LOAN AND SECURITY AGREEMENT
                                     between
                   VERMONT PURE HOLDINGS, LTD., as Co-Borrower
                                       and
                   VERMONT PURE SPRINGS, INC., as Co-Borrower
                                       and
                        CORESTATES BANK, N.A., as Lender






                                  April 8, 1998









                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                <S>                                                                                        <C>  
                                                                                                            PAGE

                                TABLE OF CONTENTS

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

                  SECTION 1.01.            Certain Defined Terms...............................................  1
                  SECTION 1.02.            Accounting Terms..................................................... 10


                                   ARTICLE II

                   THE WORKING CAPITAL LINE OF CREDIT FACILITY

                  SECTION 2.01.             Working Capital Line of Credit...................................... 10
                  SECTION 2.02.             Borrowing Limits.................................................... 11
                  SECTION 2.03.             Interest, Fees and Charges.......................................... 11
                  SECTION 2.04.             Payment of the Working Capital Line of
                                            Credit.............................................................. 12
                  SECTION 2.05.             Working Capital Note................................................ 13
                  SECTION 2.06.             Termination of the Working Capital Line
                                            of Credit........................................................... 13
                  SECTION 2.07.             Use and Disbursement of Proceeds.................................... 13
                  SECTION 2.08.             Prepayments......................................................... 14


                                   ARTICLE III

                            THE ACQUISITION FACILITY

                  SECTION 3.01.             The Acquisition Facility............................................ 14
                  SECTION 3.02.             Borrowing Conditions and Limits..................................... 14
                  SECTION 3.03.             Interest............................................................ 16
                  SECTION 3.04.             Repayment of the Acquisition Facility............................... 17
                  SECTION 3.05.             Use of Proceeds of the Acquisition
                                            Facility............................................................ 17
                  SECTION 3.06.             Termination of the Acquisition Facility............................. 17
                  SECTION 3.07.             Prepayments......................................................... 18
                  SECTION 3.08.             Unused Facility Fee................................................. 18


                                   ARTICLE IV

                                   COLLATERAL

                  SECTION 4.01.             Security Interests.................................................. 18
                  SECTION 4.02.             Financing Statements and Other
                                            Documents........................................................... 19
                  SECTION 4.03.             Landlords' Waivers; Mortgagees'
                                            Disclaimers......................................................... 19
                  SECTION 4.04.             Insurance........................................................... 20




<PAGE>


                                TABLE OF CONTENTS


                                                                                                              PAGE

                  SECTION 4.05.             Places of Business; Location of
                                            Collateral.......................................................... 20
                  SECTION 4.06.             Equipment and Inventory............................................. 20
                  SECTION 4.07.             Patents, Copyrights and Trademarks.................................. 21
                  SECTION 4.08.             Records and Reports................................................. 21
                  SECTION 4.09.             Trade and Fictitious Names.......................................... 21
                  SECTION 4.10.             Certain of the Bank's Rights........................................ 21
                  SECTION 4.11.             Power of Attorney................................................... 21
                  SECTION 4.12.             Notices............................................................. 21
                  SECTION 4.13.             Insurance; Discharge of Taxes, etc.................................. 21
                  SECTION 4.14.             Certain Waivers and Releases by the
                                            Borrowers........................................................... 22


                                    ARTICLE V

                              CONDITIONS OF LENDING

                  SECTION 5.01.             Conditions Precedent to Funding..................................... 22
                  SECTION 5.02.             Additional Conditions Precedent..................................... 23


                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES

                  SECTION 6.01.             Existence........................................................... 24
                  SECTION 6.02.             Authorization....................................................... 24
                  SECTION 6.03.             Validity............................................................ 24
                  SECTION 6.04.             Financial Statements................................................ 24
                  SECTION 6.05.             Litigation.......................................................... 25
                  SECTION 6.06.             Agreements and Orders............................................... 25
                  SECTION 6.07.             Contingent Liabilities.............................................. 25
                  SECTION 6.08.             Taxes............................................................... 25
                  SECTION 6.09.             Ownership and Encumbrances.......................................... 25
                  SECTION 6.10.             Consents............................................................ 25
                  SECTION 6.11.             ERISA............................................................... 26
                  SECTION 6.12.             Operation of Business............................................... 26
                  SECTION 6.13.             Disclosure.......................................................... 26
                  SECTION 6.14.             Environmental Laws.................................................. 27
                  SECTION 6.15.             Margin Stock........................................................ 27
                  SECTION 6.16.             Securities Laws..................................................... 27
                  SECTION 6.17.             Other Agreements.................................................... 27
                  SECTION 6.18.             Labor Disputes and Casualties....................................... 27
                  SECTION 6.19.             Representations Concerning Sureties................................. 27





<PAGE>


                                TABLE OF CONTENTS


                                                                                                              PAGE

                                   ARTICLE VII

                                    COVENANTS

                  SECTION 7.01.             Financial and Other Information..................................... 28
                  SECTION 7.02.             Insurance........................................................... 29
                  SECTION 7.03.             Taxes and Other Claims.............................................. 29
                  SECTION 7.04.             Encumbrances........................................................ 29
                  SECTION 7.05.             Indebtedness........................................................ 30
                  SECTION 7.06.             Loans and Investments............................................... 30
                  SECTION 7.07.             Maintenance of Existence............................................ 30
                  SECTION 7.08.             Compliance With Laws................................................ 30
                  SECTION 7.09.             Maintenance of Property............................................. 31
                  SECTION 7.10.             Inspection by the Bank.............................................. 31
                  SECTION 7.11.             Reports............................................................. 31
                  SECTION 7.12.             ERISA............................................................... 32
                  SECTION 7.13.             Merger or Consolidation............................................. 32
                  SECTION 7.14.             Disposal of Assets.................................................. 32
                  SECTION 7.15.             Nature of Business.................................................. 32
                  SECTION 7.16.             Environmental Laws.................................................. 32
                  SECTION 7.17.             Ownership of Stock/Maintenance of
                                            Management.......................................................... 32
                  SECTION 7.18.             Funded Debt to Cash Flow............................................ 33
                  SECTION 7.19.             Cash Flow Coverage.................................................. 33
                  SECTION 7.20.             Funded Debt to Capitalization....................................... 33
                  SECTION 7.21              Interest Coverage................................................... 33
                  SECTION 7.22              Methodology for Calculation......................................... 33
                  SECTION 7.23.             Capital Expenditures................................................ 33
                  SECTION 7.24.             Deposit Accounts.................................................... 33
                  SECTION 7.25.             Dividends, Capital Stock............................................ 34


                                  ARTICLE VIII

                                     DEFAULT

                  SECTION 8.01.             Events of Default................................................... 34
                  SECTION 8.02              Cure of Default..................................................... 36
                  SECTION 8.03.             Acceleration........................................................ 37
                  SECTION 8.04.             Remedies Upon Default............................................... 37






<PAGE>



                                   ARTICLE IX

                                  MISCELLANEOUS

                  SECTION 9.01.             No Waiver; Cumulative Remedies...................................... 38
                  SECTION 9.02.             Amendments and Waivers.............................................. 38
                  SECTION 9.03.             Notices............................................................. 38
                  SECTION 9.04.             Costs and Expenses.................................................. 39
                  SECTION 9.05.             Miscellaneous Payment Provisions.................................... 39
                  SECTION 9.06.             Participation....................................................... 40
                  SECTION 9.07.             Liability of Bank................................................... 40
                  SECTION 9.08.             Governing Law....................................................... 40
                  SECTION 9.09.             Headings............................................................ 41
                  SECTION 9.10.             Continuing Representations.......................................... 41
                  SECTION 9.11.             Binding Effect...................................................... 41
                  SECTION 9.12.             Records............................................................. 41
                  SECTION 9.13.             Indemnity........................................................... 41
                  SECTION 9.14.             Waiver of Jury Trial................................................ 42
                  SECTION 9.15.             Consent to Jurisdiction............................................. 42
                  SECTION 9.16.             Regulatory Changes.................................................. 42
                  SECTION 9.17.             Illegality.......................................................... 43
                  SECTION 9.18.             Interpretation/Additional Borrowers................................. 43
                  SECTION 9.19.             Integration......................................................... 43



</TABLE>

<PAGE>




                                    EXHIBITS


         EXHIBIT 1.01 - FORM OF SUBORDINATION AGREEMENT

         EXHIBIT 4.05 - PLACES OF BUSINESS, LOCATIONS OF
                           COLLATERAL

EXHIBIT 4.07 - PATENTS, TRADEMARKS, COPYRIGHTS, ETC.

EXHIBIT 4.09 - TRADE OR FICTITIOUS NAMES

EXHIBIT 6.01 - AFFILIATES AND TRADENAMES

EXHIBIT 6.05 - LITIGATION

EXHIBIT 6.07 - CONTINGENT LIABILITIES

EXHIBIT 6.09 - EXISTING LIENS AND ENCUMBRANCES

EXHIBIT 6.11 - ERISA MATTERS

EXHIBIT 7.01 - COMPLIANCE CERTIFICATE

EXHIBIT 7.02 - EXISTING INSURANCE COVERAGE

EXHIBIT 7.05 - EXISTING INDEBTEDNESS

EXHIBIT 9.18 - JOINDER AND CONSENT






<PAGE>




                           LOAN AND SECURITY AGREEMENT


         THIS  AGREEMENT  is made this 8th day of April,  1998,  by and  between
VERMONT PURE  HOLDINGS,  LTD., a Delaware  business  corporation  with its chief
executive  offices at Route 66,  Catamount  Industrial Park,  Randolph,  Vermont
05060 ("VPHL"),  and VERMONT PURE SPRINGS, INC., a Delaware business corporation
with its  chief  executive  offices  at Route  66,  Catamount  Industrial  Park,
Randolph,  Vermont 05060 ("VPSI") (jointly and severally, the "Borrowers"),  and
CORESTATES  BANK,  N.A.,  a national  banking  association  with offices at 1339
Chestnut Street, Philadelphia, Pennsylvania 19101- 7618 (the "Bank").


                                   BACKGROUND

         A. VPHL is a Delaware  business  corporation  whose shares of stock are
publicly  traded on the NASD  small cap stock  exchange,  and whose  sole  asset
consists of one hundred percent (100%) of the issued and  outstanding  shares of
VPSI.  VPSI  is a  Delaware  business  corporation  that  bottles,  markets  and
distributes natural spring water under the registered  trademarks "Vermont Pure"
and  "Hidden  Spring" to retail  consumer  and home  office  markets,  and whose
current  market  consists  primarily  of  the  New  England,   Mid-Atlantic  and
Mid-Western  states.  The Borrowers are beverage companies that are involved in,
directly or indirectly, the manufacturing,  packaging and distribution of spring
water and other  beverages  to homes  and  offices,  and  retail  and  wholesale
outlets.

         B.       VPSI also owns 100% of the issued and outstanding shares
of stock of Excelsior Springs Water Company, Inc., a New York
Corporation ("Excelsior") and A. M. Fridays, Inc., a New Hampshire
corporation ("AMF").

         C. The Borrowers  have  requested  that the Bank make available to them
certain credit  facilities in the nature of a line of credit for (i) refinancing
a portion of their existing  current funded debt, (ii) working capital  purposes
and letters of credit, (iii) permitted  acquisitions capital expenditures and to
refinance  existing  debt.  Subject to all of the terms and  conditions  of this
Agreement and the other Loan Documents (as defined  below),  the Bank has agreed
to make these credit facilities available to the Borrowers only for the purposes
set forth in this Agreement.

         NOW, THEREFORE, in consideration of the foregoing,  and intending to be
legally bound, the parties agree:





<PAGE>



                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

         SECTION 1.01. Certain Defined Terms. In addition to other terms defined
elsewhere in this Agreement and the Background to this Agreement,  the following
terms as used in this Agreement shall have the following meanings (such meanings
to be equally  applicable  to both the  singular  and plural  forms of the terms
defined):

         Accounts has the meaning  given to that term in the Uniform  Commercial
Code, and includes Contract Rights and customer deposits.

         Affiliate  means any Person which directly or indirectly  controls,  is
controlled  by or is  under  common  control  with any of the  Borrowers  or any
Subsidiary. The term "control" means the possession,  directly or indirectly, of
the power to direct or cause the direction of the  management  and policies of a
Person,  whether  through the ownership of voting  securities,  by contract,  or
otherwise. The term Affiliate includes Excelsior and AMF.

         Acquisition  means  the  purchase  by the  Borrowers  for  cash  and/or
Permitted Seller Notes of assets or stock pursuant to any Permitted Acquisition.

         Acquisition   Documents   means,   in  connection  with  any  Permitted
Acquisition,  any asset purchase agreement,  stock purchase agreement or similar
agreement,  and all other agreements,  documents or instruments  entered into or
delivered in connection with any Permitted Acquisition.

         Acquisition  Facility  has the  meaning  given to that term in  Section
3.01.

         Acquisition Facility Note has the meaning given to that term in Section
3.01.

         Adjusted Cash Flow means four (4)  consecutive  fiscal quarters of Cash
Flow, plus all owners salaries, bonuses, withdrawals and all other non recurring
expenses of any seller in connection with any Permitted Acquisitions.

         Agreement  means this Loan and Security  Agreement,  as the same may be
amended, modified, restated or supplemented from time to time.

         Base Rate means the greater of (i) the Prime Rate,  or (ii) the Federal
Fund Rate plus one-half of one percent (0.5%).



                                        2

<PAGE>



         Business Day means a day other than a Saturday,  Sunday or other day on
which commercial banks are authorized or required to close under the laws of the
Commonwealth of Pennsylvania.

         Calculated  Number of Warrant  Shares means that number  which  results
from (i) 50,000,  divided by (ii) the average  closing price of the common stock
of VPHL for the ten (10) trading days immediately  prior to closing,  less $3.00
per share.

         Capital  Expenditures  means  expenditures  for  any  fixed  assets  or
improvements,  replacements,  substitutions  or additions  thereto  which have a
useful  life of more than one year,  including  assets  acquired  pursuant  to a
Capital Lease.

         Capitalization  means  book net  worth of the  Borrowers,  computed  in
accordance with GAAP,  minus all Investments and all existing loans and advances
to, and guaranties of, the indebtedness of shareholders  plus  Subordinated Debt
and any Permitted Sellers Notes.

         Capital  Lease means any lease for property  (real,  personal or mixed)
under which such Person is the lessee and which,  in accordance with GAAP, is or
should be capitalized on the books of such Person.

         Cash Flow means,  on a rolling four (4) quarter  basis,  all net income
before taxes,  plus the sum of (i) interest  expense,  and (ii) depreciation and
amortization,  and then plus or minus any and all extraordinary gains or losses,
and  non-cash  income or  expenses,  as the case may be,  all as  determined  in
accordance with GAAP.

         Cash Flow  Coverage  means,  on a rolling four (4) quarter  basis,  the
ratio of Cash Flow to Fixed Charges.

         Change of  Control  means the  occurrence  of an event  such  that,  or
entering into an agreement whereby, any Person (or two or more Persons acting in
concert) shall have acquired beneficial  ownership (including within the meaning
of Rules 13d-3 of the  Securities and Exchange  Commission  under the Securities
Exchange Act of 1934) of more than forty-nine percent (49%) of the fully diluted
common stock of the applicable Borrower.

         Chattel  Paper  has  the  meaning  given  to that  term in the  Uniform
Commercial Code.

         Collateral  means all of the property and assets of the  Borrowers  and
the  Sureties  described  or  referred  to in Article  IV, or in any of the Loan
Documents.

         Contract  Right  means any right to payment  under a  contract  not yet
earned by performance and not evidenced by an Instrument or Chattel Paper.


                                        3

<PAGE>




         Credit  Obligation  means any  obligation  for the  payment of borrowed
money (other than monies borrowed from the Bank), or the deferred purchase price
of property.

         Current Assets means,  at any date of  determination,  all assets which
would be classified as current assets in accordance with GAAP.

         Current   Liabilities   means,  at  any  date  of  determination,   all
liabilities  (including  deferred charges and provisions for income taxes) which
would be classified as current liabilities in accordance with GAAP.

         Current   Maturities  means  that  portion  of  Funded  Debt  which  is
outstanding  as of the  applicable  date,  which matures on demand or within one
year  from  such  date,  as may or may not  directly  be  renewed,  extended  or
refinanced, so as to be outstanding more than one year after such date.

         Direct Loans has the meaning given to that term in Section 2.01.

         Documents has the meaning given to that term in the Uniform  Commercial
Code.

         Environmental Laws means all current and future federal,  state county,
regional, and local laws, statutes and ordinances, and all rules and regulations
thereunder,  concerning protection of health or the environment,  including, but
not  limited  to the  Comprehensive  Environmental  Response,  Compensation  and
Liability Act, as amended, 42 U.S.C. ss.9601 et seq., the Resource  Conservation
and Recovery Act, as amended,  42 U.S.C.  ss.6901 et seq., the Toxic  Substances
Control  Act,  as amended is 15 U.S.C.  ss.2601  et seq.,  and the  Pennsylvania
Hazardous Sites Cleanup Act, 35 P.S. 6020.101 et seq.

         Equipment has the meaning given to that term in the Uniform  Commercial
Code.

         ERISA means the Employee Retirement Income Security Act of 1974, as the
same  may be  amended  from  time to time,  and the  regulations  and  published
interpretations thereof.

         ERISA   Affiliate   means  any  trade  or  business,   whether  or  not
incorporated,  which  together with the  Borrowers  would be treated as a single
employer under Section 4001 of ERISA.

         Eurocurrency  Reserve  Requirement  means,  for any LIBOR  Loan for any
Interest  Period  therefor,  the  daily  average  of  the  stated  maximum  rate
(expressed as a decimal) at which reserves (including any marginal, supplemental
or emergency reserves) are required to be maintained during such Interest Period
under Regulation D by the Bank against "Eurocurrency  Liabilities" (as such term
is used in


                                        4

<PAGE>



Regulation D) but without benefit or credit of proration, exemptions, or offsets
that might otherwise be available to the Bank from time to time under Regulation
D.  Without  limiting  the effect of the  foregoing,  the  Eurocurrency  Reserve
Requirement  shall reflect any other  reserves  required to be maintained by the
Bank against (1) any category of liabilities that includes deposits by reference
to which the LIBOR Interest Rate for LIBOR Loans is to be determined, or (2) any
category of extension of credit or other assets that include LIBOR Loans.

         Event of Default has the meaning given to that term in Section 8.01.

         Excess  Cash Flow  means the  excess of Cash Flow over  Fixed  Charges,
calculated annually at the end of each Borrower's fiscal year.

         Federal  Funds Rate  means,  for any day,  the rate per annum  (rounded
upwards,  if  necessary,  to the  nearest  1/16th of one  percent)  equal to the
weighted average of the rates of overnight federal funds transactions of members
of the Federal Reserve System arranged by a federal funds brokers,  as published
for such day (or,  if such day is not a  Business  Day,  for the next  preceding
Business Day) by the Federal Reserve Bank of  Philadelphia;  provided,  however,
that if such rate is not so published for any day which is any Business Day, the
average of the  quotations  for such day and such  transactions  received by the
Bank from three (3) federal funds brokers recognized and selected by the Bank to
be used to determine the Federal Funds Rate.

         Fixed Charges  means the sum of Total Debt Service,  plus taxes paid in
cash and non-financed Capital Expenditures.

         Funded Debt means all  Indebtedness  and all Credit  Obligations of the
Borrowers and all other  liabilities  of the Borrowers  having a final  maturity
date  more than one year  after  the date  thereof  (or  which is  renewable  or
extendible at the option of the Borrowers to a date more than one year from said
date of creation),  including all final and serial  maturities,  prepayments and
sinking  fund  payments  required  to be made one year or less after the date of
determination  thereof,  notwithstanding  the fact that any amount thereof is at
the time also included in Current Liabilities.

         GAAP  means  generally  accepted  accounting  principles  in the United
States, applied on a consistent basis.

         General  Intangibles  has the meaning given to that term in the Uniform
Commercial Code, and includes those items identified in the Security Agreement.



                                        5

<PAGE>



         Guaranties means the guaranty agreements of even date pursuant to which
Excelsior  and AMF each  guaranty,  and become  sureties for, the full and final
payment of all Indebtedness.

         Hazardous  Substances means  "hazardous  substances" (as defined in the
Comprehensive Environmental Response,  Compensation and Liability Act, 42 U.S.C.
ss.9601 et seq.,  and the  Pennsylvania  Hazardous  Sites  Cleanup  Act, 35 P.S.
6020.101 et seq.),  "hazardous wastes" (as defined in the Resource  Conservation
and Recovery Act, 42 U.S.C.  ss.6901 et seq.), "toxic substances" (as defined in
the Toxic  Substances  Control  Act, 15 U.S.C.  ss.2601 et seq.),  and all other
pollutants  and  contaminants  regulated  or  controlled  by, or  required to be
removed or remediated under any Environmental Law.

         Indebtedness  means and includes (i) all loans and other  extensions of
credit by the Bank to any one or more of the Borrowers under the Working Capital
Line of Credit and the Acquisition  Facility,  and all interest and fees accrued
thereon  or in  connection  therewith,  (ii) all  other  indebtedness  and other
obligations  or  undertakings  now or hereafter  owing by any one or more of the
Borrowers or their Affiliates to the Bank under this Agreement or the other Loan
Documents  to which  they are a party,  and  (iii)  all  other  liabilities  and
obligations of any one or more of the Borrowers or their  Affiliates to the Bank
(including  any past,  present or future  advances,  readvances,  substitutions,
extensions, renewals, interest, late charges, penalties, and fees of any and all
types) whether primary or secondary, absolute or contingent, direct or indirect,
joint, several, or independent, voluntary or involuntary, similar or dissimilar,
related or unrelated (including  overdrafts),  now or hereafter existing, due or
to become due, or held or to be held by the Bank for its own account or as agent
for others,  whether created directly or acquired by negotiation,  assignment or
otherwise.

         Instruments  has  the  meaning  given  to  that  term  in  the  Uniform
Commercial Code.

         Interest  Coverage means the ratio of Cash Flow to Borrower's  interest
expense for the twelve (12) consecutive month period  immediately  preceding the
date of determination.

         Interest Period means,  whenever any Indebtedness bears interest on the
basis of the LIBOR  Interest  Rate, a period of one, two,  three or six calendar
months  (in each case  commencing  on the  first day of the first  month of such
period) as selected by the  Borrowers  requesting  the advance  pursuant to this
Agreement.

         Internal  Revenue Code means the Internal  Revenue Code of 1986, as the
same  may be  amended  from  time to time,  and the  regulations  and  published
interpretations thereof.



                                        6

<PAGE>



         Inventory has the meaning given to that term in the Uniform  Commercial
Code.

         Investment  means any loan or advance to (or purchase or acquisition of
the securities or obligations of) any Person, or the assumption of any liability
of any other Person which, in each of the foregoing  cases,  does not arise from
sales to such Person in the ordinary course of the Borrowers' business.

         Investment  Property has the meaning  given to that term in the Uniform
Commercial Code.

         Letter  of  Credit  Agreement  has the  meaning  given to that  term in
Section 2.01.

         Letters of Credit has the meaning given to that term in Section 2.01.

         LIBOR Interest Rate means, for any Interest Period,  the rate per annum
(rounded upward, if necessary, to the nearest 1/16 of one percent) determined by
the Bank to be equal to the  quotient of (i) the London  Interbank  Offered Rate
for such  Interest  Period,  divided  by (ii) a number  equal to 1.00  minus the
Eurocurrency Reserve Requirement for such Interest Period.

         LIBOR Loan means any Loan when and to the extent that the interest rate
is determined by reference to the LIBOR Interest Rate.

         Loans means all advances  under the Working  Capital Line of Credit and
the Acquisition Facility.

         Loan  Documents   means  this  Agreement,   the  Notes,   the  Security
Agreements,  the Stock Pledge  Agreements,  the Letter of Credit Agreement,  the
Guaranties and any other  agreements,  documents or instruments now or hereafter
delivered to the Bank with respect to the Collateral and the Indebtedness by the
Borrowers or their Affiliates, or by any other person or entity now or hereafter
liable, directly or indirectly, for the Indebtedness.

         London Interbank Offered Rate means, for any Interest Period,  the rate
per annum  determined  in good  faith by the Bank in  accordance  with its usual
procedures  (which  determination  shall be conclusive) to be the average of the
rate per annum for deposits,  in U.S.  dollars,  in the amount of $250,000 for a
period comparable to the Interest Period, offered to leading banks in the London
interbank  market at  approximately  11:00 a.m.  London time,  two Business Days
prior to the first day of the Interest Period.

         Multiemployer  Plan means a Plan  described  in Section  4001(a) (3) of
ERISA which covers employees of the Borrowers or an ERISA Affiliate.


                                        7

<PAGE>




         Northeastern United States means the States of Pennsylvania,
New Jersey, New York, Connecticut, Massachusetts, Rhode Island,
Vermont, New Hampshire and Maine.

         Notes means  Acquisition  Facility  Note and the Working  Capital Note,
together  with  any  extensions,   modifications,   renewals,  replacements,  or
refinancing thereof, in whole or in part.

         PBGC  means the  Pension  Benefit  Guaranty  Corporation  or any entity
succeeding to any or all of its functions under ERISA.

         Permitted  Acquisitions means the acquisition by any one or more of the
Borrowers  of assets  constituting  an entire  business,  or a  division  of any
Person,  or the capital stock of any Person;  provided,  however,  that any such
acquisition shall only be a Permitted  Acquisition if (i) the consideration paid
consists solely of cash, Permitted Seller Notes and the Borrowers' common stock,
(ii)  the  assets  acquired  shall be in the same  business  lines in which  the
Borrowers are already engaged,  (iii) the assets acquired shall be for an entire
business,  or division of such Person, and (iv) the total  consideration paid or
to be paid in cash,  Permitted Seller Notes and common stock does not exceed six
(6) times the  seller's  most recent two (2) fiscal year average  Adjusted  Cash
Flow.

         Permitted  Assumed  Liabilities means those liabilities which would, in
accordance  with  GAAP,  be  classified  as  liabilities,  and may also  include
liabilities  relating to bottling deposit  liabilities,  and payments to be made
for  rent as  required  in  connection  with  operating  leases  transferred  in
connection with any Permitted  Acquisition;  provided,  however, that the sum of
Permitted Assumed  Liabilities (when added to the total consideration paid or to
be paid for a Permitted Acquisition), does not exceed six (6) times the Adjusted
Cash Flow of the seller.

         Permitted Seller Notes means notes issued to sellers in connection with
any Permitted Acquisition and issued in accordance to conditions thereof,  which
notes shall be unsecured and subordinated to the  Indebtedness  substantially in
the form of subordination agreement attached as Exhibit 1.01 to this Agreement.

         Person means an individual,  partnership,  corporation, business trust,
estate joint stock company, trust, an incorporated  association,  joint venture,
governmental authority or any other person or entity of any nature whatsoever.

         Plan means any plan established,  maintained, or to which contributions
have been made, by any of the Borrowers or by an ERISA Affiliate.



                                        8

<PAGE>



         Potential Default means any event or condition which with notice or the
passage of time (or both) would constitute an Event of Default.

         Prime  Rate  means  the  floating  annual  rate  of  interest  that  is
designated  from time to time by the Bank as its Prime Rate and used by the Bank
as a  reference  base with  respect  to  different  interest  rates  charged  to
borrowers,  it being  understood  that such rate may not be the  lowest  rate of
interest at which the Bank makes loans to other borrowers.

         Prohibited  Transaction  means any transaction set forth in Section 406
of ERISA or Section 4975 of the Internal Revenue Code.

         Real Property means the real property,  appurtenances  and improvements
thereto  and all other  rights  (including  mineral  rights)  arising  out of or
relating to the real property  owned by VPSI,  located at and commonly  known as
(i) Hedding Drive, Village of Randolph,  Vermont,  consisting of approximately 2
acres, and (ii) the Route 66 Factory, Village of Randolph,  Vermont,  consisting
of approximately 7.23 acres, and (iii) Chase Road, Village of Randolph, Vermont,
consisting of approximately  65.7 acres and (iv) North Randolph Road, Village of
Randolph, Vermont, consisting of approximately 21.2 acres.

         Reportable  Event means any of the events set forth in Section  4043 of
ERISA.

         Security  Agreements  means those  Security  Agreements  and  Trademark
Assignment  Agreements  of even date  executed by each of the  Borrowers and the
Sureties  to the  Bank,  pursuant  to which  the Bank  shall be  granted a first
priority security interest in, lien on, and assignment of the Borrowers' and the
Sureties  present and future  assets of any nature,  whether  real,  personal or
mixed.

         Senior  Management  means,  with respect to each  Borrower,  offices or
executive  positions  classified  as the  Chairman  of the  Board of  Directors,
President,  Chief Executive Officer,  Chief Operating Officer or Chief Financial
Officer or  individuals  holding  other  offices  but  bearing  responsibilities
ordinarily assumed by those with offices with the preceding titles.

         Stock Pledge  Agreements  mean the  agreements of even date pursuant to
which the Bank is granted a first  priority  security  interest  in, lien on and
assignment of all right, title and interest in all of the issued and outstanding
stock of any nature or type of VPSI, Excelsior and AMF.

         Subsidiary means a corporation of which shares of stock having ordinary
voting  power  (other  than  stock  having  voting  power  only by reason of the
happening  of a  contingency)  to elect a majority of the board of  directors or
other managers of such corporation are at


                                        9

<PAGE>



the time owned, or the management of which is otherwise controlled,  directly or
indirectly  thorough  one or more  intermediaries,  by the  Borrowers.  The term
Subsidiary   includes  each  of  Excelsior  and  AMF,  which  are  wholly  owned
subsidiaries of VPSI.

         Subordinated Debt means all indebtedness,  Credit  Obligations or other
liabilities  of any nature of any one or more of the  Borrowers to parties other
than the Bank, the terms and conditions of which have been  subordinated  in all
respects, in a form and substance satisfactory to the Bank, to the Indebtedness.

         Sureties means, jointly and severally, Excelsior and AMF.

         Total  Debt  Service  means  all  interest  expense  for  the  year  of
calculation,  plus all payments of principal made during the year of calculation
with respect to obligations  under notes,  Capital Leases and other  contractual
indebtedness.

         Working  Capital  Line of Credit has the meaning  given to that term in
Section 2.01.

         Working  Capital  Note has the  meaning  given to that term in  Section
2.05.

         Uniform   Commercial   Code  means  the  Uniform   Commercial  Code  of
Pennsylvania,  as the same may be amended from time to time,  and any  successor
statute.

         SECTION 1.02.  Accounting  Terms. All accounting terms not specifically
defined in this Agreement shall be construed,  and all calculations with respect
to accounting or financial  matters shall be computed,  in accordance with GAAP,
applied in a manner  consistent  with the  application  of the principles in the
preparation of the financial statements mentioned in Section 6.04.


                                   ARTICLE II

                   THE WORKING CAPITAL LINE OF CREDIT FACILITY

         SECTION 2.01.              Working Capital Line of Credit.  
Subject to the terms and conditions of this Agreement and the Loan Documents,
and in reliance upon the representations, warranties, covenants,
projections and other matters set forth in this Agreement and in
each of the Loan Documents, the Bank shall, provided that no Event
of Default or Potential Default has occurred and is continuing
uncured to the satisfaction of the Bank (i) make revolving loans
(the "Direct Loans") to the Borrowers for the purposes provided for
in Section 2.07(a) of this Agreement, in the maximum principal
amount of up to Two Million Dollars ($2,000,000), and (ii) within
the Two Million Dollars ($2,000,000) limit, but at no time
exceeding the Two Million Dollars ($2,000,000) in the aggregate,


                                       10

<PAGE>



issue  commercial or standby  letters of credit for the account of the Borrowers
("Letters of Credit") (collectively,  the "Working Capital Line of Credit"). The
terms and conditions  under which the Bank will agree to issue Letters of Credit
are also set forth in a Master Letter of Credit  Agreement,  dated of even date,
executed  and  delivered  by the  Borrowers  to the Bank (the  "Letter of Credit
Agreement").

         SECTION 2.02.  Borrowing Limits.  The maximum amount  outstanding under
the Working  Capital Line of Credit  shall at no time exceed Two Millon  Dollars
($2,000,000).  The  Borrowers  covenant  and agree  that,  in the event that the
outstanding balance of the Direct Loans or any portion thereof should exceed, at
any time and for any reason the sum of Two Millon  Dollars  ($2,000,000) , or if
the face  amount of  Letters of Credit,  together  with the Direct  Loans or any
portion  thereof,  should exceed,  at any time and for any reason the sum of Two
Millon Dollars ($2,000,000),  the full amount of such excess,  together with any
interest and fees accrued and unpaid thereon or in connection  therewith,  shall
be immediately due and payable without demand or notice of any kind.  Subject to
the foregoing and all other terms and  conditions of this Agreement and the Loan
Documents,  the Working Capital Line of Credit shall be available for borrowing,
repayment  and  reborrowing  by the  Borrowers.  For  all  purposes  under  this
Agreement and the Loan Documents, the outstanding balance of the Working Capital
Line of Credit shall  include not only the amount of the Direct Loans  advanced,
but also all amounts  available to be drawn or otherwise  paid under  Letters of
Credit,  and the  amounts of any  unreimbursed  drawings or the  payments  under
Letters of Credit.

         SECTION 2.03.              Interest, Fees and Charges.

                  (a) Each advance under the Working Capital Line of Credit with
respect to Direct Loans shall bear interest on the  principal  balance from time
to time  outstanding  at an annual rate based on one of the  following  interest
rate options, as selected by the Borrower requesting the advance:

                           (i)       Base Rate Option:  Interest shall accrue at
an annual rate equal to the Base Rate; or

                           (ii)     LIBOR Rate Option:  Interest shall accrue at
an  annual  rate  equal to the LIBOR  Interest  Rate  (for the  Interest  Period
selected by the Borrower  requesting the advance) plus the applicable margin set
forth below, based upon the Borrowers'  compliance with the financial  covenants
set forth below:




                                       11

<PAGE>




   Maximum Funded
Debt to Cash Flow Ratio                                Applicable Libor Margin

Less than 1.00 to 1.00                                                 1.00%

Between 1.00 and 1.49 to 1.00                                          1.50%

Between 1.50 and 2.49 to 1.00                                          2.00%

Equal to or greater than 2.50                                          2.50%
to 1.00

                  (b)  Interest  shall be  computed  on the basis of the  actual
number of days in the  calendar  year  divided by 360,  and the rate of interest
shall be adjusted (i) automatically and  simultaneously  with each change in the
Base Rate (in the case of the Base Rate Option) or (ii) on the first day of each
Interest Period,  with such rate, as adjusted,  to remain fixed for the duration
of the Interest Period (in the case of the LIBOR Rate Option).

                  (c) If the Borrowers wish an advance under the Working Capital
Line of Credit to be based on the LIBOR  Rate  Option,  they shall give the Bank
not less than two (2) Business Days prior notice of such request.

                  (d)  Letters  of  Credit  shall be issued by the Bank and with
respect to each such Letter of Credit,  the Bank shall charge to the  Borrowers,
and the Borrowers shall pay upon issuance of such Letter of Credit, a commission
equal to the  applicable  percentage  set forth  below  (based  upon  Borrowers'
compliance with the financial  covenants set forth below) multiplied by the face
amount of such Letter of Credit on a per annum basis:

   Maximum Funded                                          Letter of Credit
Debt to Cash Flow Ratio                                Per Annum Percentage Fee

Less than 1.00 to 1.00                                                1.00%

Between 1.00 and 1.49 to 1.00                                         1.25%

Between 1.50 and 2.49 to 1.00                                         1.50%

Equal to or greater than 2.50                                         1.75%
to 1.00


With respect to each Letter of Credit,  the Borrowers shall also pay to the Bank
all customary  issuance,  cable and other incidental charges issued from time by
the Bank.

         SECTION 2.04.  Payment of the Working Capital Line of Credit.  Interest
on the amounts outstanding under the Working Capital Line of Credit shall be due
and payable on the first day of each month beginning May 1, 1998,  continuing on
the first day of each month  thereafter  until all sums owing  under the Working
Capital Line of Credit have been paid in full. Notwithstanding the


                                       12

<PAGE>



foregoing,  interest  with  respect  to Loans  accruing  interest  at the  Libor
Interest Rate shall be payable at the end of the applicable  period to which the
advance  made  under the  Libor  Rate  Option  applies  as set forth in  Section
2.03(ii),  above. The outstanding  principal balance of the Working Capital Line
of Credit, and all interest and fees accrued and unpaid thereon or in connection
therewith  shall be  payable  in full at any time (i) upon  acceleration  of the
foregoing  Indebtedness  made after the occurrence  and during the  continuance,
uncured to the satisfaction of the Bank, of an Event of Default,  or (ii) in the
absence of such  acceleration,  upon  termination of the Working Capital Line of
Credit pursuant to Section 2.06.

         SECTION 2.05.  Working Capital Note. The obligation of the Borrowers to
pay the outstanding  balance of the Working Capital Line of Credit, and interest
and fees  accrued  thereon or in  connection  therewith  shall be evidenced by a
promissory  note,  in form and  substance  satisfactory  to the Bank,  issued by
Borrowers  to  the  Bank  in  the  principal   amount  of  Two  Million  Dollars
($2,000,000) (the "Working Capital Note").

         SECTION 2.06.  Termination of the Working  Capital Line of Credit.  The
availability of advances under Working Capital Line of Credit shall terminate on
March 31, 2003,  unless  extended by the Bank at its sole discretion upon notice
to the  Borrowers;  provided,  however,  that the Bank  may also  terminate  the
Working  Capital Line of Credit at any time upon the  occurrence  and during the
continuance of an Event of Default.  Termination of the Working  Capital Line of
Credit shall not terminate any rights or remedies  available to the Bank, unless
and until the Indebtedness has been repaid finally and in full.

         SECTION 2.07.                 Use and Disbursement of Proceeds.

                  (a) The  Borrowers  shall  use  the  proceeds  of the  Working
Capital Line of Credit solely for working capital purposes of the Borrowers,  as
well as for Capital  Expenditures and the refinancing of debt existing as of the
date of the this Agreement.

                  (b) Advances under the Working Capital Line of Credit shall be
made by the Bank to the Borrowers pursuant to the Corestates Funds Manager - End
of Day Fund Sweep  Agreement (the "Sweep  Agreement"),  a copy of which has been
executed and delivered by the Borrowers to the Bank. At such time that the Sweep
Agreement is no longer in effect and unless  otherwise  agreed by the Bank,  the
Borrowers  shall give the Bank at least one (1)  Business  Day's prior notice of
each advance requested under the Working Capital Line of Credit,  specifying the
Borrower requesting the advance,  the date and amount thereof, the interest rate
option or options which the Borrowers have elected,  and the outstanding balance
with respect to which those  interest  rate options are to apply,  and providing
such additional information as the Bank may


                                       13

<PAGE>



request.  Notwithstanding  the  foregoing,  the Borrowers must give the Bank not
less than two (2) Business  Days prior notice with  respect to  borrowings  that
will be based upon the LIBOR Rate Option.  The Bank may disburse the proceeds of
any Direct Loans by crediting the amount thereof to one or more deposit accounts
of the Borrowers maintained with the Bank.

                  (c) The  Bank  shall  not be  obligated  to  disburse  or have
outstanding  at any one time under the Working  Capital Line of Credit more than
three (3) Libor Loans.

         SECTION 2.08.  Prepayments.  The Borrowers  shall be entitled to prepay
the principal of the Working Capital Line of Credit, in whole or in part, at any
time and from time to time,  but with  interest  accrued on the amount  prepaid;
provided,  however, that with respect to any portion of the Working Capital Line
of Credit for which the LIBOR Rate Option is applicable, the Borrowers shall pay
to the Bank any sums required under paragraph (b) of Section 9.13.

                                   ARTICLE III

                         THE ACQUISITION LINE OF CREDIT

         SECTION  3.01.  The  Acquisition  Facility.  Subject  to the  terms and
conditions of this  Agreement and the Loan  Documents,  and in reliance upon the
representations,  warranties, covenants, projections and other matters set forth
in this Agreement and in each of the Loan  Documents,  the Bank shall,  provided
that no Event of Default or Potential  Default has  occurred  and is  continuing
uncured to the  satisfaction  of the Bank, make revolving loans to the Borrowers
in the maximum amount  outstanding at any time of up to Fifteen  Million Dollars
($15,000,000), reduced all times by all Indebtedness due and owing under or with
respect to the Working Capital Line of Credit (the "Acquisition Facility").  The
obligation of the Borrowers to repay extensions of credit in connection with the
Acquisition  Facility  shall be  evidenced  by the  execution  and delivery of a
promissory note, in the form and substance  satisfactory to the Bank,  issued by
the Borrowers to the Bank in the  principal  amount of Fifteen  Million  Dollars
($15,000,000) (the "Acquisition Facility Note").

         SECTION  3.02.  Borrowing  Conditions  and  Limits.  In addition to the
restrictions  and  conditions set forth in Section 3.01,  above,  the Bank shall
retain  the  right,  at its sole  reasonable  discretion  and  based  upon  such
information as it may request with respect to prospective acquisition targets of
the  Borrowers,  to  refuse  or  limit  the  amount  of any  advance  under  the
Acquisition Facility, unless:

                  (a)      The aggregate amount of cash paid, Permitted Seller
Notes and VPHL's common stock issued by the Borrowers with respect


                                       14

<PAGE>



to a  Permitted  Acquisition  will not  exceed six (6) times the  seller's  most
recent two (2) year average  Adjusted Cash Flow,  and the cash paid with respect
to a Permitted  Acquisition  will not exceed four (4) times the seller's two (2)
year  average  Adjusted  Cash  Flow  and  provided  further  that  the  business
operations with respect to all such Permitted  Acquisition or  Acquisitions  are
located in the Northeastern United States; and

                  (b) No  Potential  Default or Event of Default is in existence
at the time of the  consummation of such Permitted  Acquisition,  or would exist
after giving effect to such Permitted Acquisition; and

                  (c)      The Borrowers shall have given the Bank at least
thirty (30) days prior written notice of any proposed Permitted
Acquisition; and

                  (d) The Bank  shall be  satisfied  with the nature and type of
assets being acquired in connection with any Permitted Acquisition, and shall be
satisfied,  in  its  reasonable  discretion,   with  the  Acquisition  Documents
governing any  Permitted  Acquisition,  which shall include the  submission of a
Borrower  prepared,  Acquisition  due diligence  checklist in a form and content
reasonably satisfactory to the Bank; and

                  (e)  The  Bank  shall  be   satisfied   that  no   liabilities
(contingent or otherwise)  are being  acquired in connection  with any Permitted
Acquisition, except Permitted Assumed Liabilities; and

                  (f) The  Borrowers  shall  grant  to the Bank  first  priority
perfected security interests in all stock,  property and assets acquired,  or to
be acquired, by Borrowers in connection with the proposed Permitted Acquisition;
and

                  (g)  The  Borrowers  shall  be  able to  grant  to the  Bank a
perfected,  first priority  security interest in all property or other assets of
any nature to be acquired in connection with the proposed Permitted Acquisition;
and

                  (h) No  Acquisition  may  be  effected  unless  recalculations
(using historical Adjusted Cash Flow of the proposed Permitted Acquisition), are
made by the Borrowers for compliance  with the financial  covenants set forth in
this  Agreement for the fiscal  quarter most recently ended prior to the date of
such proposed Permitted Acquisition, and for the four (4) quarters most recently
ended prior to the date of such proposed  Permitted  Acquisition  on a pro forma
basis, as if the respective  proposed Permitted  Acquisition had occurred on the
first  day of such  period,  and such  recalculations  shall  show that all such
covenants  would have been complied with if the proposed  Permitted  Acquisition
had occurred on the first day of such period; and



                                       15

<PAGE>



                  (i) The  Bank  shall  be  satisfied,  in its  sole  reasonable
discretion,  with the  amount  of Cash  Flow  which  results  from the pro forma
recalculation  of Cash  Flow  for the  period  of four  (4)  consecutive  fiscal
quarters  most  recently  ended  prior  to the date of such  proposed  Permitted
Acquisition,  regardless of whether the Cash Flow Coverage  covenant is complied
with; and

                  (j) The Borrowers  believe,  in their  reasonable  good faith,
that the financial covenants set forth in this Agreement will continue to be met
for the one (1) year period following the consummation of the proposed Permitted
Acquisition.  The Borrowers shall provide to the Bank projections  demonstrating
such compliance,  and a certificate,  signed by an officer of Senior Management,
certifying as to compliance with the requirements of preceding clauses.

         Notwithstanding  the foregoing,  in the event that the Borrowers are in
compliance with the requirements of Sections  3.02(a),  (b), (c) and (f), above,
they may consummate  Permitted  Acquisitions where the cash portion of the total
consideration paid is not in excess of One Million Dollars ($1,000,000), and the
aggregate  cash  consideration  paid  or to  be  paid  for  any  such  Permitted
Acquisition does not exceed Three Million Dollars ($3,000,000) during any twelve
(12) month fiscal period.

         SECTION 3.03.                 Interest.

                  (a) Each advance  under the  Acquisition  Facility  shall bear
interest on the  principal  balance from time to time  outstanding  at an annual
rate based on one of the following  interest  rate  options,  as selected by the
Borrower requesting the advance:

                           (i)       Base Rate Option:  Interest shall accrue at
an annual rate equal to the Base Rate; or

                           (ii)     LIBOR Rate Option:  Interest shall accrue at
an  annual  rate  equal to the LIBOR  Interest  Rate  (for the  Interest  Period
selected by the  Borrower  requesting  the  advance)  plus the amounts set forth
below,  based upon the Borrowers'  compliance  with the financial  covenants set
forth below:

     Maximum Funded
Debt to Cash Flow Ratio                                Applicable Libor Margin

Less than 1.00 to 1.00                                                   1.00%

Between 1.00 and 1.49 to 1.00                                            1.50%

Between 1.50 and 2.49 to 1.00                                            2.00%

Equal to or greater than 2.50                                            2.50%
to 1.00




                                       16

<PAGE>



                  (b)  Interest  shall be  computed  on the basis of the  actual
number of days in the  calendar  year  divided by 360,  and the rate of interest
shall be adjusted (i) automatically and  simultaneously  with each change in the
Base Rate (in the case of the Base Rate Option) or (ii) on the first day of each
Interest Period,  with such rate, as adjusted,  to remain fixed for the duration
of the Interest Period (in the case of the LIBOR Rate Option).

                  (c) If the  Borrowers'  wish an advance under the  Acquisition
Facility  to be based upon the LIBOR Rate  Option,  they shall give the Bank not
less than two (2) Business Days prior notice of such request.

         SECTION 3.04.                 Repayment of the Acquisition Facility.

         Interest  on the amounts  outstanding  under the  Acquisition  Facility
shall be due and payable on the first day of each month  beginning  May 1, 1998,
and  continuing on the first day of each month  thereafter  until all sums owing
under the  Acquisition  Facility  have been  paid in full.  Notwithstanding  the
foregoing,  interest  with  respect  to Loans  accruing  interest  at the  Libor
Interest Rate shall be payable at the end of the applicable  period to which the
advance  made under the Libor Rate Option  applies as set forth in Section  3.03
(a)(ii),  above.  The  outstanding  principal  balance of all advances under the
Acquisition Facility, and all interest and fees accrued and unpaid thereon or in
connection  therewith  shall  be  payable  in  full at any  time  (i)  upon  the
acceleration of the foregoing  Indebtedness made after the occurrence and during
the  continuance,  uncured  to the  satisfaction  of the  Bank,  of an  Event of
Default,  or (ii) in the absence of such  acceleration,  upon termination of the
Acquisition Facility pursuant to Section 3.06.

         SECTION 3.05. Use of Proceeds of the Acquisition Facility. The proceeds
of any advance under the  Acquisition  Facility shall be used solely to fund, in
whole or in part,  Permitted  Acquisitions,  as well as for Capital Expenditures
and the refinancing of debt existing as of the date of the this  Agreement.  The
Bank shall not be  obligated  to  disburse or have  outstanding  at any one time
under the Acquisition Facility more than three (3) Libor Loans.

         SECTION 3.06.                 Termination of the Acquisition Facility. 
                                       ---------------------------------------
The availability of advances under the Acquisition Facility shall
terminate on March 31, 2003, unless extended by the Bank by written
notice to the Borrowers; provided, however, that the Bank may also
                         --------  -------
terminate the availability of advances under the Acquisition
Facility at any time upon the occurrence and during the continuance
of Event of Default.  Termination of availability of advances under
the Acquisition Facility shall not terminate any other rights or
remedies of the Bank, unless and until the Indebtedness has been
repaid finally and in full.


                                       17

<PAGE>




         SECTION 3.07.  Prepayments.  The Borrowers  shall be entitled to prepay
the principal of the Acquisition  Facility, in whole or in part, at any time and
from time to time, but with interest  accrued on the amount  prepaid;  provided,
however,  that with respect to any portion of the Acquisition Facility for which
the LIBOR Rate Option is  applicable,  the  Borrowers  shall pay to the Bank any
sums required under paragraph (b) of Section 9.13.

         SECTION  3.08.  Unused  Facility  Fee.  As and to the  extent  that the
availability  under  the  Working  Capital  Line of Credit  and the  Acquisition
Facility is not used by the Borrowers during the term of its  availability,  the
Borrowers  shall pay to the Bank a fee equal to 1/8 of one  percent  (0.125%) of
the amount of any such unused  availability.  This unused  facility fee shall be
calculated,  assessed and due and payable as of March 31, June 30, September 30,
and  December  31 of each year,  or the portion of any such year,  during  which
either  the  Working  Capital  Line of Credit  or the  Acquisition  Facility  is
available for use and borrowing by the Borrowers.

                                   ARTICLE IV

                                   COLLATERAL

         SECTION 4.01.  Security  Interests.  As security for the performance of
this Agreement,  the Loan Documents and the repayment of the  Indebtedness,  the
Borrowers  grant (or shall  cause to be  granted)  to the Bank a first  priority
(except as otherwise disclosed in the financial  statements mentioned in Section
6.04 of this Agreement or set forth on the schedule  attached as Exhibit 6.09 to
this  Agreement)  security  interest  in,  lien on,  and where  appropriate,  an
assignment of, all present and future Collateral, including:

                  (a) All of the Borrowers' and the Sureties' present and future
Accounts,  Contract Rights,  Instruments,  Documents,  Equipment (whether or not
constituting  fixtures),  General  Intangibles,   Chattel  Paper  Inventory  and
Investment Property,  whether now owned or hereafter acquired,  as such property
may be more fully described in the Security  Agreements  dated of even date with
this  Agreement  and executed and delivered by the Borrowers and the Sureties to
the Bank; and

                  (b) Without  limiting the general  nature of Section  4.01(a),
above, all of the Borrowers' and the Sureties present and future customer lists,
supply  information and records and related items, as well as the Borrowers' and
the  Sureties  right to  enforce  any  present or future  restrictive  covenant,
covenant  not to compete or  related  asset or right with any  present or future
employee,  officer,  director,  shareholder or other person  affiliated with the
Borrowers and the Sureties; and



                                       18

<PAGE>



                  (c) All of the  Borrowers'  and  the  Sureties  files,  books,
ledgers, ledger cards, records, bills, invoices,  receipts,  deeds, certificates
or documents of ownership, warranties, bills of sale and all other data and data
storage systems and media pertaining to any of the Collateral; and

                  (d)  All  of the  Borrowers'  and  the  Sureties  property  or
property in which they have an  interest,  now or at any time  hereafter  in the
possession of the Bank, or any of their Affiliates  (other than  shareholders of
VPHL) or Subsidiaries, in any capacity and for any reason whatsoever; and

                  (e)  All  shares  of  stock  (whether  common,   preferred  or
otherwise),  of the Borrowers and their Affiliates  (other than  shareholders of
VPHL), except for Vermont Pure Holdings, Ltd.; and

                  (f) A mortgage  lien on, and an assignment of leases and rents
regarding the Real Property,  encumbering all of the ownership interests in such
property, (including mineral and water rights); and

                  (g) Without  limiting the general  nature of Section 4.01 (a),
above, a first priority  security  interest in and lien on all of the Borrowers'
and  their  Affiliates'  and  Subsidiaries'   present  and  future   trademarks,
servicemarks,  trade names,  copyrights,  patents,  licenses and other  property
commonly known as or classified as intellectual  property,  including (i) all of
the Borrowers' right, title and interest to the registered  trademarks  "Vermont
Pure" and "Hidden Spring" and (ii) all of Excelsior's  right, title and interest
to the registered trademark "Excelsior".

                  (h)  All  proceeds  and  products  of the  Collateral  and the
property described in the foregoing  subsections of this Section 4.01, including
insurance, and all replacements to the Collateral.

         SECTION 4.02. Financing  Statements and Other Documents.  The Borrowers
shall join (and shall cause their  Affiliates to join with the Bank in executing
such  financing  statements,  continuation  statements  and other  agreements or
instruments (in form satisfactory to the Bank) under the Uniform Commercial Code
as the Bank may  specify,  and  shall  pay the cost of  filing  the same in such
public offices as the Bank shall designate.

         SECTION  4.03.  Landlords'  Waivers;   Mortgagees'   Disclaimers.   The
Borrowers  shall,  unless  otherwise agreed to by the Bank, cause the owners and
the mortgagees of all premises occupied by it to execute and deliver to the Bank
instruments (in a form reasonably satisfactory to the Bank) by which such owners
waive their right to distrain on, and such mortgagees  disclaim any interest in,
all of the Collateral.



                                       19

<PAGE>



         SECTION 4.04.  Insurance.  The Borrowers shall maintain  insurance,  in
such amounts and with such insurance  companies as are reasonably  acceptable to
the Bank,  insuring the  Collateral  against such risks as are  specified by the
Bank. Each policy of insurance covering any of the Collateral shall (A) show the
Bank's  security  interest in such a manner that all payments for damage or loss
shall be paid  directly to the Bank,  including the  designation  of the Bank as
additional  insured  and  loss  payee,  and (B)  provide  that it  shall  not be
terminated,  reduced in amount or otherwise  materially changed without at least
thirty (30) days' prior written notice to the Bank. Upon request by the Bank and
upon the execution of this  Agreement,  the Borrowers  shall deliver to the Bank
satisfactory evidence of compliance with this Section.

         SECTION 4.05.               Places of Business; Location of Collateral.

                  (a) The  Borrowers  represent  that  the  principal  place  of
business, chief executive office and the place where records are kept concerning
the Collateral is at Route 66,  Catamount  Industrial  Park,  Randolph,  Vermont
05060,  and  that  the  Borrowers'  Equipment  and  Inventory  are  kept at this
location, and at the other places of business listed in Exhibit 4.05.

                  (b) The  Borrowers  shall notify the Bank of (1) any change in
the  location of any of their  principal  places of business or chief  executive
offices,  (2) any change in the places  where they keep items of  Equipment,  or
Inventory or records concerning the Collateral, and (3) the establishment of any
new, or the discontinuance of any existing, place of business.

                  (c) The Borrowers  shall not permit any of their  Equipment to
be removed from the places  mentioned in subsection (A) of this Section 4.05, or
any of their  Inventory  to be so  removed,  except  in the  ordinary  course of
business.

         SECTION 4.06.                 Equipment and Inventory.

                  (a) The Borrowers  represent that they are the absolute owners
of their Inventory and Equipment, subject only to the security interests created
or referenced in this Agreement,  and those liens referred to in Section 6.09 of
this Agreement.

                  (b) The Borrowers  shall not dispose of any of their Equipment
(other than  dispositions,  in the ordinary  course of business,  of obsolete or
worn out Equipment,  or sales or dispositions of vehicles during any fiscal year
in an aggregate  amount of not greater than  $75,000),  or permit any  Equipment
located at leased facilities to become a fixture or an accession to other goods.

                  (c)      The Borrowers shall sell their Inventory only in the
ordinary course of business.


                                       20

<PAGE>




         SECTION 4.07.  Patents,  Copyrights and  Trademarks.  The Borrowers and
Excelsior  own, or have other rights with  respect to, all patents,  copyrights,
trademarks,  tradenames,  service marks and other  intellectual  property rights
used by them in the  operation of their  businesses,  with all of the  foregoing
being identified on Exhibit 4.07 to this Agreement.

         SECTION 4.08.                 Records and Reports.  The Borrowers shall
keep accurate and complete records of the Collateral, and provide
to the Bank such information about the Collateral as the Bank may
reasonably request.

         SECTION  4.09.  Trade  and  Fictitious  Names.  The  Borrowers  and the
Sureties employ no trade or fictitious  names,  nor have they employed any trade
or  fictitious  names within the last six (6) years,  other than as set forth on
Exhibit 4.09 to this Agreement.

         SECTION 4.10.                 Certain of the Bank's Rights.  
                                       ----------------------------
If requested by the Bank, the Borrowers shall:  (1) deliver to the Bank a list
of its Accounts, showing the names, addresses and telephone numbers
of account debtors, and a person or persons with the account debtor
to contact concerning the outstanding Account and the amounts owed
by them, respectively; (2) deliver to the Bank a copy, with such
duplicate copies as the Bank may request, of the invoice applicable
to each Account, bearing a statement that the Account has been
assigned to the Bank.

         SECTION  4.11.  Power of Attorney.  With respect to the  execution  and
delivery of such agreements,  documents or instruments which may be necessary or
desirable to obtain,  maintain or perfect the rights  granted to the Bank in the
Collateral, the Borrowers and the Sureties irrevocably appoint the Bank as their
attorney-in-fact  with full power and  authority  to sign or endorse the name of
the Borrowers as may be necessary to accomplish the foregoing purposes.

         SECTION  4.12.  Notices.  If notice of the sale,  disposition  or other
intended  action by the Bank with respect to the  Collateral  is required by the
Uniform  Commercial Code or other applicable law, any notice thereof sent to the
Borrowers at the addresses  specified in Section 9.03 of this Agreement (or such
other  address of the Borrowers as may from time to time be shown on the records
of the  Bank) at least  ten  (10)  Business  Days  prior to such  action,  shall
constitute reasonable notice to the Borrowers.

         SECTION 4.13.                 Insurance; Discharge of Taxes, etc. 
                                       ----------------------------------
The Bank shall have the right at any time and from time to time, without
notice to the Borrowers to:  (A) obtain insurance covering any of
the Collateral, if the Borrower fails to do so; (B) discharge
taxes, liens, security interests or other encumbrances at any time
levied or placed on any of the Collateral, if the Borrowers fail to
do so; and (C) pay for the maintenance and preservation of any of
the Collateral, if the Borrowers fail to do so.  The Borrowers


                                       21

<PAGE>



shall  reimburse  the Bank,  on  demand,  for any  payment  made or any  expense
incurred  pursuant to this  authorization.  The Borrowers assign to the Bank all
right to receive the proceeds of insurance  covering the Collateral,  direct any
insurer to pay all such proceeds  directly to the Bank and authorize the Bank to
endorse in the name of the Borrowers any draft for such proceeds.

         SECTION  4.14.  Certain  Waivers  and  Releases  by the  Borrower.  The
Borrowers (A) waive protest of all commercial paper at any time held by the Bank
on which they are in any way liable, notice of nonpayment at maturity of any and
all of its Accounts  and,  except  where  required  hereby or by law,  notice of
action  taken by the Bank,  and (B) release the Bank from all claims for loss or
damage caused by any failure to collect any Account or by any act or omission on
the  part of the  Bank or its  officers,  agents  and  employees,  except  gross
negligence or willful misconduct.


                                    ARTICLE V

                              CONDITIONS OF LENDING

         SECTION 5.01.  Conditions Precedent to Funding. As conditions precedent
to the  funding  of the  Working  Capital  Line of  Credit  and the  Acquisition
Facility,  the  Borrowers  shall  deliver or cause to be  delivered to the Bank,
contemporaneously  with or promptly  after the  execution  and  delivery of this
Agreement, in a form and substance satisfactory to the Bank and its counsel:

                  (a)      The Notes;

                  (b)      The Loan Documents;

                  (c)  Certified  copies of the  articles of  incorporation  and
bylaws of the Borrowers  and the Sureties,  and all  amendments  thereto,  and a
certificate  of good standing  evidencing the good standing of the Borrowers and
the Sureties as a domestic corporation under the laws of their respective states
of incorporation;

                  (d)  Certified  copies of all  corporate  action  taken by the
Borrowers  and the  Sureties  (including  resolutions  adopted  by the  Board of
Directors of the Borrowers and the Sureties) authorizing the execution, delivery
and  performance  of this  Agreement  and the other Loan  Documents to which the
Borrowers or the Sureties are a party;

                  (e) An (i)  opinion of  counsel  for the  Borrowers  as to the
matters  mentioned in Sections 6.01,  6.02,  6.03,  6.05,  6.10 and 6.16 of this
Agreement,  and such other  matters  as may be  requested  by the Bank,  (ii) an
opinion of an attorney  authorized to practice law in the State of Vermont as to
the obtaining of such necessary


                                       22

<PAGE>



permits and  licenses as may be required to be obtained by the  Borrowers  under
Vermont law in connection with the operation of their business activities in the
State of Vermont;

                  (f)      Warrants issued in favor of the Bank to purchase the
Calculated Number of Warrant Shares of common stock of VPHL;

                  (g) A fee in the amount of  Eighteen  Thousand  Seven  Hundred
Fifty   Dollars   ($18,750),   ($9,375  of  which  has  already  been  paid)  in
consideration of the Bank making available the Loans and other credit facilities
provided for in this Agreement;

                  (h)      Financial projections for the Borrowers operations
for the period ending not earlier than December 31, 2003;

                  (i)  Satisfactory  completion by the Bank of its due diligence
and other review of the Borrowers assets and properties (including review of the
Borrowers  accountant prepared  management letter,  audits of the Collateral and
appraisals and environmental audits with respect to Real Property);

                  (j) Such other  agreements,  documents or instruments that the
Bank or its counsel may reasonably request.

         SECTION 5.02.                 Additional Conditions Precedent. 
As additional conditions precedent to the funding by the Bank of each Loan
and other extension of credit requested by the Borrowers under the
Working Capital Line of Credit and the Acquisition Facility
(including the funding of the initial Loan or any other extension
of credit):

                  (a) The  representations  and warranties made by the Borrowers
and the Sureties in this  Agreement and the other Loan  Documents  shall be true
and  correct on and as of the date of  funding,  with the same  effect as though
made on and as of that date.

                  (b) No  Event of  Default  or  Potential  Default  shall  have
occurred and be continuing or shall result from the funding of the disbursement.

                  (c) No material  adverse change,  as determined by the Bank in
its sole  reasonable  discretion,  shall have  occurred in the  condition of the
Borrowers, financial or otherwise, since the date of this Agreement.

                  (d) The Bank shall have received such additional  documents or
instruments  and  such  additional  approvals  and  opinions  as  the  Bank  may
reasonably  request under the terms of this Agreement,  the Loan  Documents,  or
otherwise.



                                       23

<PAGE>



         Each request by the Borrowers  for a loan or other  extension of credit
under this Agreement shall  constitute a certification  by the Borrowers,  as of
the date of such request,  that all of the  conditions in this Section 5.02 have
been satisfied.


                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES

         In order to induce the Bank to enter into this Agreement, the Borrowers
represent and warrant to the Bank that:

         SECTION 6.01. Existence. Each Borrower and each Surety is a corporation
duly  incorporated,  validly existing and in good standing under the laws of its
state of incorporation  as referred to in the Background of this Agreement,  has
all  requisite  power and  authority,  corporate  or  otherwise,  to conduct its
business  and to own and  operate its  properties,  and is duly  qualified  as a
foreign  corporation  to do  business  in,  and  is in  good  standing  in,  all
jurisdictions  in which  failure  to so qualify  would  have a material  adverse
effect on that  Borrower's  business.  The  Borrowers  have no  Subsidiaries  or
Affiliates, except as described in the schedule attached as Exhibit 6.01.

         SECTION  6.02.  Authorization.  The Borrowers and the Sureties have all
requisite power and authority to execute, deliver and perform this Agreement and
the other Loan Documents to which they are a party. The execution,  delivery and
performance  by the Borrowers  and the Sureties of this  Agreement and the other
Loan  Documents  to which  they are a party  have  been duly  authorized  by all
necessary  corporate action and do not and will not violate any provision of law
or of the  articles of  incorporation  or bylaws of any of the  Borrowers or the
Sureties,  or result in a breach or  constitute a default  under any  agreement,
indenture or instrument  to which the Borrowers or the Sureties are a party,  or
by which their properties may be bound or affected.

         SECTION 6.03. Validity.  This Agreement and the Loan Documents to which
the  Borrowers  and the  Sureties  are  parties  are  legal,  valid and  binding
obligations of the Borrowers and the Sureties,  enforceable  in accordance  with
their  terms,  except  as  such  enforceability  may be  limited  by  applicable
bankruptcy,  insolvency,  moratorium,  reorganization and similar equitable laws
and principles as may effect the rights of creditors generally.

         SECTION 6.04.  Financial  Statements.  The financial  statements of the
Borrowers as of and for the period ended October 25, 1997,  previously furnished
to the Bank,  were prepared in accordance  with GAAP,  are complete and correct,
and fairly  present the financial  position and the results of operations of the
Borrowers as of that date and for the period then ended. Since October 25, 1997,


                                       24

<PAGE>



there has been no material  adverse change in the financial  position or results
of operations of the Borrowers  from that set forth in the financial  statements
as of that date and for the period then ending.

         SECTION 6.05. Litigation.  Except as disclosed in the schedule attached
as  Exhibit  6.05,  there  are no  actions  or  proceedings  pending  or, to the
knowledge  of  the  Borrowers,  threatened  against  or  affecting  any  of  the
Borrowers,  or any  of  their  properties,  before  any  court  or  governmental
department,  commission,  board, bureau, agency or instrumentality,  domestic or
foreign,  which are  substantial  in amount or which,  if determined  adversely,
would have a material  adverse effect on the financial  condition or business of
any Borrowers.

         SECTION  6.06.  Agreements  and Orders.  None of the  Borrowers  are in
default in the  performance of any material  agreement or instrument to which it
may be party or by which  its  properties  may be bound or with  respect  to any
order,  writ,  injunction,  or decree of any court or  governmental  department,
commission, board, bureau, agency or instrumentality, domestic or foreign.

         SECTION 6.07. Contingent Liabilities. The Borrowers have no material or
substantial contingent obligations or liabilities,  for taxes or otherwise, that
are not disclosed by the financial  statements  mentioned in Section 6.04 or set
forth on the schedule attached as Exhibit 6.07.

         SECTION  6.08.  Taxes.  The  Borrowers  have filed all tax  returns and
reports  (federal,  state and local) required to be filed as of the date of this
Agreement and have paid all taxes,  assessments and charges imposed upon them or
their  operations or properties,  or which they are required to withhold and pay
over (including payroll withholding taxes).

         SECTION 6.09.  Ownership and Encumbrances.  The Borrowers and Excelsior
have title to, or valid  leasehold  interests  in, all of their  properties  and
assets, real and personal,  including the properties and assets reflected in the
financial  statements  mentioned in Section  6.04.  None of the  properties  and
assets of any of the  Borrowers are subject to any lien,  encumbrance,  security
interest or other claim of any nature, except liens and encumbrances in favor of
the  Bank  and  existing  liens  and  encumbrances  disclosed  by the  financial
statements  mentioned in Section 6.04, or set forth on the schedule  attached as
Exhibit 6.09.

         SECTION 6.10.                 Consents.  
No authorization, consent, approval, license, exemption by or filing or
registration with any court or governmental department, commission, board, 
bureau, agency or instrumentality, domestic or foreign, is or will be 
necessary to the valid execution, delivery or performance by the Borrowers and


                                       25

<PAGE>



the Sureties of this Agreement or the other Loan Documents to which
they are a party.

         SECTION  6.11.  ERISA.  The Borrowers are in compliance in all material
respects with all applicable provisions of ERISA. Neither a Reportable Event nor
a Prohibited  Transaction  has occurred  and is  continuing  with respect to any
Plan;  no notice of intent to terminate a Plan has been filed,  nor has any Plan
been  terminated  except as set forth on Exhibit  6.11; no  circumstances  exist
which  constitute  grounds  under  Section 4042 of ERISA  entitling  the PBGC to
institute  proceedings  to terminate,  or appoint a trustee to  administrate,  a
Plan, nor has the PBGC  instituted any such  proceedings;  neither the Borrowers
nor any ERISA Affiliate has completely or partially withdrawn under Section 4201
or 4204 of ERISA  from a  Multiemployer  Plan;  the  Borrowers  and  each  ERISA
Affiliate has met its minimum funding  requirements  under ERISA with respect to
all of its Plans and the present  value of all vested  benefits  under each Plan
exceeds the fair market value of all Plan assets allocable to such benefits,  as
determined on the most recent  valuation date of the Plan and in accordance with
the  provisions of ERISA and the  regulations  thereunder  for  calculating  the
potential  liability of the Borrowers or any ERISA  Affiliate to the PBGC or the
Plan under Title IV of ERISA;  and neither the Borrowers nor any ERISA Affiliate
has incurred any liability to the PBGC under ERISA.

         SECTION 6.12.  Operation of Business.  The Borrowers and Excelsior,  as
applicable,  possess (i) all material licenses, permits,  certificates and other
governmental authorizations, and (ii) all franchises, trademarks,  servicemarks,
trade names, copyrights and patents, or rights in any of the foregoing, adequate
for the conduct of their business as now conducted and presently  proposed to be
conducted.  To the best of the  Borrower's  knowledge,  information  and belief,
after  reasonable  inquiry,  the  Borrowers  are  also in  compliance  with  all
statutes,  laws,  rules and  regulations  applicable to them in the operation of
their  business,  including all of the foregoing as may relate to their bottling
and labeling activities.

         SECTION 6.13. Disclosure.  No representation or warranty made by any of
the Borrowers or the Sureties in this  Agreement or the other Loan  Documents to
which they are a party is false or misleading in any material respect,  or omits
to state any material  fact  necessary in order to make the  statements  in this
Agreement  or the other  Loan  Documents  not  misleading.  The  Borrowers  have
disclosed  to the Bank in  writing  every  fact that  materially  and  adversely
affects their business or financial  condition or their ability to perform their
obligations under this Agreement or the other Loan Documents to which they are a
party.



                                       26

<PAGE>



         SECTION  6.14.  Environmental  Laws.  The  Borrowers  have received all
permits and filed all notifications necessary to carry on their businesses under
and in compliance with all applicable  Environmental Laws. The Borrowers have no
knowledge of, and have not given any written or oral notice to the Environmental
Protection  Agency  or any  state or  local  agency  regarding,  any  actual  or
imminently  threatened  removal,  spill,  release or discharge of any  Hazardous
Substances  on  properties  owned  or  leased  by  any of  the  Borrowers  or in
connection with the conduct of their business and operations. The Borrowers have
no  knowledge  of, and have not  received  any notice that they are  potentially
responsible for costs of clean-up of any actual or imminently  threatened spill,
release or discharge of any Hazardous Substances.

         SECTION 6.15.  Margin  Stock.  The Borrowers are not engaged in, nor do
they have as one of their substantial  activities,  the business of extending or
obtaining  credit for the purpose of purchasing or carrying  "margin  stock" (as
that term is defined in  Regulation  U of the Board of  Governors of the Federal
Reserve  System) and no proceeds of any Loan under this  Agreement  will be used
for such  purpose or for the purpose of  purchasing  or  carrying  any shares of
margin stock.

         SECTION 6.16.                 Securities Laws.  
All shares of capital stock and all other securities of the Borrowers have been 
offered and sold in accordance with  registration and other  applicable
requirements of all applicable federal and state securities laws.

         SECTION 6.17.  Other  Agreements.  The Borrowers are not a party to any
indenture,  loan,  or credit  agreement,  or to any lease or other  agreement or
instrument, or subject to any charter or corporate restriction, which could have
a material adverse effect on their businesses, properties, assets, or condition,
financial or otherwise, or their ability to perform their obligations under this
Agreement or the other Loan Documents to which they are a party.

         SECTION 6.18.                 Labor Disputes and Casualties. 
                                       -----------------------------
The Barrowers are not affected by any fire, explosion, accident, strike, 
lockout, or other labor dispute, drought, storm, hail, earthquake, embargo,
act of public enemy, or other casualty (whether or not covered by
insurance) which materially and adversely affects their business,
properties, assets, or condition, financial or otherwise, or their
ability to perform their obligations under this Agreement or the
other Loan Documents to which they are a party.

         SECTION 6.19.                 Representations Concerning Sureties.  
All of the representations and warranties contained in the Loan Documents
executed by the Sureties are true,  correct and  complete.  Additionally,  other
than the trademark registered with the United States Patent and Trademark Office
at No. 1,668,735 and known as "Excelsior Spring Water",  neither of the Sureties
maintain any assets or have any liabilities of any nature, do not presently


                                       27

<PAGE>



conduct  business  operations and are not currently  contemplated  by either the
Borrowers or the Sureties to conduct business operations in the future.


                                   ARTICLE VII

                                    COVENANTS

         As long as any portion of the  Indebtedness  is or remains  outstanding
and unpaid,  or any of the Loans remain  available for borrowing,  the Borrowers
covenant and agree that, unless the Bank otherwise consents in writing:

         SECTION 7.01.                 Financial and Other Information. 
The Borrowers shall furnish or cause to be furnished to the Bank:

                  (a) within  ninety  (90) days  after the close of each  fiscal
year,  (i) an income  statement  and statement of cash flow of the Borrowers for
such fiscal  year,  and a balance  sheet of the  Borrowers,  on a  consolidating
basis, as of the last day of such fiscal year, prepared in accordance with GAAP,
certified  without  qualification by independent  certified  public  accountants
reasonably  satisfactory to the Bank (it being understood that Feldman,  Raden &
Co.,  is  acceptable  to the  Bank),  (ii) the  management  letter  prepared  by
Borrowers  independent  public accountants issued in connection with any interim
or year-end financial statement,  and (iii) a revised,  updated budget, prepared
by Senior Management of the Borrowers, for the next five (5) fiscal years, which
budget shall take into account the effect of any Permitted Acquisitions;

                  (b) within forty-five (45) days after the close of each fiscal
quarter,  a certification  (in the form attached as Exhibit 7.01) prepared under
the direction of, and signed by, the Borrowers' Chief Financial Officer or Chief
Executive  Officer,  certifying  that,  to the  best  of  his or her  knowledge,
information and belief, no Event of Default or Potential Default has occurred or
is continuing under this Agreement or any of the Loan Documents;

                  (c) within forty-five (45) days after the close of each fiscal
month,  an  income   statement  and  balance  sheet  of  the  Borrowers,   on  a
consolidating  basis, for such month, and prepared by management of the Borrower
in accordance with GAAP which  financial  statement shall compare the Borrowers'
results of actual operations with the projected results of operations;

                  (d)      within fifteen (15) days of the close of each fiscal
month, a certification as to the Borrowers' accounts payable,
Accounts and other accounts receivable;



                                       28

<PAGE>



                  (e) on or within  five (5) days  after  filing,  copies of the
Borrowers' 10K or 10Q reports filed with the Securities and Exchange Commission,
or any other filings from time to time by any one or more of the Borrowers  with
the Securities and Exchange Commission; and

                  (f)  with  reasonable   promptness,   such  other  information
concerning the business,  properties, and condition,  financial or otherwise, of
the Borrowers as the Bank may from time to time reasonably request.

         SECTION 7.02.  Insurance.  The Borrowers shall maintain  insurance with
respect to their  businesses  and assets in such amounts,  against such hazards,
and  with  such  companies  as  is  reasonable  and  customary  and  as  may  be
satisfactory to the Bank. All policies of insurance shall insure the Bank as its
interest may appear and shall bear a thirty (30) day notice of  cancellation  or
material change  endorsements in favor of the Bank. Attached as Exhibit 7.02 are
details  regarding all of the Borrower's  current  insurance  coverage,  and the
Borrowers  further  agree to provide to the Bank, as of or prior to each renewal
date with respect to such insurance policies,  evidence of the existence of such
coverage, all of which shall be in a form and content reasonably satisfactory to
the Bank.

         SECTION 7.03. Taxes and Other Claims.  The Borrowers shall pay when due
all  taxes,  assessments  and  charges  which  are  imposed  upon  them or their
operations  or  properties,  or which they are required to withhold and pay over
(including,  without  limitation,  payroll  withholding taxes) and shall pay all
other  claims  which,  if  unpaid,  might  become  liens or  charges  upon their
properties;  provided,  however, that the Borrowers shall not be required to pay
such taxes,  assessments  and charges so long as they (i) in good faith  contest
the amount or validity and establish  reserves  against such taxes,  assessments
and charges in kind and amount  reasonably  satisfactory  to the Bank,  and (ii)
cause any lien or other claim relating to any such taxes, assessments or charges
against the Borrowers to be subordinated to the Indebtedness, to the extent that
such lien or other  claim would have a priority  against  any of the  Collateral
that would be equal to, or higher than, the security interests and liens granted
to the Bank under this Agreement and the Loan Documents.

         SECTION  7.04.  Encumbrances.  The Borrowers  shall not create,  incur,
assume or permit to exist any mortgage,  pledge, charge, security interest, lien
or other  encumbrance upon any of their properties or assets,  whether now owned
or hereafter acquired,  except: (i) liens for taxes or governmental claims which
are not yet due and  payable  or which are  being  contested  in good  faith and
subordinated as required by Section 7.03;  (ii) existing liens and  encumbrances
described in Section 6.09; (iii) liens and encumbrances in favor of the Bank.


                                       29

<PAGE>




         SECTION 7.05.  Indebtedness.  The Borrowers  shall not create,  assume,
incur,  or  otherwise  become  liable  for  any  indebtedness  or  other  Credit
Obligations to any person or entity for money borrowed or the deferred  purchase
price for assets  other  than:  (i) loans from the Bank to the  Borrowers;  (ii)
indebtedness to shareholders or affiliates of the Borrowers,  provided that such
indebtedness  does  not  cause or  result  in an Event  of  Default  under  this
Agreement; (iii) trade indebtedness for the purchase of supplies and services in
the ordinary  course of business;  (iv) existing  indebtedness  disclosed in the
financial  statements  mentioned in Section 6.04 or on the schedule  attached as
Exhibit 7.05;  (v) Permitted  Seller Notes;  and (vi)  indebtedness  incurred in
connection with Capital Expenditures.

         SECTION 7.06. Loans and  Investments.  The Borrowers shall not make any
loan to,  capital  contribution  to or investment  in, or endorse,  guarantee or
otherwise  become liable for the payment or  performance  of any  liabilities or
obligations  of,  any  person  or entity  (including,  without  limitation,  any
officer, employee,  shareholder, or director of the Borrowers),  except that the
Borrowers may make: (i) guaranties to the Bank; (ii)  endorsements of negotiable
instruments for deposit or collection in the ordinary course of business;  (iii)
investments  in direct  obligations  of the United States or any agency  thereof
with maturities of one year or less from the date of acquisition,  or commercial
paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation
or "P-1" by Moody's  Investors  Service,  Inc., or  certificates of deposit with
maturities  of one  year or  less  from  the  date of  acquisition  issued  by a
federally  insured  commercial  bank;  (iv) pledges or deposits under  workmen's
compensation laws,  unemployment  insurance laws or similar laws; (v) good faith
deposits in connection with bids, tenders,  sales contracts,  leases,  statutory
obligations,  appeal and  performance  bonds and other similar  obligations  not
incurred in connection  with the borrowing of money or the obtaining of advances
or the payment of deferred purchase price of property.

         SECTION 7.07.  Maintenance of Existence.  The Borrowers  shall preserve
and maintain their corporate  existence and good standing in the jurisdiction of
their incorporation,  and qualify and remain qualified as a foreign corporations
in each jurisdiction in which such qualification is required.

         SECTION 7.08.  Compliance  With Laws. The Borrowers shall comply in all
respects with all statutes,  laws,  rules and regulations  applicable to them in
the operation of their  businesses  (including the Fair Labor  Standards Act, as
amended, and all statutes, laws, rules and regulations relating to the Borrowers
bottling and  labeling  activities)  or with regard to their  ownership of their
properties and assets.



                                       30

<PAGE>



         SECTION 7.09. Maintenance of Property. The Borrowers shall maintain all
of their  properties  and assets in good condition and repair and shall make all
reasonable  and  necessary  repairs,  replacements  and  improvements  to  their
properties and assets, so that their businesses may be properly conducted at all
times.

         SECTION 7.10.  Inspection by the Bank.  The Borrowers  shall permit the
Bank or its agents at any  reasonable  time to inspect  during  normal  business
hours their properties and to examine their books and records and make copies or
extracts therefrom, and to discuss their affairs with their directors, officers,
employees,  agents and accountants;  provided, however, that the Bank's right to
inspect as set forth in this  Section  7.10 shall exist at any time the Bank may
deem appropriate  after the occurrence and during the continuance of an Event of
Default.

         SECTION 7.11.                 Reports.              
The Borrowers shall furnish to the Bank:

                  (a) as soon  as  possible,  and in any  event  within  two (2)
Business Days after any Borrower becomes aware of the occurrence of any Event of
Default or  Potential  Default,  a written  statement  by the  Borrowers'  Chief
Executive  Officer or Chief Financial Officer setting forth details of the Event
of Default or  Potential  Default  and the action  which is proposed to be taken
with respect thereto;

                  (b) as soon as  possible,  and in any  event  within  five (5)
Business Days after receiving  knowledge thereof,  written notice of any action,
suit and proceeding  before any court or  governmental  department,  commission,
board,  bureau,  agency or instrumentality,  domestic or foreign,  affecting any
Borrower which involves  $200,000 or more or would  materially  adversely affect
the business, properties or condition,  financial or otherwise, of any Borrower,
if adversely determined;

                  (c) as soon as  possible,  and in any  event  within  five (5)
Business Days after any Borrower  becomes  aware of the  occurrence of any event
that would cause any  representation  or warranty  made by any  Borrower in this
Agreement or the other Loan Documents to be untrue,  a written  statement by the
Borrowers' Chief Executive  Officer or Chief Financial Officer setting forth the
details of such event and the action  which is proposed to be taken with respect
thereto; and

                  (d) as soon as  possible,  and in any  event  within  five (5)
Business Days after any Borrower  becomes aware of the  occurrence of a material
adverse  change  in  their  business,  properties  or  condition,  financial  or
otherwise,  a written  statement by the Borrowers'  Chief  Executive  Officer or
Chief  Financial  Officer,  setting forth the details of such  material  adverse
change and the action which is proposed to be taken with respect thereto.


                                       31

<PAGE>




         SECTION 7.12.                 ERISA.  
The Borrowers shall comply with all applicable provisions of ERISA and the 
Internal Revenue Code with respect to each Plan.

         SECTION  7.13.  Merger or  Consolidation.  Except  for  those  types of
acquisitions  contemplated  within  the  Acquisition  Facility  provided  for by
Article  III of this  Agreement,  the  Borrowers  shall not  become a partner or
participant in any partnership or joint venture, or merge or consolidate with or
into any other  corporation,  or permit any other  corporation to merge into any
Borrower,  or  acquire,  in a  transaction  analogous  in purpose or effect to a
merger or consolidation, all or substantially all of the assets or securities of
any other person, corporation, division, or business enterprise.

         SECTION 7.14. Disposal of Assets. The Borrowers shall not sell, convey,
lease,  assign,  transfer or otherwise dispose of, voluntarily or involuntarily,
all or any portion of their assets,  other than (i) the sale of Inventory in the
ordinary  course of business,  (ii) sales of coolers in the  ordinary  course of
business, and (iii) as permitted pursuant to Section 4.06(b) of this Agreement.

         SECTION  7.15.  Nature of Business.  The  Borrowers  shall not make any
material  change in the nature of their  businesses  as conducted at the date of
this Agreement or, without at least thirty (30) days prior written notice to the
Bank, change their name.

         SECTION 7.16.  Environmental  Laws. The Borrowers shall comply with all
applicable  Environmental  Laws and  shall  immediately  notify  the Bank of any
actual or alleged  failure  to comply  with or  perform,  breach,  violation  or
default under any applicable Environmental Laws.

         SECTION  7.17.  Ownership  of  Stock/Maintenance  of  Management.   The
Borrowers  shall not  cause,  permit,  suffer  or allow to exist  any  Change in
Control, or enter into any agreement  contemplating or providing for a Change in
Control. Notwithstanding the foregoing, if either or both of the Borrowers shall
enter into any agreement  contemplating or providing for a Change in Control, it
is understood and agreed that (so long as no other Potential Default or Event of
Default has then occurred and is continuing)  (i) the  availability  of advances
under the Acquisition Facility shall immediately terminate, without the need for
further  notice from the Bank,  and (ii) the  Borrowers  shall  continue to have
borrowing  availability under the Working Capital Line of Credit at the interest
rate  provided in Section 2.03 hereof,  subject to the terms and  conditions  of
this Agreement  (including but not limited to Section 8.04(b) of this Agreement)
and the Loan Documents;  provided,  however,  that in all cases all Indebtedness
owing to the Bank shall, unless the Bank otherwise agrees in writing, be paid in
full immediately prior to, or simultaneously with, any Change in

                                       32

<PAGE>



Control.  The Borrowers shall also maintain at all times Senior
Management reasonably satisfactory to the Bank.

         SECTION 7.18.  Funded Debt to Cash Flow. The Borrowers  shall maintain,
on a  consolidated  basis, a ratio of Funded Debt to Cash Flow of not more than:
(i) 4.25 to 1 from the date of this Agreement  through July 25, 1998;  (ii) 3.95
to 1 from July 26, 1998, through October 31, 1998; (iii) 3.50 to 1 from November
1, 1998 through  October 30, 1999; and (iv) 3.00 to 1 at October 31, 1999 and at
the end of each fiscal year thereafter.

         SECTION 7.19.                 Cash Flow Coverage.  
The Borrowers shall maintain, a minimum ratio of four (4) quarters Cash Flow to
Fixed Charges of not less than 1.25 to 1.0.

         SECTION 7.20.                 Funded Debt to Capitalization.  
The Borrowers shall maintain, on a consolidated basis, a ratio of Funded Debt to
Capitalization of not more than 2.00 to 1.00.

         SECTION 7.21 Interest  Coverage.  Borrowers shall at all times maintain
Interest Coverage Ratio of not less than 3.25 to 1.0.

         SECTION  7.22  Methodology  for  Calculation.   The  calculations  made
pursuant to Sections 7.18,  7.19, 7.20 and 7.21 shall be tested as of the end of
each fiscal quarter, on a rolling, prior four fiscal quarter basis. For purposes
of the  calculations  in Sections 7.18,  7.19 and 7.21,  Permitted  Acquisitions
consummated during the fiscal quarter will use such Permitted  Acquisitions most
recently ended Adjusted Cash Flow.

         SECTION 7.23. Capital  Expenditures.  With respect to the fixed assets,
including,  for these purposes, water coolers, the Borrowers shall not expend or
become  obligated to expend for fixed assets (by purchase or financing lease) an
amount which would cause the aggregate  amount expended by the Borrowers for the
fixed assets  (including the annual rental  liability for the financing lease of
fixed assets and the annual  deferred  portion of any purchase  price) to exceed
the amount of the VPSI's depreciation for the immediately preceding fiscal year.

         SECTION 7.24. Deposit Accounts. As additional compensation to the Bank,
and in  consideration of the rate of interest and fees being charged by the Bank
to  the  Borrowers  on  and  in  connection   with  this   Agreement  and  other
Indebtedness,  the Borrowers and their  Affiliates  shall maintain their primary
deposit  accounts  with the Bank.  The Bank  agrees that all  charges,  fees and
assessments  levied in connection  with any one or more such  accounts  shall be
consistent with those assessed by the Bank for similar type accounts.



                                       33

<PAGE>



         SECTION 7.25. Dividends, Capital Stock. The Borrowers shall not declare
or pay, directly or indirectly, any dividends, or make any other distribution of
payment (whether in cash,  property,  securities or accommodation  thereof) with
respect to (whether by reduction of capital or otherwise)  any shares of capital
stock of the  Borrowers,  or any  options,  warrants,  rights  or  added  equity
securities or agreements relating to any capital stock, or set apart any sum for
the payment of any of the foregoing purposes.

                                  ARTICLE VIII

                                     DEFAULT

         SECTION 8.01.                 Events of Default. 
 The occurrence of any one or more of the following events shall constitute an 
"Event of Default" under this Agreement:

                  (a) Any Borrower fails to pay the  outstanding  balance of the
Working Capital Line of Credit or any portion of the  Acquisition  Facility when
due, or any other portion of the Indebtedness when due; or

                  (b) Any  Borrower  fails  to  observe  or  perform  any  other
agreements, conditions,  undertakings or covenants in this Agreement or the Loan
Documents to be observed or performed by the Borrowers; or

                  (c) Any  representation  or warranty made in this Agreement or
the Loan Documents,  or furnished by any Borrower in connection with making this
Agreement or the Loan Documents or in compliance with their  provisions,  proves
to have been false or  erroneous  in any  material  respect  when made or deemed
made; or

                  (d) Any  Borrower  becomes  insolvent  or unable to pay its or
their  debts as they  mature,  or files a  voluntary  petition  or  suffers  any
involuntary  petition to be filed  against it or them under any provision of any
state or  federal  bankruptcy  or  insolvency  statute  (and,  in the case of an
involuntary  petition,  such  petition is not  dismissed  within sixty (60) days
after filing), or makes an assignment for the benefit of its or their creditors,
or applies for or consents to the appointment of a receiver or custodian for its
or their assets,  or any attachment or garnishment is initiated or filed against
its or their  properties  or assets  and is not  released  discharged  or bonded
against within thirty (30) days thereafter; or

                  (e) Any Borrower fails to pay any Credit  Obligation  owing by
it in excess of  (whether  individually  or in the  aggregate)  $50,000,  or any
interest or premium thereon, when due (whether such Credit Obligation has become
due by scheduled maturity, by required prepayment, by acceleration, by demand or
otherwise) or fails to perform any term, covenant or agreement on its part to be
performed


                                       34

<PAGE>



under any agreement or instrument evidencing or securing or relating to any such
Credit  Obligation when required to be performed,  if the effect of such failure
is to accelerate the maturity of such Credit Obligation; or

                  (f) Any of the following  events occurs or exists with respect
to any Borrower or any ERISA Affiliate: (i) any Prohibited Transaction involving
any Plan; (ii) any Reportable  Event with respect to any Plan;  (iii) the filing
under  Section 4041 of ERISA of a notice of intent to terminate  any Plan or the
termination of any Plan;  (iv) any event or circumstance  that might  constitute
grounds entitling the PBGC to institute  proceedings under Section 4042 of ERISA
for the termination  of, or for the appointment of a trustee to administer,  any
Plan, or the  institution by the PBGC of any such  proceedings;  (v) complete or
partial withdrawal under Section 4201 or 4202 of ERISA from a Multiemployer Plan
or the reorganization, insolvency, or termination of any Multiemployer Plan; and
in each case above,  such event or condition,  together with all other events or
conditions, if any, could in the opinion of the Bank subject any Borrower to any
tax,  penalty,  or other liability to a Plan, a Multiemployer  Plan, the PBGC or
otherwise  (or any  combination  thereof)  which in the  aggregate  would have a
material adverse effect on the financial connection,  properties,  or operations
of any Borrower; or

                  (g)  Any  one or  more  of  the  Borrowers  terminates  or has
terminated any distributorship or brokerage arrangement representing 15% or more
of the total revenues of such Borrower for the immediately preceding twelve (12)
month  period  unless,  within  forty-five  (45)  days of  receiving  notice  or
obtaining  knowledge  of such  termination,  the  Borrowers  provide to the Bank
projections  (satisfactory  to the Bank) indicating that such lost revenues will
not  cause or  result  in a  Potential  Default  or Event of  Default  (it being
understood that such projections shall include,  among other items, a compliance
certificate  showing  the  anticipated  effect of such  loss on such  Borrower's
revenues, and such projections contain assumptions satisfactory to the Bank); or

                  (h) The Borrowers make  allowance for (or, in accordance  with
GAAP, should make allowance for), any write-down of the value of their assets in
an amount equal to or greater than two and one-half percent (2.50%) of their net
sales, for the applicable fiscal year; or

                  (i) Any Borrower expresses an attempt to terminate,  revoke or
disclaim  responsibility  for any of the Indebtedness,  or their liability under
this Agreement or any of the Loan Documents; or

                  (j)  (i) A  judgment  or  judgments  in  excess  of  $200,000,
individually or in the aggregate,  is entered against any Borrower provided that
such judgment or judgments shall have become final


                                       35

<PAGE>



after the expiration or non-pursuit of available  appeals,  and assuming  during
such appeal  process that execution  upon, or  enforcement  of, such judgment or
judgments has been stayed), or (ii) the property of any Borrower becomes subject
of any  attachment,  garnishment,  levy or lien in excess of  $200,000,  whether
individually or in the aggregate; or

                  (k)  A substantial part of the property of any of the
Borrowers is taken or condemned by any governmental authority, or

                  (l) Except as permitted by this Agreement, any Borrower sells,
assigns  or  otherwise  transfers,  or  attempts  to sell,  assign or  otherwise
transfer any of its right, title or interest in any of its assets of properties,
without the prior written consent of the Bank; or

                  (m)  Any  Borrower  shall  be  in  breach  of,  or  lack  full
compliance with, any law, statute,  rule or regulation  applicable to it or them
which, in the Bank's reasonable judgment,  would impair their ability to perform
their obligations to the Bank;

                  (n) Any  default,  subject to any  applicable  notice and cure
period,  otherwise occurs under the Loan Documents,  which Events of Default are
incorporated by reference in this Agreement; or

                  (o) If the Bank determines, reasonably and in good faith, that
an event or  series  of  events  has  occurred,  or a  condition  or  series  of
conditions exists which has had, or is likely to have, a material adverse effect
on the  financial  condition or credit  worthiness  of any  Borrower,  or on the
ability of any Borrower to perform its  obligations  under this Agreement or any
of the Loan Documents; or

                  (p)  A  default  occurs,  and  after  the  expiration  of  any
applicable  notice and cure  period,  under any other  agreement,  document,  or
instrument  now or  hereafter  executed  and  delivered to the Bank by any other
person or entity  now or  hereafter  liable,  directly  or  indirectly,  for the
Indebtedness.

         SECTION 8.02. Cure of Default. The exercise by the Bank of its remedies
as set forth or  referenced  in Sections 8.03 and 8.04 below shall be subject to
the  Borrower's  right to cure such  default  as, and to the  extent,  set forth
below:

                  (a) With respect to defaults  under  clauses (b), (f), (m) and
(o) in Section  8.01,  above,  the  Borrowers  shall have the right to cure such
defaults (if cure can be effected to the reasonable  satisfaction  the Bank, and
provided  further that the  Borrower is using its best  efforts to  effectuate a
cure) within fifteen (15) days after notice of default with respect  thereto has
been given by the Bank (which notice, if initially given by means other than in


                                       36

<PAGE>



writing, shall be promptly confirmed in writing by the Bank); provided, however,
that no cure period is  available  for the  existence  of an Event of Default by
virtue of (i)  exceeding the  borrowing  limitations  set forth in Article II or
Article III of this  Agreement,  or (ii)  failure to comply  with the  financial
covenants set forth in Sections 7.18,  7.19,  7.20, 7.21, 7.22, 7.23 and 7.25 of
this Agreement.

         During any cure or grace period set forth in the Section 8.02, the Bank
shall  refrain  from the  exercise  of remedies  provided to it upon  default as
provided in Sections 8.03 and 8.04 below; provided,  however, that the Bank may,
during such cure period:

                  (i)      to the extent necessary to protect its security
interest in the Collateral, exercise its right of set-off against
assets or accounts in its possession, custody or control;

             (ii)          refrain from making additional advances under the
Loans; and

            (iii) take all actions with respect to the Collateral  necessary for
the  protection of its interest  therein  including,  if required,  based upon a
reasonable and good faith  determination  made by the Bank that the value of the
Collateral is threatened, the exercise of default remedies set forth in Sections
8.03 and 8.04 below.

                  SECTION 8.03.  Acceleration.  Upon the occurrence of any Event
of Default or at any time during the  continuance  of any Event of Default,  the
Bank may, at its election,  declare all or any portion of the Indebtedness to be
immediately  due and  payable,  without  presentment,  demand,  protest or other
notice of any kind, all of which are expressly waived by the Borrowers.

         SECTION 8.04.                 Remedies Upon Default.

                  (a) Upon the  occurrence of any Event of Default and after the
expiration  of any  applicable  grace  and  cure  periods  (but  subject  to the
provisions of Section 8.02,  above) or at any time during the continuance of any
Event of Default,  the Bank, in addition to the rights  specifically  granted in
this  Agreement  or now or  hereafter  existing in equity,  at law, by virtue of
statute or otherwise, may at its election exercise the rights and remedies under
the Loan Documents, or any other agreement,  document, or instrument between the
Borrowers and the Bank, in accordance with their respective provisions.

                  (b) Upon the  occurrence  and  during the  continuance  of any
Event of Default after the expiration of any applicable  grace and cure periods,
interest  on all of the  Indebtedness  shall  accrue at the Base Rate plus three
percent  (3.00%) per annum (the "Default  Rate");  provided,  however,  that the
Default Rate shall not go into


                                       37

<PAGE>



effect  until  ten days  after the date  upon  which a payment  is due under the
Working  Capital  Line of Credit or the  Acquisition  Facility  if (i) the Sweep
Agreement is in effect,  (ii) the Borrowers have not made such payment due under
the Working Capital Line of Credit or the Acquisition  Facility,  (iii) there is
availability  under the Working Capital Line of Credit which is equal to or more
than the amount  which is due by the  Borrowers at the time the Bank debits from
the Working  Capital  Line of Credit the amount of such  payment  due,  and (iv)
other than non-payment referred to herein, no other Event of Default exists. Any
amounts  debited by the Bank from the Working Capital Line of Credit pursuant to
this Section shall be deemed a Direct Loan.


                                   ARTICLE IX

                                  MISCELLANEOUS

         SECTION 9.01.                 No Waiver; Cumulative Remedies.  
                                       ------------------------------
No course of dealing and no failure or delay of the Bank in exercising any
right, power or remedy under this Agreement or the Loan Document
shall operate as a waiver thereof or shall affect any other or
future exercise thereof or the exercise of any other right, power
or remedy nor shall any single or partial exercise of any such
right, power or remedy or any abandonment or discontinuance of such
exercise preclude any other or further exercise thereof or of any
other right, power or remedy under this Agreement or the Loan
Documents.  The rights, powers and remedies of the Bank in this
Agreement are cumulative and not exclusive of any rights, powers,
or remedies which the Bank may otherwise have.

         SECTION 9.02.  Amendments and Waivers. The provisions of this Agreement
and the Loan  Documents  may be modified or amended only by a written  agreement
entered into by the Borrowers and the Bank,  and may be waived only by a written
waiver signed by the Bank. No waiver,  modification or amendment shall extend to
or affect any obligation not expressly  waived,  modified or amended,  or impair
any right of the Bank related to such obligation.

         SECTION  9.03.  Notices.  All  notices,  requests,  demands  and  other
communications  that this  Agreement  or any other  Loan  Document  requires  or
permits shall be in writing and shall (other than a borrowing requests and other
communications in the ordinary course of the lending relationship),  be given by
hand delivery,  telecopier,  certified  mail,  return receipt  requested,  or by
recognized overnight delivery services to the parties at their address specified
above,  or at such other  address as shall be  designated by a party in a notice
complying with the terms of this Section 9.03.  Notices,  requests,  demands and
other  communications  provided  in  accordance  with  the  provisions  of  this
Agreement shall be effective (i) in the case of hand delivery,  upon delivery of
the notice and receipt of the appropriate signature obtained to the


                                       38

<PAGE>



recipient of such notice,  (ii) if sent by telecopier,  when the transmission is
sent and the appropriate  confirmation  has been received,  (iii) in the case of
certified  mail,  return receipt  requested,  the date upon which the notice has
been accepted by the party receiving notice, and (iv) in the case of delivery by
recognized overnight delivery service, on the next day after the notice has been
given to such service for sending.

         SECTION 9.04. Costs and Expenses. The Borrowers agree to pay on demand:
(a) all  reasonable  costs  and  expenses  of the  Bank in  connection  with the
preparation,  execution, delivery and administration of this Agreement, the Loan
Documents and all other  instruments  and documents to be delivered  under or in
connection  with this  Agreement,  and any waivers or  supplements or amendments
thereto,  including  the  reasonable  fees and  expenses  of  counsel,  fees and
expenses of appraisers,  accountants and other professionals,  costs of property
and lien searches; and (b) all costs and expenses of the Bank in connection with
the enforcement of this Agreement, the Loan Documents, and all other instruments
and  documents  to be  delivered  under or in  connection  with this  Agreement,
including the fees and expenses of counsel and fees and expenses of  appraisers,
accountants, and other professionals.  Such costs and expenses shall include all
costs and  expenses  (including  the fees and  expenses of counsel for the Bank)
incurred in connection with: (A) the protection,  exercise or enforcement of the
Bank's rights, and (B) the assertion, protection, exercise or enforcement of the
Bank's  rights  in any  proceeding  under the  United  States  Bankruptcy  Code,
including  without  limitation the  preparation,  filing and  prosecution of (i)
proofs of claim,  (ii) motions for relief from the automatic stay, (iii) motions
for adequate  protection  and (iv)  complaints,  answers and other  pleadings in
adversary  proceedings  by or against  the Bank or relating in any way to any of
the  Collateral.  With  respect  to any right  granted to the Bank to perform or
cause to be performed  environmental  audits or  assessments  of any of the Real
Property,  it is agreed that costs and  expenses of the nature set forth in this
Section 9.04 shall (i) after the  occurrence  and during the  continance  of any
Event of Default or Potential Default, be borne by the Borrowers, and (ii) if an
Event  of  Default  or  Potential  Default  has  not  occurred  and is not  then
continuing, the Bank shall only be entitled to charge such costs to the Borrower
if, at the time it is requesting such  environmental  audit, it has a good faith
reason to believe that such audit is necessary  under the  circumstances.  As of
the date of this  Agreement,  the Bank has no  reason  to  believe  that such an
environmental audit is currently necessary or advisable.

         SECTION 9.05.                 Miscellaneous Payment Provisions.

                  (a)  All  payments  to be made by the  Borrowers  under  or in
connection  with  the  Indebtedness  shall  be made to the  Bank in  immediately
available funds, without set-off, counterclaim,


                                       39

<PAGE>



deduction or withholding, at such offices of the Bank or at such other places as
may be directed by the Bank.

                  (b) Whenever any payment to be made by the Borrowers  under or
in connection  with the  Indebtedness is stated to be due on a day that is not a
Business Day, such payment shall be made on the next day that is a Business Day,
and such  extension of time shall be involved in the  computation of interest or
fees due from the Borrowers.

                  (c) If at any time any payment made by the Borrowers  under or
in connection  with the  Indebtedness is rescinded or must otherwise be returned
by the Bank for any  reason,  including,  but not  limited  to, the  insolvency,
bankruptcy,  or reorganization of any Borrowers, the rights of the Bank shall be
reinstated as though payment had not been made.

                  (d) If any  payment  to be made by the  Borrowers  under or in
connection with the  Indebtedness is not paid on or before the due date thereof,
then in  addition  to and not in  limitation  of any other  rights  or  remedies
available to the Bank, the Bank may impose a late charge equal to the greater of
$15.00 or one percent (1.00%) of the amount due and not paid on the due date.

                  (e) The  Borrowers  authorize  the Bank to  charge,  when due,
against  any  deposit  account  of any  Borrower  with the  Bank,  any  payments
(including  payments of interest and fees) to be made by the Borrowers  under or
in connection with the Indebtedness.

         SECTION 9.06.  Participation.  The Bank may assign to one or more banks
or other entities all or any part of, or may grant  participation to one or more
banks or other  entities  of all or any part of, the  Indebtedness  and,  to the
extent of any such assignment or participation,  unless otherwise stated in such
assignment or  participation,  the assignee and participant  shall have the same
rights and  benefits  under this  Agreement as it would have if it were the Bank
under this Agreement.

         SECTION 9.07.  Liability of Bank.  The  Borrowers and their  Affiliates
agree that the Bank shall not have any liability (in tort or otherwise)  for any
lost  profits  or  other  consequential  damage  sustained  by any  Borrower  or
Affiliate  as a result of any action  taken or omitted by the Bank or any of its
officers,  agents,  or  employees  in  connection  with  the  administration  or
enforcement of this  Agreement,  or the Loan  Documents,  other than for acts of
gross negligence or willful misconduct.

         SECTION 9.08.  Governing Law. This  Agreement  shall be governed in all
respects  by the laws in effect in the  Commonwealth  of  Pennsylvania  (without
regard to the  principles  of conflicts of law),  and for all purposes  shall be
construed in accordance with such laws.


                                       40

<PAGE>




         SECTION 9.09.  Headings.  The headings  used in this  Agreement are for
convenience  of  reference  only,  and  shall not  affect  the  construction  or
interpretation of this Agreement.  Unless otherwise indicated, all references to
Sections  and  Exhibits  shall be  construed  as  references  to sections of and
exhibits to this Agreement.

         SECTION   9.10.    Continuing    Representations.    All    agreements,
representations,  warranties  and  covenants  made  by  the  Borrowers  in  this
Agreement  or in any  certificate  or other  document  delivered  to the Bank in
connection with this Agreement,  shall be continuing as long as the Indebtedness
shall remain outstanding and unpaid;  provided,  however, that the covenants set
forth in Sections 9.04, 9.07, and 9.13 through 9.15 shall survive the payment of
the Indebtedness.

         SECTION 9.11. Binding Effect.  This Agreement shall be binding upon and
operate  for the benefit of the  Borrowers  and the Bank,  and their  respective
successors and assigns; provided,  however, that the Borrowers may not assign or
delegate any of their rights or obligations without the prior written consent of
the Bank.

         SECTION 9.12. Records. The outstanding balance of the Indebtedness, and
the unpaid interest and fees accrued thereon or in connection  therewith,  shall
at all  times be  ascertained  from the  records  of the  Bank,  which  shall be
conclusive  evidence  thereof absent  protest by the Borrowers,  within ten (10)
days after receipt of any document  which the Borrowers  believe to be in error,
which  protest  shall set forth with  specificity  the error or errors which the
Borrowers believe to exist in the records of the Bank.

         SECTION 9.13.                 Indemnity.

                  (a) The  Borrowers and the Sureties  shall  indemnify the Bank
against any loss or expense which the Bank may sustain or incur as a consequence
of any default by any Borrower or Surety in the performance or observance of any
term, condition, covenant or undertaking contained in this Agreement or the Loan
Documents to be observed or performed by any Borrower or Surety  (including  the
failure to pay when due, by acceleration or otherwise, any principal,  interest,
fees, or other amount due under this Agreement or the other Loan Documents).

                  (b) In addition to and not in limitation of the  provisions of
paragraph (a) of this Section 9.13, and notwithstanding anything to the contrary
contained  in this  Agreement,  if any LIBOR  Loan is repaid in whole or in part
prior  to the  last  day of the  Interest  Period  applicable  thereto,  whether
repayment  is  voluntary or  involuntary,  by  acceleration  or  otherwise,  the
Borrowers  shall  indemnify  and hold  harmless  the Bank from and  against  all
losses, costs, and expenses resulting from such


                                       41

<PAGE>



repayment.  Such  indemnification  shall  include  any loss  (including  loss of
margin) or expense  arising from the  reemployment of funds obtained by the Bank
or from fees payable to terminate  deposits from which such funds were obtained.
For the purpose of calculating  amounts payable to the Bank under this paragraph
(b) the Bank shall be deemed to have actually  funded the LIBOR Loan through the
purchase of a deposit  bearing  interest at the LIBOR Interest Rate in an amount
equal to the amount of the LIBOR Loan and  having a maturity  comparable  to the
applicable Interest Period;  provided,  however,  that the Bank may fund each of
the LIBOR Loans in any manner as it sees fit, and the foregoing assumption shall
be utilized only for the  calculation  of amounts  payable under this  paragraph
(b).

         SECTION  9.14.  Waiver of Jury Trial.  THE  BORROWERS  AND THE SURETIES
WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY  ACTION OR  PROCEEDING  TO  ENFORCE OR
DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR THE LOAN DOCUMENTS,  OR ANY PROCEEDING
IN ANY WAY  ARISING  OUT OF OR IN  CONNECTION  WITH THIS  AGREEMENT  OR THE LOAN
DOCUMENTS,  WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY,  AND THE BORROWERS
AND THE SURETIES AGREE THAT ANY SUCH ACTION OR PROCEEDING  SHALL BE TRIED BEFORE
A COURT AND NOT BEFORE A JURY.

         SECTION 9.15.  Consent to Jurisdiction.  THE BORROWERS AND THE SURETIES
SUBMIT TO THE  JURISDICTION  OF ANY STATE OR FEDERAL  COURT  LOCATED  WITHIN THE
COMMONWEALTH OF PENNSYLVANIA FOR THE  DETERMINATION  OF ANY CONTROVERSY  ARISING
UNDER OR IN  CONNECTION  WITH  THIS  AGREEMENT  OR THE LOAN  DOCUMENTS,  AND THE
BORROWERS AND THE SURETIES WAIVE PERSONAL SERVICE OF ANY SUMMONS,  COMPLAINT, OR
OTHER  PROCESS IN AN ACTION IN ANY STATE OR  FEDERAL  COURT  LOCATED  WITHIN THE
COMMONWEALTH OF  PENNSYLVANIA  AND AGREE THAT ALL SERVICE THEREOF MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED.

         SECTION 9.16. Regulatory Changes. In the event that the introduction of
or any  change  in (i)  the  judicial,  administrative,  or  other  governmental
interpretation  of any law or regulation  or (ii)  compliance by the Bank or any
corporation  controlling the Bank with any guideline or request from any central
bank or other  governmental  authority  (whether or not having the force of law)
has the effect of  requiring  an increase  in the amount of capital  required or
expected to be maintained by the Bank or any  corporation  controlling the Bank,
and the Bank determines  that such increase is based upon its obligations  under
this Agreement,  and other similar  obligations,  the Borrowers shall pay to the
Bank such  additional  amount as shall be certified by the Bank to be the amount
allocable to the Bank's  obligations to the Borrowers under this Agreement.  The
Bank will notify the  Borrowers  of any event  occurring  after the date of this
Agreement  that will entitle the Bank to  compensation  pursuant to this Section
9.16 as promptly as  practicable  after it obtains  knowledge  of such event and
determines to request such compensation. Any determination by the Bank for


                                       42

<PAGE>



purposes  of this  Section  9.16 of the effect of any  increase in the amount of
capital required to be maintained by the Bank and of the amount allocable to the
Bank's  obligations to the Borrowers  under this Agreement  shall be conclusive,
provided that such determination is made on a reasonable basis.

         SECTION 9.17.  Illegality.  Notwithstanding any other provision in this
Agreement or any Loan Document,  if the Bank determines that any applicable law,
rule, or regulation,  or any change therein, or any change in the interpretation
or  administration  thereof by any  governmental  authority,  central  bank,  or
comparable agency charged with the interpretation or administration  thereof, or
compliance  by the Bank (or its lending  officer)  with any request or directive
(whether or not having the force of law) or any such authority, central bank, or
comparable  agency  shall make it  unlawful or  impossible  for the Bank (or its
lending  officer)  to (1)  maintain  its  commitment,  then  upon  notice to the
Borrowers  by the  Bank  the  commitment  of the Bank  shall  terminate;  or (2)
maintain or fund its LIBOR Loans,  then upon notice to the Borrowers by the Bank
the  outstanding  principal  amount of the LIBOR Loans,  together  with interest
accrued thereon,  and any other amounts payable to the Bank under this Agreement
shall be  repaid  (a)  immediately  upon  demand  of the Bank if such  change or
compliance with such request,  in the judgment of the Bank,  requires  immediate
repayment; or (b) at the expiration of the last Interest Period to expire before
the effective date of any such change or request.

         SECTION 9.18.                 Interpretation/Additional Borrowers. 
                                       -----------------------------------
This Agreement and the other Loan Documents shall be construed as one
agreement and shall be interpreted so as to expand, rather than
contract, the rights of the Bank; provided, however, that in the
                                  --------  -------
event of inconsistency, the provisions of this Agreement shall
supersede and control the provisions of the other Loan Documents.
The use of the words "include", "including" and the like are
intended to be used as words of illustration, and shall not
construed as words of limitation.  All references to a Borrower or
Borrowers shall be deemed to be joint and several references to
each of the Borrowers as identified in the Background to this
Agreement.  Any one or more Persons now or hereafter acquired by
any of the Borrowers shall automatically be deemed to be a Borrower
for purposes of this Agreement and all of the Loan Documents. In
order to evidence this undertaking, such newly acquired Persons
shall, within five (5) Business Days of being acquired by any one
or more of the Borrowers, execute the certificate attached as
Exhibit 9.18.

         SECTION 9.19. Integration.  This Agreement and the other Loan Documents
constitute the entire agreement and understanding  between the Borrowers and the
Bank related to the subject  matter of this  Agreement,  and supersede all prior
proposals, negotiations, agreements, and understandings relating to such subject
matter.


                                       43

<PAGE>



The Borrowers  acknowledge  that, in entering into this Agreement,  they are not
relying on any statement,  representation,  warranty,  covenant, or agreement of
any kind made by the Bank or any  employee or agent of the Bank,  other than the
agreements of the Bank set forth in this Agreement.
         IN WITNESS  WHEREOF,  the  parties  have caused  this  Agreement  to be
executed  by their duly  authorized  officers as of the day and year first above
written.


Attest:                                              VERMONT PURE HOLDINGS, LTD.
[Corporate Seal]


                                                     By
                                                     Title


Attest:                                              VERMONT PURE SPRINGS, INC.
[Corporate Seal]


                                                     By:
                                                     Title


                                                     CORESTATES BANK, N.A.


                                                     By
                                                 John T. Haurin, Vice President



         The  Undersigned,  being identified in the above Agreement as Sureties,
do  hereby   confirm   and  agree  to  be  bound  by  all   terms,   conditions,
representations,  warranties, covenants and other matters set forth in the above
Loan and  Security  Agreement  which  refer to them,  in  addition  to the other
undertakings agreed to by the Sureties in the Loan Documents signed by them.


ATTTEST                                       EXCELSIOR SPRINGS WATER COMPANY,
                                                   INC.


__________________                            By: _____________________________

[Corporate Seal]





                                       44

<PAGE>



ATTEST:                                              A. M. FRIDAYS, INC.


__________________                           By: _____________________________

[Corporate Seal]



                                       45

<PAGE>




                                  EXHIBIT 1.01

                             SUBORDINATION AGREEMENT


                                 [See Attached]


                                       46

<PAGE>





                                  EXHIBIT 4.05

                   PLACES OF BUSINESS, LOCATIONS OF COLLATERAL

                                 [See Attached]




                                       47

<PAGE>





                                  EXHIBIT 4.07

                      PATENTS, TRADEMARKS, COPYRIGHTS, ETC.


                                 [See attached]




                                       48

<PAGE>





                                  EXHIBIT 4.09

                            TRADE OR FICTITIOUS NAMES

                  Other than trademarks listed in Exhibit 4.07 to this
Agreement, the licensed names are as follows:  "Happy",
"Greatwater", "Coffee Time" and "AKVA."




                                       49

<PAGE>





                                  EXHIBIT 6.01

                            AFFILIATES AND TRADENAMES

                  Vermont Pure Springs, Inc. is a subsidiary of Vermont
Pure Holdings, Ltd.  A.M. Fridays, Inc. and Excelsior Springs Water
Company, Inc. are wholly owned subsidiaries of Vermont Pure
Springs, Inc.





                                       50

<PAGE>





                                  EXHIBIT 6.05

                                   LITIGATION

                  In February 1996,  VPSI commenced an action  entitled  Vermont
Pure Springs,  Inc. v. Robert Beattie and John Maguire in Orange  Superior Court
in the State of Vermont.  The court assigned the case Docket No. S-33-2-96 Occv.
VPSI alleged that the defendants,  who were former  employees of VPSI,  breached
their contractual and common law obligations  concerning unfair  competition and
preservation  of Company  trade  secrets.  VPSI sought  damages  and  injunctive
relief.  On April 1,  1996,  the Orange  Superior  Court  entered a  preliminary
injunction  against  both  defendants   prohibiting  their  participation  in  a
competing  venture known as Montpelier  Springs or disclosing  any  confidential
information of VPSI to a third party. The court denied VPSI's request for a writ
of  attachment.  Defendant  Maguire has filed a  counterclaim  and a third party
complaint  against VPSI's  president and VPSI seeking  compensatory  damages and
punitive  damages of not less than  $250,000  and  attorneys'  fees for  alleged
breach of contract and unfair trade  competition.  Defendant Beattie has filed a
counterclaim seeking unspecified damages and attorneys' fees. The case is in the
discovery phase and it is unclear when it will proceed to a trial on the merits.
VPSI does not  believe  that the  counterclaims  have any merit and  intends  to
pursue the litigation and defend itself vigorously.

                  In addition,  VPSI has brought suit in Massachusetts against a
company doing business as Vermont Gold for trademark infringement.  Vermont Gold
is a startup  company.  The case is tentatively  scheduled to go to trial in May
and is presently in the discovery phase.

                  Neither  of  these  suits  is  expected  to  have  a  material
financial impact on VPSI.





                                       51

<PAGE>





                                  EXHIBIT 6.07

                             CONTINGENT LIABILITIES

                  VPSI  currently  has an appeal  outstanding  with the  Vermont
Department of Taxes concerning  $220,000 of outstanding use taxes,  interest and
penalties. The issue is that the department does not interpret the manufacturing
exemption  under the code to include  bottling.  VPSI has  rejected a settlement
offer by the commissioner and is considering a counteroffer.  Effective January,
1998,  the statute has been amended to include water  bottling but the change is
not retroactive.  VPSI has not reported this in its financial statements because
most of the total amount  concerns  capital  equipment and would be  depreciated
and, as a result, would be immaterial.

                  Also,  VPSI has two  acquisition  notes  outstanding  that are
based on the performance of the acquired entities.  The first, was due March 10,
1998 to Greatwater Refreshment Services in the amount of $75,000. It is prorated
up or down  based on sales  of  $700,000  for the year  ended  that  date.  VPSI
reported  sales of $670,000 and the former  owner is now  auditing  that number.
Nothing has been paid yet. The second,  a note for $200,000  payable May 1, 1999
to Happy Ice  Corporation  is based on EBITDA of the acquired  company  being at
least $400,000 for the first two years of operation.  Through 21 months,  EBITDA
is  approximately  $50,000.  VPSI does not  anticipate  having to pay any of the
potential liability.




                                       52

<PAGE>





                                  EXHIBIT 6.09

                         EXISTING LIENS AND ENCUMBRANCES



                                 [See Attached]



                                       53

<PAGE>





                                  EXHIBIT 6.11

                                  ERISA MATTERS




                                      None.


                                       54

<PAGE>





                                  EXHIBIT 7.01

                             COMPLIANCE CERTIFICATE



                                 [See Attached]





                                       55

<PAGE>





                                  EXHIBIT 7.02

                           EXISTING INSURANCE COVERAGE



                                 [See Attached]




                                       56

<PAGE>




                                  EXHIBIT 7.05


                              EXISTING INDEBTEDNESS

                                 [See Attached]



                                       57

<PAGE>



                                  EXHIBIT 9.18


                               JOINDER AND CONSENT


         The  undersigned,  having  been  acquired  by  __________  on or  about
____________,  199_, do hereby  execute this Joinder and Consent for purposes of
being  deemed in all  respects a  "Borrower"  pursuant to that Loan and Security
Agreement dated August __, 1997 between  CoreStates Bank, as Lender, and Vermont
Pure Holdings,  Inc. and Vermont Pure Springs,  Inc., as  co-Borrowers,  as that
agreement may have been amended or modified from time to time.  Without limiting
the general nature of the foregoing,  the  undersigned  acknowledged  that their
execution of this  joinder and consent  makes them for all purposes a "Borrower"
under  the  aforementioned   agreement  liable  for  repayment  of  all  of  the
Indebtedness  and  otherwise  obligated  under  all of the Loan  Documents  as a
signatory.  The  undersigned  shall  further  execute  and  deliver to the Bank,
immediately upon request,  such further agreements,  documents or instruments as
the Bank may request to further evidence this joinder and consent.





         By:

         Title: