intangibles and fixtures

      In addition, the word "Collateral" includes all the following, whether now
      owned or hereafter  acquired,  whether now existing or hereafter  arising,
      and wherever located:

         (a) All attachments,  accessions,  accessories, tools, parts, supplies,
         increases,  and additions to and all replacements of and  substitutions
         for any property described above.

         (b)All products and produce of any of the property described in
                  this Collateral section.

         (c)All accounts, general intangibles, instruments, rents, monies,
         payments,  and all other rights, arising out of a sale, lease, or other
         disposition  of  any of  the  property  described  in  this  Collateral
         section.

         (d)  All  proceeds  (including   insurance  proceeds)  from  the  sale,
         destruction,  loss,  or  other  disposition  of  any  of  the  property
         described in this Collateral section.

         (e) All records and data  relating to any of the property  described in
         this Collateral section, whether in the form of a writing,  photograph,
         microfilm,  microfiche,  or  electronic  media,  together  with  all of
         Grantor's right,  title,  and interest in and to all computer  software
         required to utilize,  create, maintain, and process any such records or
         data on electronic media.

      Event of Default.  The words "Event of Default" mean and include without
      limitation any of the Events of Default set forth below in the section
      titled "Events of Default."

<PAGE>

      Grantor.  The word "Grantor" means VERMONT PURE HOLDINGS, LTD. (TIN:
      13-3576606), VERMONT PURE SPRINGS, INC. (TIN:03-0330621), its successors
      and assigns.

      Guarantor.  The word "Guarantor" means and includes without limitation
      each and all of the guarantors, sureties, and accommodation parties in
      connection with the Indebtedness.

      Indebtedness.  The word "Indebtedness" means the indebtedness evidenced by
      the Note,  including all  principal and interest,  together with all other
      indebtedness and costs and expenses for which Grantor is responsible under
      this  Agreement or under any of the Related  Documents.  In addition,  the
      word "Indebtedness" includes all other obligations, debts and liabilities,
      plus interest thereon,  of Grantor, or any one or more of them, to Lender,
      as well as all  claims by Lender  against  Grantor,  or any one or more of
      them,  whether  existing  now or  later;  whether  they are  voluntary  or
      involuntary,  due or not due, direct or indirect,  absolute or contingent,
      liquidated or unliquidated;  whether Grantor may be liable individually or
      jointly  with  others;  whether  Grantor may be  obligated  as  guarantor,
      surety,  accommodation  party or  otherwise;  whether  recovery  upon such
      indebtedness  may be or  hereafter  may  become  barred by any  statute of
      limitations;  and whether such indebtedness may be or hereafter may become
      otherwise unenforceable.

      Lender.  The word "Lender" means CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN
      BANK, its successors and assigns.

      Note.  The word "Note" means the note or credit agreement dated July 17,
      1997, in the principal amount of $1,814,461.73 from VERMONT PURE HOLDINGS,
      LTD. (TIN: 13-3576606), VERMONT PURE SPRINGS, INC. (TIN: 03-0330521) to
      Lender, together with all renewals of, extensions of, modifications of,
      refinancings of, consolidations of and substitutions for the note or
      credit agreement.

      Related Documents.  The words "Related Documents" mean and include without
      limitation all  promissory  notes,  credit  agreements,  loan  agreements,
      environmental  agreements,  guaranties,  security  agreements,  mortgages,
      deeds of  trust,  and all other  instruments,  agreements  and  documents,
      whether  now or  hereafter  existing,  executed  in  connection  with  the
      Indebtedness.

RIGHT OF SETOFF.  Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's  right,  title and interest in and to Grantor's  accounts  with Lender
(whether checking, savings, or some other account),  including all accounts held
jointly  with  someone  else and all  accounts  Grantor  may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor  authorizes
Lender,  to the extent  permitted  by  applicable  law,  to charge or setoff all
Indebtedness against any and all such accounts.


<PAGE>



OBLIGATIONS OF GRANTOR.  Grantor warrants and covenants to Lender as follows:

      Perfection of Security Interest.  Grantor agrees to execute such financing
      statements  and to take whatever  other actions are requested by Lender to
      perfect and continue Lender's  security  interest in the Collateral.  Upon
      request  of  Lender,  Grantor  will  deliver  to Lender any and all of the
      documents evidencing or constituting the Collateral, and Grantor will note
      Lender's  interest  upon any and all  chattel  paper if not  delivered  to
      Lender for  possession by Lender.  Grantor hereby  appoints  Lender as its
      irrevocable  attorney-in-fact  for the purpose of executing  any documents
      necessary to perfect or to continue the security  interest granted in this
      Agreement.  Lender may at any time, and without further authorization from
      Grantor,  file  a  carbon,  photographic  or  other  reproduction  of  any
      financing statement or of this Agreement for use as a financing statement.
      Grantor will reimburse  Lender for all expenses for the perfection and the
      continuation  of the  perfection  of  Lender's  security  interest  in the
      Collateral.  Grantor  promptly  will  notify  Lender  before any change in
      Grantor's  name  including  any change to the  assumed  business  names of
      Grantor.  This is a continuing  Security  Agreement  and will  continue In
      effect even though all or any part of the Indebtedness is paid in full and
      even though for a period of time Grantor may not be indebted to Lender.

      No  Violation.  The  execution  and  delivery of this  Agreement  will not
      violate any law or agreement  governing  Grantor or to which  Grantor is a
      party, and its certificate or articles of incorporation  and bylaws do not
      prohibit any term or condition of this Agreement.

      Enforceability  of Collateral.  To the extent the  Collateral  consists of
      accounts,  chattel  paper,  or  general  intangibles,  the  Collateral  is
      enforceable in accordance  with its terms,  is genuine,  and complies with
      applicable  laws  concerning  form,  content and manner of preparation and
      execution,  and all persons  appearing to be  obligated on the  Collateral
      have  authority and capacity to contract and are in fact obligated as they
      appear to be on the Collateral. At the time any account becomes subject to
      a security  interest in favor of Lender,  the account  shall be a good and
      valid account representing an undisputed,  bona fide indebtedness incurred
      by  the  account  debtor,   for  merchandise   held  subject  to  delivery
      instructions or theretofore shipped or delivered pursuant to a contract of
      sale,  or for  services  theretofore  performed by Grantor with or for the
      account  debtor;  there shall be no setoffs or  counterclaims  against any
      such account; and no agreement under which any deductions or discounts may
      be  claimed  shall have been made with the  account  debtor  except  those
      disclosed to Lender in writing.

      Location of the Collateral.  Grantor, upon request of Lender, will deliver
      to Lender in form satisfactory to Lender a schedule of real properties and
      Collateral locations relating to Grantor's  operations,  including without
      limitation the following:  (a) all real property owned or being  purchased
      by Grantor;  (b) all real property being rented or leased by Grantor;  lo)
      all storage  facilities owned,  rented,  leased, or being used by Grantor;
      and (d) all other properties where Collateral is or may be located. Except
      in the  ordinary  course of its  business,  Grantor  shall not  remove the
      Collateral from its existing  locations  without the prior written consent
      of Lender.

      Removal of Collateral. Grantor shall keep the Collateral (or to the extent
      the  Collateral  consists of  intangible  property  such as accounts,  the
      records concerning the Collateral) at Grantor's address shown above, or at
      such other  locations as are acceptable to Lender.  Except in the ordinary
      course of its business,  including  the sales of inventory,  Grantor shall
      not remove the Collateral from its existing locations without the prior

<PAGE>

07-17-1997
                          COMMERCIAL SECURITY AGREEMENT
                                     Page 2

                                   (Continued)

      written consent of Lender.  To the extent that the Collateral  consists of
      vehicles,  or other titled property,  Grantor shall not take or permit any
      action which would require  application for  certificates of title for the
      vehicles  outside the State of Vermont,  without the prior written consent
      of Lender.

      Transactions  Involving Collateral.  Except for inventory sold or accounts
      collected in the ordinary course of Grantor's business,  Grantor shall not
      sell,  offer to sell, or otherwise  transfer or dispose of the Collateral.
      While  Grantor is not in default  under this  Agreement,  Grantor may sell
      inventory,  but only in the  ordinary  course of its  business and only to
      buyers who qualify as a buyer in the ordinary  course of business.  A sale
      in the ordinary  course of Grantor's  business does not include a transfer
      in partial or total satisfaction of a debt or any bulk sale. Grantor shall
      not pledge,  mortgage,  encumber or otherwise  permit the Collateral to be
      subject to any lien, security interest, encumbrance, or charge, other than
      the security  interest  provided for in this Agreement,  without the prior
      written consent of Lender. This includes security interests even if junior
      in right to the security  interests  granted under this Agreement.  Unless
      waived by Lender, all proceeds from any disposition of the Collateral (for
      whatever  reason)  shall be held in trust  for  Lender  and  shall  not be
      commingled with any other funds;  provided however, this requirement shall
      not constitute  consent by Lender to any sale or other  disposition.  Upon
      receipt, Grantor shall immediately deliver any such proceeds to Lender.

      Title.  Grantor  represents  and warrants to Lender that it holds good and
      marketable  title to the  Collateral,  free and  clear  of all  liens  and
      encumbrances except for the lien of this Agreement. No financing statement
      covering any of the  Collateral is on file in any public office other than
      those which reflect the security  interest created by this Agreement or to
      which Lender has  specifically  consented.  Grantor shall defend  Lender's
      rights in the  Collateral  against  the  claims  and  demands of all other
      persons.

      Collateral Schedules and Locations.  As often as Lender shall require, and
      insofar as the  Collateral  consists of accounts and general  intangibles,
      Grantor shall deliver to Lender  schedules of such  Collateral,  including
      such information as Lender may require, including without limitation names
      and  addresses  of account  debtors  and agings of  accounts  and  general
      intangibles.   Insofar  as  the  Collateral   consists  of  inventory  and
      equipment,  Grantor  shall  deliver  to Lender,  as often as Lender  shall
      require, such lists, descriptions,  and designations of such Collateral as
      Lender may require to identify  the nature,  extent,  and location of such
      Collateral. Such information shall be submitted for Grantor and each


<PAGE>



      of its subsidiaries or related companies.

      Maintenance  and  Inspection of  Collateral.  Grantor  shall  maintain all
      tangible Collateral in good condition and repair.  Grantor will not commit
      or permit damage to or  destruction  of the  Collateral or any part of the
      Collateral.  Lender and its  designated  representatives  and agents shall
      have the right at all reasonable times to examine,  inspect, and audit the
      Collateral  wherever located.  Grantor shall immediately  notify Lender of
      all cases involving the return, rejection, repossession, loss or damage of
      or to any  Collateral;  of any request for credit or  adjustment or of any
      other dispute arising with respect to the Collateral; and generally of all
      happenings and events  affecting the Collateral or the value or the amount
      of the Collateral.

      Taxes,  Assessments  and  Liens.  Grantor  will pay  when  due all  taxes,
      assessments and liens upon the Collateral, its use or operation, upon this
      Agreement,  upon any promissory note or notes evidencing the Indebtedness,
      or upon any of the other Related Documents.  Grantor may withhold any such
      payment  or may elect to  contest  any lien if  Grantor  is in good  faith
      conducting an appropriate  proceeding to contest the obligation to pay and
      so long as  Lender's  interest in the  Collateral  is not  jeopardized  in
      Lender's sole opinion.  If the  Collateral is subjected to a lien which is
      not discharged within fifteen (15) days, Grantor shall deposit with Lender
      cash, a sufficient corporate surety bond or other security satisfactory to
      Lender in an amount adequate to provide for the discharge of the lien plus
      any interest, costs, attorneys' fees or other charges that could accrue as
      a result of foreclosure or sale of the Collateral.  In any contest Grantor
      shall  defend  itself  and  Lender  and shall  satisfy  any final  adverse
      judgment before  enforcement  against the  Collateral.  Grantor shall name
      Lender as an  additional  obligee  under any surety bond  furnished in the
      contest proceedings.

      Compliance With Governmental  Requirements.  Grantor shall comply promptly
      with all laws,  ordinances,  rules  and  regulations  of all  governmental
      authorities,  now or hereafter  in effect,  applicable  to the  ownership,
      production,  disposition, or use of the Collateral. Grantor may contest in
      good faith any such law,  ordinance or regulation and withhold  compliance
      during any proceeding,  including appropriate appeals, so long as Lender's
      interest in the Collateral, in Lender's opinion, is not jeopardized.

      Hazardous Substances.  Grantor represents and warrants that the Collateral
      never has been, and never will be so long as this Agreement remains a lien
      on  the  Collateral,  used  for  the  generation,   manufacture,  storage,
      transportation,  treatment, disposal, release or threatened release of any
      hazardous  waste  or  substance,   as  those  terms  are  defined  in  the
      Comprehensive Environmental Response,  Compensation,  and Liability Act of
      1980,  as  amended,  42  U.S.C.  Section  9601,  et seq.  C'CERCLA"),  the
      Superfund  Amendments and  Reauthorization Act of 1986, Pub. L. No. 99-499
      ('SARA'),  the Hazardous Materials  Transportation Act, 49 U.S.C.  Section
      1801,  et seq.,  the Resource  Conservation  and  Recovery  Act, 42 U.S.C.
      Section 6901, et seq., or other applicable  state or Federal laws,  rules,
      or  regulations  adopted  pursuant  to  any of the  foregoing.  The  terms
      "hazardous  waste" and "hazardous  substance" shall also include,  without
      limitation,  petroleum and petroleum  by-products or any fraction  thereof
      and asbestos.  The  representations  and warranties  contained  herein are
      based on Grantor's  due  diligence in  investigating  the  Collateral  for
      hazardous  wastes and  substances.  Grantor hereby (a) releases and waives
      any future  claims  against  Lender for indemnity or  contribution  in the
      event  Grantor  becomes  liable for  cleanup or other costs under any such
      laws, and lb) agrees to indemnify and hold harmless Lender against any and
      all claims and losses  resulting  from a breach of this  provision of this
      Agreement.  This  obligation to indemnify shall survive the payment of the
      Indebtedness and the satisfaction of this Agreement.

<PAGE>

      Maintenance of Casualty Insurance.  Grantor shall procure and maintain all
      risks insurance,  including  without  limitation fire, theft and liability
      coverage  together  with such other  insurance  as Lender may require with
      respect  to  the  Collateral,  in  form,  amounts,   coverages  and  basis
      reasonably  acceptable  to Lender  and  issued by a company  or  companies
      reasonably  acceptable to Lender.  Grantor,  upon request of Lender,  will
      deliver  to  Lender  from time to time the  policies  or  certificates  of
      insurance in form  satisfactory  to Lender,  including  stipulations  that
      coverages  will not be cancelled or  diminished  without at least ten (10)
      days' prior written  notice to Lender and not including any  disclaimer of
      the insurer's  liability for failure to give such a notice. Each insurance
      policy also shall include an endorsement  providing that coverage in favor
      of Lender will not be impaired in any way by any act,  omission or default
      of Grantor or any other person.  In connection with all policies  covering
      assets in which  Lender holds or is offered a security  interest,  Grantor
      will provide Lender with such loss payable or other endorsements as Lender
      may  require.  If  Grantor  at any time  fails to obtain or  maintain  any
      insurance as required under this  Agreement,  Lender may (but shall not be
      obligated to) obtain such insurance as Lender deems appropriate, including
      if it so  chooses  "single  interest  insurance,"  which  will  cover only
      Lender's interest in the Collateral.

      Application of Insurance Proceeds. Grantor shall promptly notify Lender of
      any loss or damage to the  Collateral.  Lender  may make  proof of loss if
      Grantor  fails to do so  within  fifteen  (15) days of the  casualty.  All
      proceeds of any insurance on the Collateral,  including  accrued  proceeds
      thereon,  shall be held by  Lender  as part of the  Collateral.  If Lender
      consents to repair or replacement of the damaged or destroyed  Collateral,
      Lender shall,  upon  satisfactory  proof of expenditure,  pay or reimburse
      Grantor  from  the  proceeds  for  the   reasonable   cost  of  repair  or
      restoration.  If Lender does not consent to repair or  replacement  of the
      Collateral, Lender shall retain a sufficient amount of the proceeds to pay
      all of the  Indebtedness,  and  shall  pay the  balance  to  Grantor.  Any
      proceeds which have not been  disbursed  within six (6) months after their
      receipt and which Grantor has not  committed to the repair or  restoration
      of the Collateral shall be used to prepay the Indebtedness.

      Insurance  Reserves.  Lender may require  Grantor to maintain  with Lender
      reserves  for  payment of  insurance  premiums,  which  reserves  shall be
      created by monthly  payments  from Grantor of a sum estimated by Lender to
      be  sufficient  to produce,  at least fifteen (15) days before the premium
      due date,  amounts at least equal to the insurance premiums to be paid. If
      fifteen  (15)  days  before   payment  is  due,  the  reserve   funds  are
      insufficient,  Grantor shall upon demand pay any deficiency to Lender. The
      reserve  funds  shall be held by  Lender as a  general  deposit  and shall
      constitute  a  non-4nterest-bearing  account  which  Lender may satisfy by
      payment of the insurance  premiums  required to be paid by Grantor as they
      become due.  Lender does not hold the reserve  funds in trust for Grantor,
      and  Lender is not the  agent of  Grantor  for  payment  of the  insurance
      premiums  required  to be  paid by  Grantor.  The  responsibility  for the
      payment of premiums shall remain Grantor's sole responsibility.

      Insurance  Reports.  Grantor,  upon  request of Lender,  shall  furnish to
      Lender  reports  on  each  existing  policy  of  insurance   showing  such
      information as Lender may reasonably request including the following:  (a)
      the name of the  insurer;  (b) the risks  insured;  (c) the  amount of the
      policy; (d) the property insured;  (e) the then current value on the basis
      of which insurance has been obtained and the manner of determining


<PAGE>



      that  value;  and (f) the  expiration  date of the  policy.  In  addition,
      Grantor  shall  upon  request  by  Lender  (however  not more  often  than
      annually) have an independent appraiser  satisfactory to Lender determine,
      as applicable, the cash value or replacement cost of the Collateral.

GRANTORIS RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS.  Until default and except
as  otherwise  provided  below  with  respect  to  accounts,  Grantor  may  have
possession  of the  tangible  personal  property and  beneficial  use of all the
Collateral  and may use it in any  lawful  manner  not  inconsistent  with  this
Agreement or the Related Documents,  provided that Grantor's right to possession
and  beneficial use shall not apply to any  Collateral  where  possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral.  Until otherwise notified by Lender, Grantor may collect any of
the Collateral  consisting of accounts.  At any time and even though no Event of
Default  exists,  Lender may  exercise its rights to collect the accounts and to
notify account  debtors to make payments  directly to Lender for  application to
the  Indebtedness.  If  Lender  at any time has  possession  of any  Collateral,
whether  before  or after an Event of  Default,  Lender  shall be deemed to have
exercised  reasonable care in the custody and  preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any  request  by Grantor  shall not of itself be deemed to be a
failure to exercise  reasonable  care.  Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral  against prior parties,
nor to protect,  preserve or maintain any security  interest given to secure the
Indebtedness.

EXPENDITURES  BY LENDER.  If not  discharged  or paid when due,  Lender may (but
shall  not  be  obligated  to)  discharge  or pay  any  amounts  required  to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and

07-17-1997
                          COMMERCIAL SECURITY AGREEMENT
                                     Page 3
                                   (Continued)



other claims,  at any time levied or placed on the  Collateral,  Lender also may
(but shall not be  obligated  to) pay all costs for  Insuring,  maintaining  and
preserving the Collateral.  All such expenditures incurred or paid by Lender for
such  purposes  will then bear  interest at the rate charged under the Note from
the date  incurred or paid by Lender to the date of  repayment  by Grantor.  All
such expenses shall become a part of the  Indebtedness  and, at Lender's option,
will (a) be payable on  demand,  (b) be added to the  balance of the Note and be
apportioned  among and be payable  with any  installment  payments to become due
during  either  (i) the  term of any  applicable  insurance  policy  or (II) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity.  This Agreement also will secure payment
of these  amounts.  Such  right  shall be in  addition  to all other  rights and
remedies to which  Lender may be  entitled  upon the  occurrence  of an Event of
Default.



EVENTS OF DEFAULT.  Each of the following shall constitute an Event of Default
under this Agreement: 

Default on Indebtedness.  Failure of Grantor to make any payment when due on
the Indebtedness. 

Other Defaults.  Failure of Grantor to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of the 
Related Documents or in any other agreement between Lender and Grantor.

<PAGE>

Default In Favor of Third Parties.  Should Borrower or any Grantor default under
any loan, extension of credit, security agreement,  purchase or sales agreement,
or any other  agreement,  in favor of any  other  creditor  or  person  that may
materially  affect any of  Borrower's  property or  Borrower's  or any Grantor's
ability to repay the Loans or perform their  respective  obligations  under this
Agreement of any of the Related Documents.

False Statements. Any warraniy, representation or statement made or furnished to
Lender by or on behalf of Grantor under this Agreement,  the Note or the Related
Documents is false or misleading in any material  respect,  either now or at the
time made or furnished.



Defective  Collateralization.  This  Agreement  or any of the Related  Documents
ceases to be in full  force and  effect  (including  failure  of any  collateral
documents to create a valid and perfected security interest or lien) at any time
and for any reason.

Insolvency.  The  dissolution or  termination of Grantor's  existence as a going
business,  the insolvency of Grantor, the appointment of a receiver for any part
of Grantor's property, any assignment for the benefit of creditors,  any type of
creditor workout,  or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Grantor.

Creditor or Forfeiture  Proceedings.  Commencement  of foreclosure or forfeiture
proceedings,  whether by judicial  proceeding,  self-help,  repossession  or any
other method,  by any creditor of Grantor or by any governmental  agency against
the Collateral or any other collateral securing the Indebtedness.  This includes
a garnishment of any of Grantor's deposit accounts with Lender.



Events Affecting Guarantor.  Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or such Guarantor dies or becomes
incompetent.

Adverse Change.  A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.



Insecurity.  Lender, in good faith, deems itself insecure.

RIGHTS  AND  REMEDIES  ON  DEFAULT.  If an Event of  Default  occurs  under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party  under the  Vermont  Uniform  Commercial  Code.  In  addition  and without
limitation,  Lender may  exercise  any one or more of the  following  rights and
remedies:

    Accelerate  Indebtedness.   Lender  may  declare  the  entire  Indebtedness,
    including  any  prepayment  penalty  which Grantor would be required to pay,
    immediately due and payable, without notice.

    Assemble Collateral.  Lender may require Grantor to deliver to Lender all or
    any  porlion of the  Collateral  and any and all  certificates  of title and
    other documents  relating to the  Collateral.  Lender may require Grantor to
    assemble  the  Collateral  and make it  available to Lender at a place to be
    designated  by Lender.  Lender  also shall have full power to enter upon the
    property of Grantor to take possession of and remove the Collateral.  If the
    Collateral contains other goods not covered by this Agreement at the time of
    repossession, Grantor agrees Lender may take such other goods, provided that
    Lender   makes   reasonable   efforts  to  return  them  to  Grantor   after
    repossession.

<PAGE>

    Sell the Collateral.  Lender shall have full power to sell, lease, transfer,
    or otherwise deal with the Collateral or proceeds thereof in its own name or
    that of Grantor. Lender may sell the Collateral at public auction or private
    sale. Unless the Collateral  threatens to decline speedily in value or is of
    a type  customarily  sold on a recognized  market,  Lender will give Grantor
    reasonable  notice of the time  after  which any  private  sale or any other
    intended  disposition of the Collateral is to be made. The  requirements  of
    reasonable  notice  shall be met if such  notice  is given at least ten (10)
    days before the time of the sale or  disposition.  All expenses  relating to
    the disposition of the Collateral, including without limitation the expenses
    of  retaking,  holding,  insuring,   preparing  for  sale  and  selling  the
    Collateral,  shall  become  a  part  of the  Indebtedness  secured  by  this
    Agreement  and shall be payable on demand,  with  interest  at the Note rate
    from date of expenditure until repaid.



Appoint  Receiver.  To the extent permitted by applicable law, Lender shall have
the following rights and remedies  regarding the appointment of a receiver:  (a)
Lender may have a receiver  appointed as a matter of right, (b) the receiver may
be an employee  of Lender and may serve  without  bond,  and (c) all fees of the
receiver and his or her attorney shall become part of the  Indebtedness  secured
by this Agreement and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.

Collect Revenues,  Apply Accounts.  Lender, either itself or through a receiver,
may collect the  payments,  rents,  income,  and revenues  from the  Collateral.
Lender may at any time in its discretion  transfer any  Collateral  into its own
name or that of its  nominee  and  receive  the  payments,  rents,  income,  and
revenues  therefrom and hold the same as security for the  Indebtedness or apply
it to payment of the  Indebtedness  in such  order of  preference  as Lender may
determine.  Insofar as the Collateral consists of accounts, general intangibles,
insurance  policies,  instruments,  chattel paper,  choses in action, or similar
property, Lender may demand, collect, receipt for, settle,  compromise,  adjust,
sue for,  foreclose,  or realize  on the  Collateral  as Lender  may  determine,
whether or not  Indebtedness  or  Collateral  is then due.  For these  purposes,
Lender may, on behalf of and in the name of Grantor,  receive,  open and dispose
of mail addressed to Grantor;  change any address to which mail and payments are
to be sent; and endorse notes, checks, drafts, money orders, documents of title,
instruments  and items  pertaining  to  payment,  shipment,  or  storage  of any
Collateral.  To facilitate  collection,  Lender may notify  account  debtors and
obligors on any Collateral to make payments directly to Lender.

Obtain  Deficiency.  If  Lender  chooses  to sell any or all of the  Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining on the
Indebtedness  due to Lender after  application of all amounts  received from the
exercise of the rights provided in this Agreement. Grantor shall be liable for a
deficiency  even if the  transaction  described in this  subsection is a sale of
accounts or chattel paper.



Other  Rights and  Remedies.  Lender shall have all the rights and remedies of a
secured creditor under the provisions of the Uniform  Commercial Code, as may be
amended from time to time.  In addition,  Lender shall have and may exercise any
or all other  rights and remedies it may have  available  at law, in equity,  or
otherwise.



Cumulative Remedies.  All of Lender's rights and remedies,  whether evidenced by
this  Agreement  or the  Related  Documents  or by any other  writing,  shall be
cumulative and may be exercised  singularly or concurrently.  Election by Lender
to pursue any remedy  shall not  exclude  pursuit  of any other  remedy,  and an
election  to make  expenditures  or to take action to perform an  obligation  of
Grantor under this  Agreement,  after  Grantor's  failure to perform,  shall not
affect Lender's right to declare a default and to exercise its remedies.



MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a part of
this Agreement:



<PAGE>



    Amendments. This Agreement, together with any Related Documents, constitutes
    the entire  understanding and agreement of the parties as to the matters set
    forth in this  Agreement.  No alteration  of or amendment to this  Agreement
    shall be  effective  unless  given in  writing  and  signed  by the party or
    parties sought to be charged or bound by the alteration or amendment.



Applicable  Law.  This  Agreement  has been  delivered to Lender and accepted by
Lender in the State of  Vermont.  If there is a  lawsuit,  Grantor  agrees  upon
Lender's  request  to submit to the  jurisdiction  of the  courts of  Chittenden
County,  the State of Vermont.  Lender and Grantor hereby waive the right to any
jury trial in any action,  proceeding,  or counterclaim brought by either Lender
or Grantor against the other.  This Agreement shall be governed by and construed
in accordance with the laws of the State of Vermont.

Attorneys'  Fees;  Expenses.  Grantor  agrees to pay upon demand all of Lender's
costs and  expenses,  including  attorneys'  fees and Lender's  legal  expenses,
incurred in connection with the  enforcement of this  Agreement.  Lender may pay
someone else to help enforce this Agreement, and Grantor shall pay the costs and
expenses of such  enforcement.  Costs and expenses include  Lender's  attorneys'
fees and legal expenses whether or not there is a lawsuit,  including attorneys'
fees and legal expenses for  bankruptcy  proceedings  (and including  efforts to
modify or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment  collection  services.  Grantor also shall pay all court costs and
such additional fees as may be directed by the court.

Caption Headings.  Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.

Notices. All notices required to be given under this Agreement shall be given in
writing,  may be sent by  telefacsimile,  and shall be effective  when  actually
delivered or when deposited with a nationally  recognized  overnight  courier or
deposited in the United States mail, first class,  postage prepaid  addressed to
the party to whom the  notice is to be given at the  address  shown  above.  Any
party may change its address for notices

07-17-1997
                          COMMERCIAL SECURITY AGREEMENT
                                     Page 4
                                   (Continued)



under this  Agreement  by giving  formal  written  notice to the other  parties,
specifying that the purpose of the notice is to change the party's  address.  To
the extent  permitted  by  applicable  law,  if there is more than one  Grantor,
notice to any  Grantor  will  constitute  notice  to all  Grantors.  For  notice
purposes,  Granior will keep Lender  informed at all times of Grantor's  current
address(es).



    Power of Attorney.  Grantor  hereby  appoints  Lender as its true and lawful
    attorney-in-fact,  irrevocably,  with full power of  substitution  to do the
    following: (a) to demand, collect, receive, receipt for, sue and recover all
    sums of money or other property which may now or hereafter become due, owing
    or payable from the Collateral; (b) to execute, sign and endorse any and all
    claims, instruments,  receipts, checks, drafts or warrants issued in payment
    for the  Ccllateral;  (c) to settle or compromise any and all claims arising
    under the Collateral, and, in the place and stead of Grantor, to execute and
    deliver its release and settlement for the claim;  and (d) to file any claim
    or  claims  or to  take  any  action  or  institute  or  take  part  in  any
    proceedings, either in its own name or in the name of Grantor, or otherwise,
    which in the  discretion  of Lender may seem to be necessary  or  advisable.
    This power is given as  security  for the  Indebtedness,  and the  authority
    hereby  conferred is and shall be irrevocable and shall remain in full force
    and effect until renounced by Lender.

<PAGE>

    Severability.  If a court of competent  jurisdiction  finds any provision of
    this  Agreement  to  be  invalid  or  unenforceable  as  to  any  person  or
    cirdumstance,  such  finding  shall not  render  that  provision  invalid or
    unenforceable  as to any other persons or  circumstances.  If feasible,  any
    such  offending  provision  shall be deemed to be  modified to be within the
    limits of enforceability or validity;  however,  if the offending  provision
    cannot be so modified, it shall be stricken and all other provisions of this
    Agreement in all other respects shall remain valid and enforceable.

    Successor Interests.  Subject to the limitations set forth above on transfer
    of the  Collateral,  this  Agreement  shall be binding upon and inure to the
    benefit of the parties, their successors and assigns.

    Waiver.  Lender  shall not be deemed to have  waived any  rights  under this
    Agreement  unless such  waiver is given in writing and signed by Lender.  No
    delay or  omission  on the part of Lender  in  exercising  any  right  shall
    operate as a waiver of such right or any other right.  A waiver by Lender of
    a provision of this Agreement  shall not prejudice or constitute a waiver of
    Lender's right otherwise to demand strict  compliance with that provision or
    any other  provision of this Agreement.  No prior waiver by Lender,  nor any
    course of dealing between Lender and Grantor,  shall  constitute a waiver of
    any of Lender's  rights or of any of Grantor's  obligations as to any future
    transactions.  Whenever  the  consent  of  Lender  is  required  under  this
    Agreement,  the granting of such consent by Lender in any instance shall not
    constitute  continuing consent to subsequent instances where such consent is
    required  and in all cases such  consent  may be granted or  withheld in the
    sole discretion of Lender.

LIMITATION ON RIGHT OF SETOFF.  Lender agrees that it will exercise its right of
setoff,  as described above, only in the event of default under the terms of the
Note or any related document,  including (without  limitation) the Business Loan
Agreement,  any  Guaranty,  any  Mortgage,  any Security  Agreement,  any Pledge
Agreement, or any Letter of Credit Reimbursement or similar agreement.

ADDITIONAL EVENTS OF DEFAULT.  Additional events of default include: a) the
Grantor changing its name or assuming an additional name without first notifying
Lender or b) the Grantor failing to plant, cultivate and harvest crops in due 
season.

ADDITIONAL  RIGHTS AND REMEDIES ON DEFAULT.  Lender may demand more  security or
new parties  obligated to pay any debt Borrower owes to Lender as a condition of
giving up any other remedy.

LIMITATION ON GRANTOR'S  RIGHT TO  POSSESSION  AND TO COLLECT  ACCOUNTS.  Lender
agrees  that it will not  exercise  its rights to collect  the  accounts  and to
notify account  debtors to make payments  directly to Lender for  application to
the  Indebtedness  unless  an event of  default  occurs  under  the terms of the
Security Agreement, Note, or related documents.

TITLE  DISCLOSURE.  Borrower  will provide to Lender  written  disclosure of any
liens and  encumbrances  on the collateral in addition to Lender's lien and such
disclosure will serve to qualify,  and not contradict,  the  representations and
warranties of the Title provision above.

HAZARDOUS  SUBSTANCES  DISCLOSURE.  Borrower  will  provide  to  Lender  written
disclosure of any prior use of the collateral for the  generation,  manufacture,
storage,  transportation,  treatment, disposal, release or threatened release of
any hazardous waste or substance.  This disclosure  shall serve to qualify,  and
not contradict,  the representations and warranties of the Hazardous  Substances
provision above.

BANKRUPTCY  ARREARAGES.  If Borrower files a petition under the Bankruptcy  Code
and seeks to pay any  amount  which is past due under this  Note,  Mortgage  and
Security  Agreement as of the date of filing of the petition through a Chapter I
I or 13 plan,  Borrower  agrees to pay Lender  Interest on the amounts  past due
(arrearages)  at the Interest  Rate.  Interest  will be  calculated on the total
amount  past due as of Ihe date of filing  of the  petition  (this  may  include
Interest on past due Interest and late charges) for the time required to pay the
past due amounts through the bankruptcy case.

GRANTOR  ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS.THIS AGREEMENT IS DATED JULY 17,1997.



GRANTOR:

VERMONT PURE HOLDINGS, LTD. (TIN: 13-3576606), VERMONT PURE SPRINGS, INC.
(TIN: 03-0330521)



VERMONT PURE HOLDINGS, LTD., BY: BRUCE MACDONALD, CHIEF FINANCIAL OFFICER



VERMONT PURE SPRINGS, INC., BY: BRUCE MACDONALD, CHIEF FINANCIAL OFFICER



LENDER:

CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN BANK



By:
    Authorized Officer