LOAN AGREEMENT



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

Lender: CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN BANK Burlington Two Burlington
Square P.O. BOX c  Burlington, VT 05401
RANDOLPH, VT 05060



THIS LOAN  AGREEMENT  between  VERMONT PURE HOLDINGS,  LTD.  (TIN:  13-3576606),
VERMONT PURE SPRINGS, INC. (TIN:  03-0330521)  ("Borrower") and CHITTENDEN TRUST
COMPANY d/b/a  CHITTENDEN  BANK ("Lender") Is made and executed on the following
terms and conditions.  Borrower has received prior  commercial loans from Lender
or has  applied to Lender  for a  commercial  loan or loans and other  financial
accommodations,  including  those  which  may be  described  on any  exhibit  or
schedule   attached   to  this   Agreement.   All  such   loans  and   financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to In this Agreement individually as the "Loan"
and  collectively as the "Loans."  Borrower  understands and agrees that: (a) in
granting,  renewing,  or extending any Loan,  Lender is relying upon  Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and  discretion;  and (c) all such Loans shall
be and shall  remain  subject  to the  following  terms and  conditions  of this
Agreement.

TERM.  This Agreement shall be effective as of June 20, 1997, and shall continue
thereafter  until all  Indebtedness  of Borrower to Lender has been performed in
full and the par-hes terminate this Agreement in writing.

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 Loan  Agreement,  as this Loan
    Agreement  may be amended or modified  from time to time,  together with all
    exhibits and schedules attached to this Loan Agreement from time to time.

    Account.  The word "Account" means a trade account,  account receivable,  or
    other right to payment for goods sold or services rendered owing to Borrower
    (or to a third party grantor acceptable to Lender).



Account Debtor.  The words "Account Debtor" mean the person or entity obligated
upon an Account.  

Advance.  The word "Advance" means a disbursement of Loan funds under this
Agreement. 

Borrower.  The word "Borrower" means VERMONT PURE HOLDINGS, LTD. (TIN: 
13-3576606), VERMONT PURE SPRINGS, INC. (TIN: 03-0330521). The word "Borrower" 
also includes, as applicable, all subsidiaries and affiliates of Borrower as 
provided below in the paragraph titled "Subsidiaries and Affiliates."



Borrowing Base. The words "Borrowing Base" mean the lesser of (a) $1,500,000.00;
or (b) the sum of (i)76% of the aggregate amount of Eligible Accounts, plus (ii)
50% of the aggregate  amount of Eligible  Inventory.  At no time shall  advances
against Eligible Inventory exceed $500,000.00.

<PAGE>


Business Day.  The words "Business Day" mean a day on which commercial banks are
open for business in the State of Vermont.

CERCLA.  The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.

Cash Flow.  The words "Cash Flow" mean net income after taxes, and exclusive of
extraordinary gains and income, plus depreciation and amortization.



Collateral.  The word  "Collateral"  means and includes  without  limitation all
property and assets granted as collateral  security for a Loan,  whether real or
personal property,  whether granted directly or indirectly,  whether granted now
or in the  future,  and  whether  granted  in the form of a  security  interest,
mortgage, deed of trust,  assignment,  pledge, chattel mortgage,  chattel trust,
factor's lien, equipment trust,  conditional sale, trust receipt,  lien, charge,
lien or title retention  contract,  lease or consignment  intended as a security
device,  or any other security or lien interest  whatsoever,  whether created by
law, contract,  or otherwise.  The word "Collateral" includes without limitation
all collateral described below in the section titled "COLLATERAL."



Debt. The word "Debt" means all of Borrower's liabilities excluding Subordinated
Debt.

Eligible Accounts.  The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable  to 
Lender.  The net amount of any  Eligible  Account  against  which Borrower may 
borrow shall exclude all returns,  discounts,  credits, and offsets of any  
nature.  Unless  otherwise  agreed  to by Lender  in  writing,  Eligible 
Accounts do not include:



(a)  Accounts  with  respect to which the Account  Debtor is an officer,  an
employee or agent of Borrower.

(b)  Accounts  with respect to which the Account  Debtor is a subsidiary of,
or  affiliated  with or related to Borrower or its  shareholders,  officers,  or
directors.



(c) Accounts with respect to which goods are placed on  consignment,  guaranteed
sale, or other terms by reason of which the payment by the Account Debtor may be
conditional.



(d) Accounts  with respect to which the Account  Debtor is not a resident of the
United  States,  except to the extent such  Accounts are supported by insurance,
bonds or other assurances satisfactory to Lender.



(e)  Accounts  with  respect to which  Borrower  is or may become  liable to the
Account  Debtor for goods sold or services  rendered  by the  Account  Debtor to
Borrower.



(f) Accounts which are subject to dispute, counterclaim, or setoff.

(g) Accounts with respect to which the goods have not been shipped or delivered,
or the services have not been rendered, to the Account Debtor.

(h)Accounts with respect to which Lender.in its sole discretion, deems the
creditworthiness  or  financial  condition  of the  Account  Debtor  to be
unsatisfactory.

<PAGE>

      (i)Accounts  of any Account  Debtor who has filed or has had filed against
it a petition in bankruptcy or an application  for relief under any provision of
any state or federal bankruptcy,  insolvency,  or debtor-in-relief  acts; or who
has had  appointed  a trustee,  custodian,  or  receiver  for the assets of such
Account  Debtor;  or who has made an assignment  for the benefit of creditors or
has  become  insolvent  or  fails  generally  to pay its  debts  (including  its
payrolls) as such debts become due.



        (j)  Accounts  with  respect to which the  Account  Debtor is the United
States government or any department or agency of the United States.

        (k)  Accounts  which have not been paid in full  within 60 DAYS (75 DAYS
DURING THE MONTHS OF JANUARY  THRU MAY) FOR PET ACCOUNT AND 90 DAYS FOR HOME AND
OFFICE  ACCOUNTS from the invoice date. The entire balance of any Account of any
single  Account  debtor will be  ineligible  whenever the portion of the Account
which has not been paid  within 60 DAYS (75 DAYS  DURING  THE  MONTHS OF JANUARY
THRU MAY) FOR PET  ACCOUNT  AND 90 DAYS FOR HOME AND  OFFICE  ACCOUNTS  from the
invoice  date is in excess of 25.000%  of the total  amount  outstanding  on the
Account.



(l) That portion of the Accounts of any single Account Debtor which exceeds
30.000% of all of Borrower's Accounts. 

Eligible Inventory.  The words "Eligible Inventory" mean, at any time, all of 
Borrower's Inventory as defined below except:

           (a)  Inventory  which is not owned by Borrower  free and clear of all
           security interests, liens, encumbrances, and claims of third parties.

           (b)  Inventory  which  Lender,  in its sole  discretion,  deems to be
           obsolete,   unsalable,  damaged,  defective,  or  unfit  for  further
           processing.

           (c)   Work in progress. 

ERISA. The word "ERISA" means the Employee  Retirement  Income Security Act of 
1974, as amended.

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."


Expiration Date.  The words "Expiration Date" mean the date of termination of
Lender's commitment to lend under this Agreement.

Grantor.  The word "Grantor" means and includes without  limitation each and all
of the persons or entities  granting a Security  Interest in any  Collateral for
the  Indebtedness,  including without  limitation all Borrowers  granting such a
Security Interest.



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

06-20-1997
                                 LOAN AGREEMENT
                                     Page 2
                                   (Continued)



Indebtedness.  The word "Indebtedness" means and includes without limitation all
Loans, together with all other obligations, debts and liabilities of Borrower to
Lender,  or any one or more of them,  as well as all  claims by  Lender  against
Borrower,  or any  one or more  of  them;  whether  now or  hereafter  existing,
voluntary or involuntary, due or not due, absolute or contingent,  liquidated or
unliquidated;  whether  Borrower  may be liable  individually  or  jointly  with
others; whether Borrower may be obligated as a guarantor,  surety, 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.

<PAGE>

Inventory.  The word "Inventory" means all of Borrower's raw materials,  work in
process,  finished  goods,  merchandise,  parts and supplies,  of every kind and
description,  and goods held for sale or lease or furnished  under  contracts of
service in which Borrower now has or hereafter acquires any right,  whether held
by Borrower or others, and all documents of title, warehouse receipts,  bills of
lading,  and all other  documents of every type  covering all or any part of the
foregoing. Inventory includes inventory temporarily out of Borrower's custody or
possession and all returns on Accounts.



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

Line of Credit. The words 'Line of Credit' mean the credit facility described in
the Section titled "LINE OF CREDIT" below.

Liquid Assets.  The words "Liquid Assets' mean Borrower's cash on hand plus
Borrower's readily marketable securities.

Loan. The word "Loan" or 'Loans' means and includes  without  limitation any and
all  commercial  loans and  financial  accommodations  from Lender to  Borrower,
whether now or hereafter  existing,  and however  evidenced,  including  without
limitation  those  loans  and  financial   accommodations  described  herein  or
described  on any exhibit or schedule  attached to this  Agreement  from time to
time.

Note.  The  word  "Note"  means  and  includes  without  limitation   Borrower's
promissory note or notes,  if any,  evidencing  Borrower's  Loan  obligations in
favor of Lender,  as well as any substitute,  replacement or refinancing note or
notes therefor.

Permitted  Liens.  The words  "Permitted  Liens"  mean:  (a) liens and  security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes,
assessments,  or similar  charges either not yet due or being  contested in good
faith; (c) liens of materialmen,  mechanics, warehousemen, or carriers, or other
like liens arising in the ordinary  course of business and securing  obligations
which  are not yet  delinquent;  (d)  purchase  money  liens or  purchase  money
security  interests upon or in any property  acquired or held by Borrower in the
ordinary  course of business to secure  indebtedness  outstanding on the date of
this Agreement or permitted to be incurred under the paragraph of this Agreement
titled  "Indebtedness and Liens";  (a) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the Lender in
writing;  and (f) those  liens and  security  interests  which in the  aggregate
constitute an immaterial and  insignificant  monetary amount with respect to the
net value of Borrower's assets.

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.

Security  Agreement.  The words  "Security  Agreement"  mean and include without
limitation any agreements, promises, covenants, arrangements,  understandings or
other agreements,  whether created by law, contract,  or otherwise,  evidencing,
governing, representing, or creating a Security Interest.

Security  Interest.  The words  "Security  Interest"  mean and  include  without
limitation  any  type of  collateral  security,  whether  in the form of a lien,
charge, mortgage, deed of trust, assignment,  pledge, chattel mortgage,  chattel
trust, factor's lien, equipment trust,  conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device, or
any  other  security  or  lien  interest  whatsoever,  whether  created  by law,
contract, or otherwise.

SARA.  The word "SARA" means the Superfund Amendments and Reauthorization Act of
1986 as now or hereafter amended.



<PAGE>



Subordinated  Debt.  The  words   "Subordinated   Debt"  mean  indebtedness  and
liabilities of Borrower  which have been  subordinated  by written  agreement to
indebtedness  owed by Borrower  to Lender in form and  substance  acceptable  to
Lender.

Tangible Net Worth.  The words "Tangible Net Worth" mean Borrower's total assets
excluding  all  intangible   assets  (i.e.,   goodwill,   trademarks,   patents,
copyrights, organizational expenses, and similar intangible items, but including
leaseholds and leasehold improvements) less total Debt.



    Working Capital. The words 'Working Capital" mean Borrower's current assets,
excluding prepaid expenses, less Borrower's current liabilities.

LINE OF CREDIT.  Lender  agrees to make  Advances to Borrower  from time to time
from the date of this Agreement to the Expiration  Date,  provided the aggregate
amount of such  Advances  outstanding  at any time does not exceed the Borrowing
Base.  Within the  foregoing  limits,  Borrower may borrow,  partially or wholly
prepay, and reborrow under this Agreement as follows.



Conditions Precedent to Each Advance. Lender's obligation to make any Advance to
or for the account of Borrower  under this Agreement is subject to the following
conditions precedent, with all documents,  instruments,  opinions,  reports, and
other  items  required  under  this  Agreement  to  be  in  form  and  substance
satisfactory to Lender:



(a) Lender shall have  received  evidence  that this  Agreement  and all Related
Documents  have been duly  authorized,  executed,  and  delivered by Borrower to
Lender.



(b) Lender shall have received such opinions of counsel,  supplemental opinions,
and documents as Lender may request.

(c) The security  interests in the Collateral  shall have been duly  authorized,
created,  and perfected  with first lien priority and shall be in full force and
effect.



(d) All  guaranties  required  by Lender for the Line of Credit  shall have been
executed  by each  Guarantor,  delivered  to  Lender,  and be in full  force and
effect.


<PAGE>

(e) Lender,  at its option and for its sole  benefit,  shall have  conducted  an
audit of Borrower's Accounts,  Inventory,  books,  records, and operations,  and
Lender shall be satisfied as to their condition.



(f)  Borrower  shall have paid to Lender all fees,  costs,  and expenses
specified  in this  Agreement  and the  Related  Documents  as are  then due and
payable.

(g) There shall not exist at the time of any  Advance a condition  which
would  constitute an Event of Default under this  Agreement,  and Borrower shall
have delivered to Lender the compliance  certificate called for in the paragraph
below titled "Compliance Certificate."



Making Loan Advances.  Advances under the credit facility, as well as directions
for payment from  Borrower's  accounts,  may be  requested  orally or in writing
subject to the  limitations set forth below.  Lender may, but need not,  require
that  all  oral  requests  be  confirmed  in  writing.  Each  Advance  shall  be
conclusively  deemed to have been made at the  request of and for the benefit of
Borrower (a) when credited to any deposit  account of Borrower  maintained  with
Lender or (b) when advanced in accordance with the instructions of an authorized
person.  Lender, at its option,  may set a cutoff time, after which all requests
for Advances  will be treated as having been  requested  on the next  succeeding
Business  Day.  Under no  circumstances  shall  Lender be  required  to make any
Advance in an amount less than $500.00.

Mandatory Loan Repayments.  If at any time the aggregate principal amount of the
outstanding  Advances  shall exceed the  applicable  Borrowing  Base,  Borrower,
Immediately  upon  written or oral  notice from  Lender,  shall pay to Lender an
amount equal to the difference between the outstanding  principal balance of the
Advances and the Borrowing Base. On the Expiration  Date,  Borrower shall pay to
Lender  in full the  aggregate  unpaid  principal  amount of all  Advances  then
outstanding and all accrued unpaid interest,  together with all other applicable
fees, costs and charges, if any, not yet paid.

Facility Charge.  Borrower recognizes that Lender has incurred and will continue
to  incur  certain  costs  and  expenses  in   connection   with   establishing,
maintaining,  servicing,  and administering the credit facility.  To ensure that
Lender is able to recover such costs and expenses, Borrower agrees that,


<PAGE>



notwithstanding  any other provision of this Agreement,  the promissory note for
the Line of Credit,  or the  Related  Documents,  Lender  shall be  entitled  to
collect the following facility charge, which Borrower hereby promises and agrees
to pay: $500.00.

Loan  Account.  Lender shall  maintain on its books a record of account in which
Lender  shall make entries for each Advance and such other debits and credits as
shall be  appropriate  in  connection  with the credit  facility.  Lender  shall
provide  Borrower  with  periodic  statements  of  Borrower's   account,   which
statements  shall be  considered  to be  correct  and  conclusively  binding  on
Borrower unless Borrower notifies Lender to the contrary within thirty (30) days
after  Borrower's  receipt  of any such  statement  which  Borrower  deems to be
incorrect.



COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans,  obligations and duties owed by Borrower to Lender, Borrower (and others,
if  required)  shall grant to Lender  Security  Interests  in such  property and
assets as Lender may require (the  'Collateral"),  including without  limitation
Borrower's  present and future  Accounts,  general  intangibles,  and Inventory.
Lender's  Security  Interests in the  Collateral  shall be continuing  liens and
shall  include the proceeds and products of the  Collateral,  including  without
limitation  the  proceeds  of any  insurance.  With  respect to the  Collateral,
Borrower agrees and represents and warrants to Lender:

Perfection of Security Interests.  Borrower agrees to execute such financing
statements  and to take  whatever  other  actions are requested by Lender to
perfect and continue  Lender's  Security  Interests In the Collateral.  Upon
request of Lender, Borrower will deliver to Lender any and all of

06-20-1997
                                 LOAN AGREEMENT
                                     Page 3
                                   (Continued)



the documents evidencing or constituting the Collateral,  and Borrower will note
Lender's  interest upon any and all chaftel paper if not delivered to Lender for
possession  by Lender.  Contemporaneous  with the  execution of this  Agreement,
Borrower  will  execute  one or more UCC  financing  statements  and any similar
statements  as may be required by applicable  law, and will file such  financing
statements  and all such  similar  statements  in the  appropriate  location  or
locations.  Borrower hereby appoints Lender as its irrevocable  aftorney-in-fact
for the purpose of executing any  documents  necessary to perfect or to continue
any Security Interest. Lender may at any time, and without further authorization
from Borrower,  file a carbon,  photograph,  facsimile, or other reproduction of
any  financing  statement  for  use  as a  financing  statement.  Borrower  will
reimburse  Lender for all  expenses  for the  perfection,  termination,  and the
continuation of the perfection of Lender's  security interest in the Collateral.
Borrower  promptly will notify Lender of any change in Borrower's name including
any change to the assumed  business  names of Borrower.  Borrower  also promptly
will  notify  Lender  of any  change in  Borrower's  Social  Security  Number or
Employer  Identification  Number.  Borrower  further  agrees to notify Lender in
writing  prior to any change in  address or  location  of  Borrower's  principal
governance office or should Borrower merge or consolidate with any other entity.

<PAGE>


Collateral  Records.  Borrower does now, and at all times hereafter shall,  keep
correct and accurate  records of the  Collateral,  all of which records shall be
available to Lender or Lender's  representative  upon demand for  inspection and
copying at any reasonable time. With respect to the Accounts, Borrower agrees to
keep and  maintain  such  records  as  Lender  may  require,  including  without
limitation  information  concerning  Eligible  Accounts and Account balances and
agings. With respect to the Inventory, Borrower agrees to keep and maintain such
records  as  Lender  may  require,   including  without  limitation  information
concerning  Eligible  Inventory and records  itemizing and  describing the kind,
type, quality, and quantity of Inventory, Borrower's Inventory costs and selling
prices,  and the daily withdrawals and additions to Inventory.  The following is
an accurate  and  complete  list of all  locations  at which  Borrower  keeps or
maintains business records concerning  Borrower's Accounts and Inventory:  ROUTE
66, RANDOLPH, VT.



Collateral  Schedules.  Concurrently  with the  execution  and  delivery of this
Agreement,  Borrower  shall execute and deliver to Lender  schedules of Accounts
and  Inventory  and  Eligible  Accounts  and  Eligible  Inventory,  in form  and
substance  satisfactory  to the Lender.  Thereafter  Borrower  shall execute and
deliver to Lender such supplemental  schedules of Eligible Accounts and Eligible
Inventory  and such other matters and  information  relating to the Accounts and
Inventory  as Lender may  request.  Supplemental  schedules  shall be  delivered
according to the following schedule: MONTHLY, WITHIN 15 DAYS OF EACH MONTH END.



Representations  and  Warranties  Concerning  Accounts.   With  respect  to  the
Accounts,   Borrower  represents  and  warrants  to  Lender:  (a)  Each  Account
represented by Borrower to be an Eligible Account for purposes of this Agreement
conforms to the requirements of the definition of an Eligible  Account;  (b) All
Account  information  listed on  schedules  delivered to Lender will be true and
correct,  subject to immaterial variance; and (c) Lender, its assigns, or agents
shall have the right at any time and at Borrower's expense to inspect,  examine,
and audit Borrower's records and to confirm with Account Debtors the accuracy of
such Accounts.





<PAGE>



Representations  and  Warranties  Concerning  Inventory.  With  respect  to  the
Inventory,  Borrower  represents  and  warrants  to  Lender:  (a) All  Inventory
represented by Borrower to be Eligible  Inventory for purposes of this Agreement
conforms to the  requirements of the definition of Eligible  Inventory;  (b) All
Inventory  values  listed on  schedules  delivered  to  Lender  will be true and
correct,  subject to immaterial variance; (c) The value of the Inventory will be
determined  on a  consistent  accounting  basis;  (d)  Except  as  agreed to the
contrary by Lender in writing,  all  Eligible  Inventory is now and at all times
hereafter  will be in Borrower's  physical  possession  and shall not be held by
others on  consignment,  sale on  approval,  or sale or  return;  (e)  Except as
reflected in the Inventory schedules delivered to Lender, all Eligible Inventory
is now and at all times hereafter will be of good and merchantable quality, free
from  defects;  (f)  Eligible  Inventory  is not now and  will  not at any  time
hereafter  be stored  with a bailee,  warehouseman,  or  similar  party  without
Lender's prior written consent,  and, in such event,  Borrower will concurrently
at the time of bailment cause any such bailee, warehouseman, or similar party to
issue and deliver to Lender, in form acceptable to Lender, warehouse receipts in
Lender's name evidencing the storage of Inventory;  and (g) Lender, its assigns,
or agents shall have the right at any time and at Borrower's  expense to inspect
and  examine  the  Inventory  and to check  and  test  the  same as to  quality,
quantity, value, and condition.

Remittance Account. Borrower agrees that Lender may at any time require Borrower
to institute  procedures whereby the payments and other proceeds of the Accounts
shall be paid by the  Account  Debtors  under a  remittance  account or lock box
arrangement  with  Lender,  or  Lender's  agent,  or with one or more  financial
institutions  designated by Lender. Borrower further agrees that, if no Event of
Default  exists under this  Agreement,  any and all of such funds received under
such a  remittance  account or lock box  arrangement  shall,  at  Lender's  sole
election  and  discretion,  either be (a) paid or turned over to  Borrower;  (b)
deposited  into one or more accounts for the benefit of Borrower  (which deposit
accounts  shall be subject to a security  assignment  in favor of  Lender);  (c)
deposited into one or more accounts for the joint benefit of Borrower and Lender
(which deposit  accounts  shall likewise be subject to a security  assignment in
favor of  Lender);  (d) paid or  turned  over to  Lender  to be  applied  to the
Indebtedness in such order and priority as Lender may determine  within its sole
discretion;  or (e) any  combination of the foregoing as Lender shall  determine
from time to time.  Borrower  further agrees that,  should one or more Events of
Default exist,  any and all funds  received  under such a remittance  account or
lock box arrangement shall be paid or turned over to Lender to be applied to the
Indebtedness,  again in such order and priority as Lender may  determine  within
its sole discretion.


<PAGE>

ADDITIONAL CREDIT FACILITIES.  In addition to the Line of Credit facility, the
following credit accommodations are either in place or will be made available to
Borrower:



    Term Loan.  Subject to the terms and  conditions  of this  Agreement and the
    exhibit,  a term  loan is  either  in  place  or will be made  available  to
    Borrower  as set forth in an exhibit,  which is  attached  hereto and made a
    part hereof.

REPRESENTATIONS  AND WARRANTIES.  Borrower represents and warrants to Lender, as
of the  date of this  Agreement,  as of the  date of each  disbursement  of Loan
proceeds, as of the date of any renewal,  extension or modification of any Loan,
and at all times any Indebtedness exists:

Organization.  Borrower is a corporation  which is duly  organized,  validly
existing,  and in good  standing  under the laws of the state of  Borrower's
incorporation  and is validly existing and in good standing in all states in
which Borrower is doing business.  Borrower has the full power and authority
to own  its  properties  and to  transact  the  businesses  in  which  it is
presently  engaged or presently  proposes to engage.  Borrower  also is duly
qualified as a foreign  corporation and is in good standing in all states in
which the failure to so quality would have a material  adverse effect on its
businesses or financial condition.


Authorization.  The execution,  delivery,  and performance of this Agreement and
all Related  Documents by Borrower,  to the extent to be executed,  delivered or
performed by Borrower,  have been duly  authorized  by all  necessary  action by
Borrower; do not require the consent or approval of any other person, regulatory
authority or governmental  body; and do not conflict with, result in a violation
of,  or  constitute  a  default  under  (a) any  provision  of its  articles  of
incorporation or organization,  or bylaws,  or any agreement or other instrument
binding upon Borrower or (b) any law, governmental regulation,  court decree, or
order applicable to Borrower.



Financial  Information.  Each financial statement of Borrower supplied to Lender
truly and completely  disclosed Borrower's financial condition as of the date of
the  statement,  and there has been no  material  adverse  change in  Borrower's
financial  condition  subsequent  lo the  date  of  the  most  recent  financial
statement supplied to Lender.  Borrower has no material  contingent  obligations
except as disclosed in such financial statements.



Legal  Effect.  This  Agreement  constitutes,  and any  instrument  or agreement
required  hereunder  to be given by Borrower  when  delivered  will  constitute,
legal, valid and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms.



Properties.  Except for Permitted Liens, Borrower owns and has good title to all
of Borrower's  properties free and clear of all Security Interests,  and has not
executed  any  security  documents  or  financing  statements  relating  to such
properties.  All of Borrower's  properties are titled in Borrower's  legal name,
and Borrower has not used, or filed a financing  statement under, any other name
for at least the last five (5) years.


<PAGE>





Hazardous   Substances.   The  terms  "hazardous  waste  hazardous   substance,"
"disposal,"  'release,"  and  "threatened  release,' as used in this  Agreement,
shall have the same meanings as set forth in the "CERCLA," "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.  Except as disclosed to and acknowledged by Lender in writing,
Borrower  represents  and  warrants  that:  (a) During the period of  Borrower's
ownership of the  properties,  there has been no use,  generation,  manufacture,
storage,  treatment,  disposal,  release or threatened  release of any hazardous
waste or substance by any person on, under, about or from any of the properties.
(b) Borrower  has no knowledge  of, or reason to believe that there has been (i)
any use, generation,  manufacture,  storage,  treatment,  disposal,  release, or
threatened  release of any hazardous waste or substance on, under, about or from
the  properties  by any prior owners or occupants of any of the  properties,  or
(ii) any  actual or  threatened  litigation  or claims of any kind by any person
relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent
or  other  authorized  user  of any  of  the  properties  shall  use,  generate,
manufacture,  store,  treat,  dispose  of, or  release  any  hazardous  waste or
substance on, under, about or from any of the properties;  and any such activity
shall be conducted in compliance with all applicable  federal,  state, and local
laws,  regulations,  and ordinances,  including  without  limitation those laws,
regulations and ordinances  described above,  Borrower authorizes Lender and its
agents to enter upon the properties to make such inspections and tests as Lender
may deem appropriate to determine compliance of the properties with this section
of the Agreement. Any inspections or tests made by Lender shall be at Borrower's
expense and for Lender's  purposes only and shall not be construed to create any
responsibility  or  liability  on the part of Lender to Borrower or to any other
person.  The  representations  and  warranties  contained  herein  are  based on
Borrower's due diligence in investigating the properties for hazardous waste and
hazardous substances.  Borrower hereby (a) releases and waives any future claims
against  Lender for  indemnity or  contribution  in the event  Borrower  becomes
liable  for  cleanup  or other  costs  under any such  laws,  and (b)  agrees to
indemnity  and  hold  harmless  Lender  against  any  and  all  claims,  losses,
liabilities,  damages,  penalties,  and  expenses  which  Lender may directly or
indirectly  sustain  or suffer  resulting  from a breach of this  section of the
Agreement or as a consequence of any use, generation, manufacture,

06-20-1997
                                 LOAN AGREEMENT
                                     Page 4
                                   (Continued)



storage,  disposal,  release or threatened release occurring prior to Borrower's
ownership or interest in the  properties,  whether or not the same was or should
have been known to Borrower.  The  provisions of this section of the  Agreement,
including  the  obligation  to  indemnify,  shall  survive  the  payment  of the
Indebtedness  and the  termination or expiration of this Agreement and shall not
be affected by Lender's  acquisition  of any interest in any of the  properties,
whether by foreclosure or otherwise.
<PAGE>

Litigation  and Claims.  No  litigation,  claim,  investigation,  administrative
proceeding or similar action (including those for unpaid taxes) against Borrower
is pending or  threatened,  and no other event has occurred which may materially
adversely  affect  Borrower's  financial  condition  or  properties,  other than
litigation,  claims,  or other events,  if any, that have been  disclosed to and
acknowledged by Lender in writing.

Taxes.  To the best of  Borrower's  knowledge,  all tax  returns  and reports of
Borrower that are or were required to be filed,  have been filed, and all taxes,
assessments and other governmental  charges have been paid in full, except those
presently  being or to be  contested  by Borrower in good faith in the  ordinary
course of business and for which adequate reserves have been provided.

Lien  Priority.  Unless  otherwise  previously  disclosed  to Lender in writing,
Borrower has not entered into or granted any Security  Agreements,  or permitted
the filing or  attachment  of any Security  Interests on or affecting any of the
Collateral  directly or indirectly  securing  repayment of  Borrower's  Loan and
Note,  that  would  be  prior or that  may in any way be  superior  to  Lender's
Security Interests and rights in and to such Collateral.

Binding Effect.  This Agreement,  the Note, all Security  Agreements directly or
indirectly securing repayment of Borrower's Loan and Note and all of the Related
Documents  are  binding  upon  Borrower as well as upon  Borrower's  successors,
representatives  and assigns,  and are legally  enforceable  in accordance  with
their respective terms.



Commercial Purposes.  Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.

Employee Benefit Plans. Each employee benefit plan as to which Borrower may have
any liability complies in all material respects with all applicable requirements
of law and regulations,  and (i) no Reportable Event nor Prohibited  Transaction
(as defined in ERISA) has occurred with respect to any such plan,  (ii) Borrower
has not withdrawn from any such plan or initiated steps to do so, (iii) no steps
have been  taken to  terminate  any such plan,  and (iv)  there are no  unfunded
liabilities other than those previously disclosed to Lender in writing.



Location of Borrower's  Offices and Records.  Borrower's  place of business,  or
Borrower's  Chief  executive  office,  if  Borrower  has more  than one place of
business,  is located at P.O. BOX C,  RANDOLPH,  VT 05060.  Unless  Borrower has
designated  otherwise  in writing  this  location  is also the office or offices
where Borrower keeps its records concerning the Collateral.

Information.  All information heretofore or contemporaneously herewith furnished
by Borrower to Lender for the purposes of or in connection with this Agreement
or any transaction contemplated hereby is, and all information hereafter
furnished by or on behalf of Borrower to Lender will be, true


<PAGE>



and accurate in every material  respect on the date as of which such information
is dated or certified;  and none of such information is or will be incomplete by
omitting to stale any  material  fact  necessary  to make such  information  not
misleading.

Survival of Representations and Warranties. Borrower understands and agrees that
Lender,   without   independent   investigation,   is  relying  upon  the  above
representations and warranties in extending Loan Advances to Borrower.  Borrower
further  agrees  that the  foregoing  representations  and  warranties  shall be
continuing  in nature and shall  remain In full force and effect until such time
as Borrower's  Indebtedness shall be paid in full, or until this Agreement shall
be terminated in the manner provided above, whichever is the last to occur.



AFFIRMATIVE COVENANTS.  Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:

    Litigation.  Promptly  inform Lender in writing of (a) all material  adverse
    changes in  13orrower's  financial  condition,  and (b) all existing and all
    threatened litigation, claims, investigations, administrative proceedings or
    similar actions  affecting  Borrower or any Guarantor which could materially
    affect the financial condition of Borrower or the financial condition of any
    Guarantor.

    Financial  Records.  Maintain  its  books and  records  in  accordance  with
    generally accepted accounting principles, applied on a consistent basis, and
    permit  Lender to  examine  and audit  Borrower's  books and  records at all
    reasonable times.

    Financial Statements.  Furnish Lender with, as soon as available,  but in no
    event later than one hundred  twenty (120) days after the end of each fiscal
    year,  Borrower's  balance  sheet and income  statement  for the year ended,
    audited by a certified  public  accountant  satisfactory to Lender,  and, as
    soon as available, but in no event later than forty five (45) days after the
    end of each fiscal  quarter,  Borrower's  balance  sheet and profit and loss
    statement  for the period  ended,  prepared and  certified as correct to the
    best  knowledge and belief by Borrower's  chief  financial  officer or other
    officer or person acceptable to Lender. All financial reports required to be
    provided under this Agreement shall be prepared in accordance with generally
    accepted accounting principles, applied on a consistent basis, and certified
    by Borrower as being true and correct.



Additional  Information.  Furnish such  additional  information  and statements,
lists of assets and liabilities,  agings of receivables and payables,  inventory
schedules,  budgets,  forecasts,  tax returns, and other reports with respect to
Borrower's financial condition and business operationsas Lender may request from
time to time.



Financial Covenants and Ratios.  Comply with the following covenants and ratios:
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net Worth of 
less than 1.50 to 1.00. 

Cash Flow Requirements. Maintain Cash Flow at not less than the following 
level:1.00 TO 1.00.  Except as provided above, all computations made to 
determine compliance with the requirements contained in this  paragraph  shall  
be  made  in  accordance  with  generally   accepted accounting  principles,  
applied on a  consistent  basis,  and  certified by Borrower as being true and 
correct.

<PAGE>


Insurance.  Maintain fire and other risk insurance,  public liability insurance,
and such  other  insurance  as Lender may  require  with  respect to  Borrower's
properties  and  operations,  in form,  amounts,  coverages  and with  insurance
companies  reasonably  acceptable to Lender.  Borrower,  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.   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 Borrower  or any other  person.  In
connection with all policies covering assets in which Lender holds or is offered
a security  interest for the Loans,  Borrower will provide Lender with such loss
payable or other endorsements as Lender may require.



Insurance Reports.  Furnish to Lender,  upon request of Lender,  reports on each
existing  insurance  policy  showing such  information  as Lender may reasonably
request,  including  without  limitation  the  following:  (a)  the  name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties
insured;  (a) the then current  property  values on the basis of which insurance
has been  obtained,  and the manner of  determining  those  values;  and (f) the
expiration date of the policy. In addition,  upon request of Lender (however not
more  often  than  annually),   Borrower  will  have  an  independent  appraiser
satisfactory  to Lender  determine,  as  applicable,  the  actual  cash value or
replacement cost of any Collateral.  The cost of such appraisal shall be paid by
Borrower.

Other Agreements.  Comply with all terms and conditions of all other agreements,
whether now or  hereafter  existing,  between  Borrower  and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.



Loan Fees and Charges.  In addition to all other agreed upon fees and charges,
pay the following: $500.00.



<PAGE>



Loan Proceeds. Use all Loan proceeds solely for the following specific purposes:
TO FINANCE ACCOUNTS RECEIVABLE AND INVENTORY FOR WORKING CAPITAL PURPOSES.

Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and
obligations,  including without limitation all assessments,  taxes, governmental
charges,  levies and liens,  of every kind and nature,  imposed upon Borrower or
its properties,  income, or profits,  prior to the date on which penalties would
attach,  and all lawful  claims that,  if unpaid,  might become a lien or charge
upon  any of  Borrower's  properties,  income,  or  profits.  Provided  however,
Borrower  will not be required to pay and discharge  any such  assessment,  tax,
charge,  levy,  lien or claim so long as (a) the  legafity  of the same shall be
contested in good faith by appropriate proceedings,  and (b) Borrower shall have
established  on its books  adequate  reserves  with  respect  to such  contested
assessment,  tax,  charge,  levy,  lien, or claim in accordance  with  generally
accepted accounting practices.  Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the  appropriate  governmental  official to deliver to
Lender at any time a  written  statement  of any  assessments,  taxes,  charges,
levies, liens and claims against Borrower's properties, income, or profits.

Performance.  Perform and comply with all terms, conditions,  and provisions set
forth in this  Agreement and in the Related  Documents in a timely  manner,  and
promptly  notify Lender if Borrower  learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the Related
Documents.

Operations.  Maintain executive and management  personnel with substantially the
same  qualifications  and  experience as the present  executive  and  management
personnel;  provide  written  notice to Lender of any  change in  executive  and
management  personnel;  conduct its business affairs in a reasonable and prudent
manner and in compliance with all applicable federal,  state and municipal laws,
ordinances,   rules  and  regulations   respecting  its  properties,   charters,
businesses and operations,  including  without  limitation,  compliance with the
Americans With  DisabilitiesAct and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's  employee  benefit
plans.



Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books,

<PAGE>

06-20-1997
                                 LOAN AGREEMENT
                                     Page 5
                                   (Continued)



accounts,  and records.  If Borrower now or at any time hereafter  maintains any
records (including  without  limitation  computer generated records and computer
software  programs for the  generation of such  records) in the  possession of a
third party, Borrower, upon request of Lender, shall notify such party to permit
Lender free access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.

Compliance  Certificate.  Unless  waived in writing by  Lender,  provide  Lender
ANNUALLY  AND  WITHIN  15  DAYS  OF EACH  QUARTER  END  and at the  time of each
disbursement  of Loan proceeds with a certificate  executed by Borrower's  chief
financial officer,  or other officer or person acceptable to Lender,  certifying
that the representations and warranties set forth in this Agreement are true and
correct as of the date of the certificate and further certifying that, as of the
date of the certificate, no Event of Default exists under this Agreement.



Environmental Compliance and Reports. Borrower shall comply in all respects with
all  environmental   protection  federal,   state  and  local  laws,   statutes,
regulations  and  ordinances;  not cause or  permit to exist,  as a result of an
intentional  or  unintentional  action or omission on its part or on the part of
any  third  party,   on  property  owned  and/or   occupied  by  Borrower,   any
environmental  activity where damage may result to the environment,  unless such
environmental activity is pursuant to and in compliance with the conditions of a
permit  issued  by  the  approp6ate   federal,   state  or  local   governmental
authorities;  shall  furnish to Lender  promptly and in any event within  thirty
(30) days after receipt thereof a copy of any notice,  summons,  lien, citation,
directive,  letter  or other  communication  from  any  governmental  agency  or
instrumentality  concerning any intentional or unintentional  action or omission
on Borrower's part in connection with any environmental  activity whether or not
there is damage to the environment and/or other natural resources.

Additional  Assurances.  Make,  execute and  deliver to Lender  such  promissory
notes,  mortgages,  deeds of trust,  security agreements,  financing statements,
instruments,  documents  and other  agreements  as Lender or its  attorneys  may
reasonably  request to evidence and secure the Loans and to perfect all Security
Interests.



RECOVERY OF  ADDITIONAL  COSTS.  If the  imposition of or any change in any law,
rule,  regulation or guideline,  or the  interpretaition  or  application of any
thereof by any court or administrative or governmental  authority (including any
request or policy not  having  the force of law)  shall  impose,  modify or make
applicable  any taxes (except U.S.  federal,  state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other  obligations  which would (a) increase the cost to Lender for extending or
maintaining the credit  facilities to which this Agreement  relates,  (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents,  or
(c) reduce the rate of return on Lender's  capital as a consequence  of Lender's
obligations  with  respect to the  credit  facilities  to which  this  Agreement
relates,  then  Borrower  agrees to pay Lender such  additional  amounts as will
compensate  Lender therefor,  within five (5) days after Lender's written demand
for such payment,


<PAGE>



which demand shall be accompanied by an explanation of such imposition or charge
and a calculation  in reasonable  detail of the  additional  amounts  payable by
Borrower,  which explanation and calculations shall be conclusive in the absence
of manifest error.

NEGATIVE  COVENANTS.  Borrower  covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:



Indebtedness  and Liens. (a) Except for trade debt incurred in the normal course
of business and indebtedness to Lender  contemplated by this Agreement,  create,
incur or assume  indebtedness for borrowed money,  including capital leases, (b)
except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge,
lease,  grant a security  interest in, or encumber any of Borrower's  assets, or
(c) sell with recourse any of Borrower's accounts, except to Lender.



Continuity of Operations.  (a) Engage in any business  activities  substantially
different  than  those  in  which  Borrower  is  presently  engaged,  (b)  cease
operations,  liquidate,  merge, transfer,  acquire or consolidate with any other
entity,  change  ownership,  change  its  name,  dissolve  or  transfer  or sell
Collateral  out of the  ordinary  course of business,  (c) pay any  dividends on
Borrower's stock (other than dividends payable in its stock), provided,  however
that notwithstanding the foregoing,  but only so long as no Event of Default has
occurred and is  continuing  or would result from the payment of  dividends,  if
Borrower is a "Subchapter  S  Corporation"  (as defined in the Internal  Revenue
Code of 1986, as amended),  Borrower may pay cash  dividends on its stock to its
shareholders  from time to time in amounts  necessary to enable the shareholders
to pay income  taxes and make  estimated  income tax  payments to satisfy  their
liabilities  under federal and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation  because of their ownership of shares
of stock of Borrower,  or (d) purchase or retire any of  Borrower's  outstanding
shares or alter or amend Borrower's capital structure.

Loans,  Acquisitions  and  Guaranties.  (a) Loan,  invest in or advance money or
assets, (b) purchase,  create or acquire any interest in any other enterprise or
entity,  or (c) incur any  obligation  as surety or guarantor  other than in the
ordinary course of business.



CESSATION OF  ADVANCES.  It Lender has made any  commitment  to make any Loan to
Borrower,  whether  under this  Agreement or under any other  agreement,  Lender
shall have no  obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the  Related  Documents  or any  other  agreement  that  Borrower  or any
Guarantor  has with Lender;  (b) Borrower or any  Guarantor  becomes  insolvent,
files a  petition  in  bankruptcy  or  similar  proceedings,  or is  adjudged  a
bankrupt;  (c) there occurs a material  adverse  change in Borrower's  financial
condition,  in the financial condition of any Guarantor,  or in the value of any
Collateral  securing  any Loan;  (d) any  Guarantor  seeks,  claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure,  even
though no Event of Default shall have occurred.


<PAGE>

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

ADDITIONAL  METHOD  OF  BORROWING  UNDER  THE  LINE  OF  CREDIT  AND  BORROWER'S
AUTHORIZATION  FOR  LENDER TO  TRANSFER  FUNDS.  From and after the date of this
Agreement,  the Borrower shall  maintain a demand  deposit  account (the "Demand
Deposit Account") with the Lender which the Lender shall credit in amounts to be
made  available  by the  Lender  to the  Borrower  under  the Line of  Credit in
accordance with the terms of this Agreement. Any proceeds of Collateral received
by the Borrower,  including  without  limitation  payments on Accounts and other
payments  from sales of  Inventory,  shall be held in trust by Borrower  for the
Lender in the same medium in which  received,  shall not be commingled  with any
assets of Borrower and shall be delivered  immediately to the Lender for deposit
in Borrower's  Demand Deposit  Account.  Subject to the Conditions  Precedent to
Each Advance (detailed above), the Lender shall make an initial amount available
under the Line of Credit equal to the Borrowing  Base. The Borrower shall borrow
amounts  available  under the Line of Credit by  issuing  checks  written on the
Demand Deposit  Account.  From and after the date of this Agreement,  the Lender
will  monitor  the Demand  Deposit  Account of the  Borrower on a daily basis to
determine  the amount in such  account  computed  as  follows:  (i) the  initial
disbursement  into  such  account  LESS (ii) all  withdrawals  to date from such
account by the Borrower PLUS (iii) all deposits to date into such account by the
Borrower  which have been  collected by Lender  (such  amount being  hereinafter
referred to as the "Net Collected Balance"). In the event that the Net Collected
Balance in the account is positive on any day,  the Lender  shall apply such Net
Collected Balance toward repayment of the principal  balance  outstanding on the
Line of Credit.  In the event that the Net  Collected  Balance in the account is
negative  on any day,  the Lender  shall  fund the  overdraft  or draws  against
unavailable  funds up to the maximum amount of the Borrowing Base of the Line of
Credit,  subject to the Mandatory Loan  Repayments  paragraph,  above.  Borrower
authorizes  Lender to transfer from the Line of Credit to the Borrower's  Demand
Deposit  Account the funds  necessary to cover any  overdrafts  or draws against
unavailable funds,  occuring on the Demand Deposit Account, up to the applicable
Borrowing Base of the Line of Credit. In addition, Borrower authorizes Lender to
transfer funds from the Demand Deposit  Account to reduce the principal  balance
of the Line of Credit.  Borrower grants permission to Lender to debit the Demand
Deposit Account to make monthly interest payments.

FEE PROVISION.  In addition to the  provisions of the Mandatory Loan  Repayments
paragraph,  above, on EACH and EVERY day that the aggregate  principal amount of
the outstanding  Advances exceeds the applicable  Borrowing Base, Borrower shall
pay a fee equal to 2% of the amount by which the aggregate  principal  amount of
the outstanding Advances exceeds the applicable Borrowing Base.



<PAGE>




LINE OF CREDIT SWEEP FEE. The Borrower agrees to pay to the Lender as payment of
the Lender's costs in connection  with the  monitoring of the Line of Credit,  a
monthly fee of $150  commencing  on the date of this Loan  Agreement  and on the
last day of each MONTH thereafter during the term of the Line of Credit.

BORROWING CERTIFICATE. On the date of this Agreement, and WEEKLY during the term
of the  Line of  Credit,  the  Borrower  shall  submit  to  Lender  a  Borrowing
Certificate in the form of EXHIBIT I attached  hereto showing the computation of
the Line of Credit Borrowing Base as of the close of business on the last day of
the  immediately  preceding WEEK and will accompany such  certificate  with such
payment,  if any,  as may be  necessary  to comply  with the  provisions  of the
Mandatory Loan Repayments paragraph.



AUDITS BY LENDER. As outlined in the Inspection paragraph, above, Borrower shall
permit  Lender or its agent to  inspect  the  collateral  and  Borrower's  other
properties and to examine or audit Borrower's books,  accounts,  and records and
to make copies and memoranda of Borrower's  books,  accounts,  and records.  The
Borrower  shall pay on demand  the costs  associated  with such  inspections  or
audits.  In  addition,  Borrower  will pay to Lender a fee of $500.00 per day in
conjunction with each audit or inspection.

RIGHT OF SETOFF.  Borrower  grants to Lender a contractual  possessory  security
interest in, and hereby assigns,  conveys,  delivers,  pledges, and transfers lo
Lender all Borrower's right,  title and interest in and to, Borrower's  accounts
with  Lender  (whether  checking,  savings,  or some other  account),  including
without  limitation all accounts held jointly with someone else and all accounts
Borrower 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.  Borrower  authorizes  Lender,  to the extent  permitted  by
applicable law, to charge or setoff all sums owing on the  Indebtedness  against
any and all such accounts.



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

06-20-1997
                                 LOAN AGREEMENT
                                     Page 6
                                   (Continued)



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

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

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 or any of the Related Documents.
<PAGE>

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

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

Insolvency.  The  dissolution or termination of Borrower's  existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any part
of Borrower'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 Borrower.

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 Borrower,  any creditor of any Grantor against
any collateral  securing the Indebtedness,  or by any governmental  agency. This
includes a garnishment,  attachment,  or levy on or of any of Borrower'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 any  Guarantor  dies or  becomes
incompetent,  or revokes or disputes the validity  of, or liability  under,  any
Guaranty of the Indebtedness.



Change In Ownership.  Any change in ownership of twenty-five percent (25%) or
 more of the common stock of Borrower.

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


<PAGE>





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

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related  Documents,  all commitments
and  obligations of Lender under this Agreement or the Related  Documents or any
other  agreement  immediately  will terminate  (including any obligation to make
Loan  Advances or  disbursements),  and, at Lender's  option,  all  Indebtedness
immediately  will  become due and  payable,  all  without  notice of any kind to
Borrower,  except that in the case of an Event of E)efault of the type described
in the "Insolvency"  subsection above, such acceleration  shall be automatic and
not  optional.  In  addition,  Lender  shall have all the  rights  and  remedies
provided in the Related  Documents or available at law, in equity, or otherwise.
Except as may be  prohibited  by  applicable  law,  all of  Lender's  rights and
remedies  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  Borrower or of any Grantor  shall not affect  Lender's  right to
declare a default and to exercise its rights and remedies.



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

    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,  Borrower  agrees  upon
Lender's  request  to submit to the  jurisdiction  of the  courts of  Chittenden
County, the State of Vermont.  Lender and Borrower hereby waive the right to any
jury trial In any action,  proceeding,  or counterclaim brought by either Lender
or Borrower against the other. This Agreement shall be governed by and construed
in accordance with the laws of the State of Vermont.

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.

Consent to Loan Participation.  Borrower agrees and consents to Lender's sale or
transfer,  whether now or later, of one or more  participation  interests in the
Loans to one or more purchasers,  whether related or unrelated to Lender. Lender
may provide,  without any limitation whatsoever,  to any one or more purchasers,
or potential  purchasers,  any  information  or knowledge  Lender may have about
Borrower or about any other matter  relating to the Loan,  and  Borrower  hereby
waives any rights to privacy it may have with respect to such matters.  Borrower
additionally waives any and all notices of sale of participation  interests,  as
well as all notices of any repurchase of such participation interests.  Borrower
also agrees that the  purchasers  of any such  participation  interests  will be
considered as the absolute  owners of such  interests in the Loans and will have
all the rights granted under the participation agreement or agreements governing
the sale of such participation interests.  Borrower further waives all rights of
offset or  counterclaim  that it may have now or later against Lender or against
any purchaser of such a participation  interest and unconditionally  agrees that
either Lender or such  purchaser  may enforce  Borrower's  obligation  under the
Loans irrespective of the failure or insolvency of any holder of any interest in
the Loans.  Borrower further egress that the purchaser of any such participation
interests  may enforce its  interests  irrespective  of any  personal  claims or
defenses that Borrower may have against Lender.

<PAGE>

Costs and Expenses. Borrower agrees to pay upon demand all of Lender's expenses,
including without  limitation  attorneys' fees,  incurred in connection with the
preparation,  execution,  enforcement,   modification  and  collection  of  this
Agreement  or in  connection  with the Loans made  pursuant  to this  Agreement.
Lender  may pay  someone  else to help  collect  the Loans and to  enforce  this
Agreement,  and Borrower  will pay that amount.  This  includes,  subject to any
limits  under  applicable  law,  Lender's  attorneys'  fees and  Lander's  legal
expenses,  whether  or not there is a  lawsuit,  including  attorneys'  fees for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post- judgment collection services.
Borrower  also will pay any court costs,  in addition to all other sums provided
by law.



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  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 Borrower,  notice to any Borrower will constitute  notice
to all Borrowers. For notice purposes, Borrower will keep Lender informed at all
times of Borrower's current address(es).

Severability.  If a court of competent  jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance,  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.

Subsidiaries  and  Affiliates  of  Borrower.  To the extent  the  context of any
provisions of this Agreement makes it appropriate,  including without limitation
any  representation,  warranty or covenant,  the word  "Borrower" as used herein
shall include all subsidiaries and affiliates of Borrower.  Notwithstanding  the
foregoing however,  under no circumstances  shall this Agreement be construed to
require Lender to make any Loan or other


<PAGE>



financial accommodation to any subsidiary or affiliate of Borrower.

Successors and Assigns.  All covenants and agreements  contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the benefit
of Lender,  its successors and assigns.  Borrower shall not,  however,  have the
right to assign its rights under this Agreement or any interest therein, without
the prior written consent of Lender.

Survival.  All  warranties,  representations,  and covenants made by Borrower in
this Agreement or in any certificate or other  instrument  delivered by Borrower
to Lender under this  Agreement  shall be considered to have been relied upon by
Lender and will  survive  the making of the Loan and  delivery  to Lender of the
Related Documents, regardless of any investigation made by Lender or on Lender's
behalf.



Time  Is of the  Essence.Time  is of the  essence  in the  performance  of  this
Agreement.

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  Borrower,  or between  Lender and any  Grantor,  shall  constitute a
waiver of any of  Lender's  rights or of any  obligations  of Borrower or of any
Grantor  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 in subsequent  instances where
such  consent  is  required,  and in all cases  such  consent  may be granted or
withheld in the sole discretion of Lender.

06-20-1997
                                 LOAN AGREEMENT

                                   (Continued)

                                     Page 7



BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS.  THIS AGREEMENT IS DATED AS OF JUNE 20,1997.



BORROWER:

VERMONT PURE HOLDINGS, LTD. (TIN: 13-3576606), VERMONT PURE SPRINGS, INC.
(TIN: 03-0330621)

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