Document:

LOAN AGREEMENT

                          Dated as of December 1, 1999

                                     Among

                     VERMONT ECONOMIC DEVELOPMENT AUTHORITY

                                      and

                          VERMONT PURE HOLDINGS, LTD.

                                      and

                           VERMONT PURE SPRINGS, INC.

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                              TABLE OF CONTENTS

                                                                            Page

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

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                               TABLE OF CONTENTS
                                  (continued)

                                                                            Page

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

                                      -ii-

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                               TABLE OF CONTENTS
                                  (continued)

                                                                            Page

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

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

                              W I T N E S S E T H :

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

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

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

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

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

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

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

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

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

     NOW, THEREFORE,  THIS LOAN AGREEMENT  WITNESSETH:

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

                                   ARTICLE I.

                                  DEFINITIONS

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

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

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

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

     Section 1.03.  Interpretation.

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

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

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

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

                                  ARTICLE II.

                           THE LOAN; USE OF PROCEEDS

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

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

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

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

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

                                  ARTICLE III.

                               PAYMENT PROVISIONS

     Section 3.01. Loan Payments.

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

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

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

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

     Section 3.03. Time of Loan Payments.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       7

<PAGE>

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

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

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

     Section 3.10.  Indemnity Against Claims.

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

                                       8

<PAGE>

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

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

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

                                       9
<PAGE>

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

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

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

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

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

                                   ARTICLE IV.

                   COMPANY OBLIGATIONS; ASSIGNMENT TO TRUSTEE

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

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

                                       10

<PAGE>

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

     Section 4.03. Maintenance and Operation of the Project Facilities.

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

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

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

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

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

                                       11
<PAGE>

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

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

                                   ARTICLE V.

                                  TAX MATTERS

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

                                       12

<PAGE>

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

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

                                   ARTICLE VI.

                 INSURANCE; DESTRUCTION, DAMAGE, EMINENT DOMAIN

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

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

                                       13

<PAGE>

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

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

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

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

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

                                  ARTICLE VII.

                      ADDITIONAL COVENANTS OF THE COMPANY

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

                                       14

<PAGE>

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

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

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

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

                                 ARTICLE VIII.

                         EVENTS OF DEFAULT AND REMEDIES

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

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

                                       15
<PAGE>

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

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

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

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

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

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

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

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

                                       16

<PAGE>

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

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

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

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

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

Section

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

                                       17

<PAGE>

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

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

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

                                  ARTICLE IX.

                         OPTIONS TO TERMINATE AGREEMENT

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

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

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

                                       18

<PAGE>

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

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

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

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

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

                                       19
<PAGE>

                                   ARTICLE X.

                                 MISCELLANEOUS

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

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

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

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

                                       20

<PAGE>

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

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

          to the Authority to:

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

          to the Company to:

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

               Attention: Bruce MacDonald, Chief Financial Officer

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

               Attention:  Bruce MacDonald, Chief Financial Officer

          to the Trustee to:

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

               Attention:  James Matthews, Assistant Vice President

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

                                       21

<PAGE>

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

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

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

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

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

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

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

                                       22
<PAGE>

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

(SEAL)                        VERMONT ECONOMIC DEVELOPMENT AUTHORITY

                              By_______________________________________________
                                Rosalea Bradley
                                Manager

(SEAL)                        VERMONT PURE HOLDINGS, LTD.

                              By_______________________________________________
                                Authorized Officer

 (SEAL)                       VERMONT PURE SPRINGS, INC.

                              By_______________________________________________
                                Authorized Officer

                                       23VERMONT ECONOMIC DEVELOPMENT AUTHORITY

                                      and

                     FIRST UNION NATIONAL BANK, as Trustee

                                TRUST INDENTURE

                          Dated as of December 1, 1999

                     VERMONT ECONOMIC DEVELOPMENT AUTHORITY
                        VARIABLE RATE DEMAND/FIXED RATE

                                 REVENUE BONDS

                      (VERMONT PURE SPRINGS, INC. PROJECT)
                                 1999 SERIES A

                     VERMONT ECONOMIC DEVELOPMENT AUTHORITY
                        VARIABLE RATE DEMAND/FIXED RATE

                                 REVENUE BONDS

                      (VERMONT PURE SPRINGS, INC. PROJECT)
                           1999 SERIES A-T (TAXABLE)
<PAGE>

                              TABLE OF CONTENTS

                                                                            Page

ARTICLE I ...........DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS         4
Section 1.01  .......Definitions                                               4
Section 1.02  .......Content of Certificates and Opinions                     16
Section 1.03  .......Interpretation                                           17
ARTICLE II ..........THE BONDS                                                17
Section 2.01  .......Authorization of Bonds                                   17
Section 2.02  .......Terms of Bonds; Interest on the Bonds                    18
Section 2.03  .......Execution of Bonds                                       20
Section 2.04  .......Authentication                                           21
Section 2.05  .......Form of Bonds                                            21
Section 2.06  .......Transfer of Bonds                                        21
Section 2.07  .......Exchange of Bonds                                        22
Section 2.08  .......Bond Register                                            22
Section 2.09  .......Temporary Bonds                                          22
Section 2.10  .......Bonds Mutilated, Lost, Destroyed or Stolen               23
Section 2.11  .......Cancellation and Destruction of Surrendered Bonds        23
Section 2.12  .......Acts of Bondholders; Evidence of Ownership               23
Section 2.13  .......Book-Entry Bonds; Securities Depository                  23
ARTICLE III .........ISSUANCE OF BONDS; APPLICATION OF PROCEEDS               25
Section 3.01  .......Issuance of the Bonds                                    25
Section 3.02  .......Disposition of Proceeds of the Bonds and Other Amounts   25
ARTICLE IV ..........REDEMPTION OF BONDS BEFORE MATURITY                      25
Section 4.01  .......Extraordinary and Mandatory Redemption                   25
(a) .................Extraordinary Redemption of Bonds                        25
(b) .................Mandatory Redemption of Bonds                            25
(c) .................Mandatory Sinking Fund Redemption                        26
Section 4.02  .......Optional Redemption                                      28
Section 4.03  .......Notice of Redemption                                     28
Section 4.04  .......Interest on Bonds Called for Redemption                  28
Section 4.05  .......Cancellation                                             28

                                      -i-

<PAGE>
                               TABLE OF CONTENTS

                                                                            Page

Section 4.06  .......Partial Redemption of Bonds                              28
Section 4.07  .......Payment of Redemption Price with Available Moneys;
                     Consent of Letter of Credit Bank to Optional Redemption  29
ARTICLE V ...........CONVERSION OF INTEREST RATE; DEMAND PURCHASE OPTION      29
Section 5.01  .......Conversion of Interest Rate on Conversion Date           29
Section 5.02  .......Delivery of Bonds After Conversion Date                  31
Section 5.03  .......Mandatory Tender upon Substitution of Letters of Credit  31
Section 5.04  .......Demand Purchase Option                                   32
Section 5.05  .......Funds for Purchase of Bonds                              33
Section 5.06  .......Delivery of Purchased Bonds                              35
Section 5.07  .......Sale of Bonds by Remarketing Agent                       35
Section 5.08  .......Delivery of Proceeds of Sale of Purchased Bonds          35
Section 5.09  .......Duties of Trustee and Tender Agent with Respect
                     to Purchase of Bonds                                     36
Section 5.10  .......No Purchases or Sales After Certain Defaults             36
ARTICLE VI ..........REVENUES AND FUNDS                                       37
Section 6.01  .......Creation of the Bond Fund                                37
Section 6.02  .......Payments into the Bond Fund                              37
Section 6.03  .......Use of Moneys in the Bond Fund                           37
Section 6.04  .......Custody of Separate Trust Fund                           38
Section 6.05  .......Construction Fund                                        38
Section 6.06  .......Payments into the Construction Fund; Disbursements       38
Section 6.07  .......Use of Money in the Construction Fund Upon Default       38
Section 6.08  .......Use of Money in the Construction Fund Upon
                     Completion of the Project                                38
Section 6.09  .......Nonpresentment of Bonds                                  39
Section 6.10  .......Moneys to be Held in Trust                               39
Section 6.11  .......Repayment to the Bank and the Company from the
                     Bond Fund or the Construction Fund                       39
Section 6.12  .......Letters of Credit                                        39
Section 6.13  .......Rebate Fund                                              40

                                      -ii-

<PAGE>
                               TABLE OF CONTENTS

                                                                            Page

Section 6.14  .......Investment of Moneys in Funds                            41
ARTICLE VII .........THE AUTHORITY; PARTICULAR COVENANTS                      42
Section 7.01  .......Covenant as to Payment; Faith and Credit
                     of Commonwealth Not Pledged                              42
Section 7.02  .......Extension of Payment of Bonds                            42
Section 7.03  .......Against Encumbrances                                     43
Section 7.04  .......Power to Issue Bonds and Make Pledge and Assignment      43
Section 7.05  .......Accounting Records and Financial Statements              43
Section 7.06  .......Other Covenants                                          43
Section 7.07  .......Waiver of Laws                                           44
Section 7.08  .......Further Assurances                                       44
Section 7.09  .......Tax Covenants                                            44
Section 7.10  .......Corporate Organization, Authorization and Power          45
Section 7.11  .......Rights and Duties of the Authority                       46
(a) .................Remedies of the Authority                                46
(b) .................Limitations on Actions                                   46
(c) .................Responsibility                                           46
(d) .................Financial Obligations                                    47
ARTICLE VIII ........EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS            47
Section 8.01  .......Events of Default                                        47
Section 8.02  .......Acceleration                                             48
Section 8.03  .......Other Remedies                                           50
Section 8.04  .......Legal Proceedings by Trustee                             50
Section 8.05  .......Discontinuance of Proceedings by Trustee                 50
Section 8.06  .......Bondholders May Direct Proceedings                       50
Section 8.07  .......Limitations on Actions by Bondholders                    51
Section 8.08  .......Trustee May Enforce Rights Without Possession of Bonds   51
Section 8.09  .......Delays and Omissions Not to Impair Rights                51
Section 8.10  .......Application of Moneys in Event of Default                52
Section 8.11  .......Trustee and Bondholders Entitled to All Remedies
                     Under Act; Remedies Not Exclusive                        52

                                     -iii-
<PAGE>

                               TABLE OF CONTENTS

                                                                            Page

Section 8.12  .......Trustee's Right to Receiver                              52
Section 8.13  .......Subrogation Rights of Bank                               52
Section 8.14  .......Waiver of Default                                        53
ARTICLE IX ..........THE TRUSTEE; THE TENDER AGENT AND THE REMARKETING AGENT  53
Section 9.01  .......Duties, Immunities and Liabilities of Trustee            53
Section 9.02  .......Merger or Consolidation                                  54
Section 9.03  .......Liability of Trustee                                     54
Section 9.04  .......Right of Trustee to Rely on Documents                    55
Section 9.05  .......Preservation and Inspection of Documents                 56
Section 9.06  .......Compensation                                             56
Section 9.07  .......The Tender Agent                                         56
Section 9.08  .......Qualifications of Tender Agent                           57
Section 9.09  .......Qualifications of Remarketing Agent;
                     Resignation; Removal                                     57
Section 9.10  .......Construction of Ambiguous Provisions                     58
ARTICLE X ...........MODIFICATION OR AMENDMENT OF THE INDENTURE               58
Section 10.01  ......Amendments Permitted                                     58
Section 10.02  ......Effect of Supplemental Indenture                         58
Section 10.03  ......Trustee Authorized to Join in Amendments and
                     Supplements; Reliance on Counsel                         59
ARTICLE XI ..........DEFEASANCE                                               59
Section 11.01  ......Discharge of Indenture                                   59
Section 11.02  ......Discharge of Liability on Bonds                          60
Section 11.03  ......Deposit of Money or Securities with Trustee              60
Section 11.04  ......Payment of Bonds After Discharge of Indenture            61
ARTICLE XII .........MISCELLANEOUS                                            61
Section 12.01  ......Liability of Authority Limited to Revenues               61
Section 12.02  ......Limitation of Liability of Directors,
                     Etc., of Authority                                       61
Section 12.03  ......Reserved                                                 62
Section 12.04  ......Successor Is Deemed Included in
                     All References to Predecessor                            62
Section 12.05  ......Limitation of Rights to Parties,
                     Bank, Company and Bondholders                            62

                                      -iv-

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                               TABLE OF CONTENTS

                                                                            Page

Section 12.06  ......Waiver of Notice                                         62
Section 12.07  ......Severability of Invalid Provisions                       62
Section 12.08  ......Notices                                                  62
Section 12.09  ......Evidence of Rights of Bondholders                        64
Section 12.10  ......Disqualified Bonds                                       64
Section 12.11  ......Money Held for Particular Bonds                          64
Section 12.12  ......Funds                                                    65
Section 12.13  ......Payments Due on Days other than Business Days            65
Section 12.14  ......Execution in Several Counterparts                        65
EXHIBIT "A"  (FLOATING RATE FORM OF SERIES A BOND) .                           1
EXHIBIT "B"  (FIXED RATE FORM OF SERIES A BOND) ....                           1
EXHIBIT "C"  (FLOATING RATE FORM OF SERIES A-T BOND)                           1
EXHIBIT "D"  (FIXED RATE FORM OF SERIES A-T BOND) ..                           1
EXHIBIT "E"  CONSTRUCTION FUND REQUISITION .........                           1
EXHIBIT "F"  BANK APPROVAL                                                     1

                                      -v-

<PAGE>

     THIS TRUST INDENTURE,  made and entered into as of December 1, 1999, by and
between the VERMONT ECONOMIC DEVELOPMENT AUTHORITY, a body corporate and politic
and a public  instrumentality of the State of Vermont created under the Act (the
"Authority")  and First Union  National  Bank,  as trustee (the  "Trustee")  and
tender agent (the "Tender  Agent");

                               W I T N E S E T H:

     Certain of the terms and words used in these Recitals, and in the following
Granting Clauses,  are defined in Section 1.01 of this Indenture.

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

     WHEREAS,  in order to permit the Company to finance the Project Facilities,
the Authority will make certain funds available to the Company; and

     WHEREAS, the Authority has determined that it shall undertake the financing
of the Project pursuant to the provisions and requirements of the Act; and

     WHEREAS,  the  Authority  has entered into the  Agreement  with the Company
wherein the  Authority  will loan the proceeds of the Bonds to the Company,  and
wherein the Company agrees, among other things, to make certain loan payments to
the Authority, all as set forth in the Agreement; and

     WHEREAS,  the Authority has determined to assign,  transfer and pledge unto
the Trustee,  as trustee under this Indenture,  all right, title and interest of
the Authority (except for certain rights of the Authority to indemnification and
the payment of its costs,  fees and expenses as more  particularly  described in
the Agreement) in and to the Agreement and the sums payable thereunder; and

     WHEREAS,  the Authority is  authorized by the Act to borrow money,  and the
Authority  deems it necessary  to borrow money under and pursuant to  provisions
hereof for the purposes of, among other things, financing the costs and expenses
of the Project (all in accordance  with  applicable law) and of carrying out its
obligations  under the terms of the  Agreement,  and, to that end, the Authority
has duly authorized and directed the issuance, sale and delivery of the Bonds to
be issued as fully registered  bonds; and to secure payment of the principal and
Purchase Price thereof and of the interest and premium,  if any, thereon and the
performance and observance of the covenants and conditions herein contained, the
Authority  has  authorized  the execution  and delivery of this  Indenture;  and

     WHEREAS,  the  Bonds  will be issued  as two  series of bonds  respectively
designated  generally as "Variable Rate Demand/Fixed Rate Revenue Bonds (Vermont
Pure Springs,  Inc. Project) 1999 Series A" and "Variable Rate Demand/Fixed Rate
Revenue   Bonds   (Vermont  Pure   Springs,   Inc.   Project)  1999  Series  A-T
(Taxable);"and

                                       1
<PAGE>

     WHEREAS,  the Agreement  provides that the Authority will loan the proceeds
of the Bonds to the Company and the Company will make  certain loan  payments to
the Authority  payable in installments  equal to payments of debt service on the
Bonds when due; and WHEREAS,  the  Agreement  further  provides that the Company
will cause the Letters of Credit to be  delivered  by the Bank to the Trustee at
the time of delivery of the Bonds for the further security and benefit of Owners
of the  Bonds;  and  WHEREAS,  the  Company  and the Bank  have  entered  into a
Reimbursement Agreement whereunder the Bank has agreed to issue and maintain the
Letters of Credit as provided for therein and herein, and the Company has agreed
to reimburse the Bank for any draws made by the Trustee on the Letters of Credit
and for other costs,  expenses and  charges,  as specified in the  Reimbursement
Agreement;  and

     WHEREAS,  this Indenture is a security document under the Act and execution
and delivery of this Indenture and the issuance of the Bonds hereunder and under
the Act have been duly and validly  authorized  by  resolution  of the Authority
board of directors duly adopted prior to such  execution and delivery.

                         GRANTING CLAUSES AND AGREEMENT

     NOW, THEREFORE,  in consideration of the premises and the acceptance by the
Trustee of the trusts hereby  created and of the purchase and  acceptance of the
Bonds issued and sold by the Authority  under this  Indenture by those who shall
own the same from time to time,  and for other good and valuable  consideration,
the  receipt  and  sufficiency  of which are  hereby  acknowledged,  and for the
purpose of fixing and  declaring the terms and  conditions  upon which the Bonds
are to be executed, authenticated, issued, delivered and accepted by all persons
who shall from time to time be or become Owners thereof,  and in order to secure
the  payment of the  principal  of and  premium  (if any) and  interest  on, and
Purchase  Price of,  the Bonds  according  to their  tenor  and  effect  and the
performance  and  observance by the Authority of all the covenants  expressed or
implied herein and in the Bonds and the payment and  performance of all other of
the Authority's  obligations,  the Authority does hereby grant,  bargain,  sell,
convey,  pledge and  assign,  without  recourse,  unto the  Trustee and unto its
successors in the trust forever, and grants to the Trustee and to its successors
in the trust, a security interest in all of the following:

                             GRANTING CLAUSE FIRST

     All right,  title and interest of the Authority in and to the Agreement and
the security granted thereunder and under the Collateral Documents and the other
Bond Documents,  including, but not limited to (i) the obligation of the Company
under  Section 3.03 of the  Agreement to make payments at such times and in such
amounts as are necessary to pay the principal  and Purchase  Price of,  interest
and redemption  premium,  if any, on the Bonds,  (ii) the present and continuing
right to make claim  for,  collect,  receive  and  receipt  for any of the sums,
amounts,  income,  revenues,  issues  and  profits  and any other  sums of money
payable or receivable  under the  Agreement,  the  Collateral  Documents and the
other  Bond  Documents  (except  for the  right to  receive  any  Administrative
Expenses and any Additional  Payments to the extent payable to the Authority and
any rights of the  Authority  to  indemnification),  (iii) to bring  actions and
proceedings  thereunder or for the enforcement  thereof,  and (iv) to do any and
all  things  which th  Authority  is or may  become  entitled  to do  under  the
Agreement,  the  Collateral  Documents  and the other Bond  Documents.

                                       2
<PAGE>

                             GRANTING CLAUSE SECOND

     All right,  title and  interest of the  Authority  in and to all moneys and
securities  from  time to time  held by the  Trustee  under  the  terms  of this
Indenture  (except  moneys and  securities  held from time to time in the Rebate
Fund); provided, however, that in consideration of the issuance by the Letter of
Credit Bank of the Letters of Credit,  the  Authority  hereby  grants a security
interest  in the  Construction  Fund to the  Letter of  Credit  Bank in order to
secure  payment  of the  obligations  of the  Company  under  the  Reimbursement
Agreement,  the rights of the Letter of Credit Bank  therein  being  subject and
subordinate to the rights of the Trustee so long as any amount due in respect to
the Bonds  remains  unpaid.

                             GRANTING CLAUSE THIRD

     Any and all other  property  rights and  interests of every kind and nature
from time to time  hereafter  by  delivery  or by writing  of any kind  granted,
bargained, sold, alienated, demised, released, conveyed, assigned,  transferred,
mortgaged,  pledged,  hypothecated  or otherwise  subjected  hereto,  as and for
additional  security herewith,  by the Company or any other person on its behalf
or with its  written  consent  or by the  Authority  or any other  person on its
behalf or with its  written  consent,  and the Trustee is hereby  authorized  to
receive any and all such property at any and all times and to hold and apply the
same subject to the terms hereof.

     TO HAVE AND TO HOLD all and singular  the Trust Estate with all  privileges
and appurtenances  hereby conveyed and assigned,  or agreed or intended so to be
to the Trustee and its successors in trust forever.

     IN TRUST  NEVERTHELESS,  under and  subject  to the  terms  and  conditions
hereinafter set forth, (a) for the equal benefit, protection and security of the
Owners of any and all of the Bonds, all of which regardless of the time or times
of their  issuance  or  maturity  shall be of equal  rank,  without  preference,
priority or distinction  of any of the Bonds over any other  thereof,  except as
otherwise  provided in or  pursuant  to this  Indenture,  (b) for  securing  the
observance and performance of the  Authority's  obligations and of all others of
the conditions, promises,  stipulations,  agreements and terms and provisions of
this Indenture and the uses and purposes herein expressed and declared,  and (c)
for the benefit of the Letter of Credit  Bank,  subject and  subordinate  to the
prior rights of the Owners and only to the extent of payments  made  pursuant to
the Letters of Credit that have not been  reimbursed  by the Company.

     PROVIDED,  HOWEVER, that if the Authority,  its successors or assigns, well
and truly  pays,  or  causes  to be paid,  the  principal  of the  Bonds  issued
hereunder  and the premium (if any) and  interest  due or to become due thereon,
and the Purchase Price thereof,  at the times and in the manner mentioned in the
Bonds and as provided herein,  according to the true intent and meaning thereof,
and shall cause the  payments  to be made into the Bond Fund as  required  under
Article VI hereof, or shall provide, as permitted hereby, for payment thereof in
accordance  with Article XI hereof,  and shall well and truly keep,  perform and
observe  all of the  covenants  and  conditions  pursuant  to the  terms of this

                                       3
<PAGE>

Indenture and all other of the Authority's obligations to be kept, performed and
observed  by it,  and shall pay or cause to be paid to the  Trustee  all sums of
money due or to become due in accordance  with the terms and provisions  hereof,
then upon such final payments or deposits as provided in Article XI hereof,  and
upon the  termination  of the  Agreement,  the right,  title and interest of the
Trustee in and to the Trust Estate shall cease,  terminate and be void,  and the
Trustee shall thereupon assign,  transfer, and turn over the Trust Estate to the
Letter of Credit Bank; provided, that if the Trustee shall have received written
evidence  from the Letter of Credit  Bank that all  obligations  of the  Company
under the Reimbursement Agreement have been satisfied and that the Reimbursement
Agreement has been terminated,  or if no Letter of Credit shall then be in place
for any  Series  of Bonds,  the  Trust  Estate  corresponding  thereto  shall be
assigned,  transferred  and turned over to the  Company;  and the Trustee  shall
execute and deliver to the Authority, the Letter of Credit Bank and the Company,
as  appropriate,  such  instruments in writing as shall be requisite to evidence
such transfer of the Trust Estate. Upon the Trustee's  assignment,  transfer and
turning over to the Letter of Credit Bank or the Company, as appropriate, of the
Trust Estate pursuant to the provisions of Section XI hereof,  the Trustee shall
have no further duties,  responsibilities  or obligations  under and pursuant to
this Indenture.

     AND IT IS EXPRESSLY  DECLARED  that all Bonds issued and secured  hereunder
are to be issued, authenticated and delivered and all of the Trust Estate hereby
pledged  is to be dealt  with and  disposed  of under,  upon and  subject to the
terms,  conditions,  stipulations,   covenants,  agreements,  trusts,  uses  and
purposes hereinafter expressed,  and the Authority has agreed and covenanted and
intending to be legally  bound does hereby  agree and covenant  with the Trustee
and with the  respective  Owners  from  time to time of the  Bonds,  or any part
thereof as follows

                                   ARTICLE I.

               DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS

     Section 1.01. Definitions. Unless the context otherwise requires, the terms
defined in this Section  shall,  for all purposes of the recitals  hereto,  this
Indenture  and of any  indenture  supplemental  hereto  and of any  certificate,
opinion or other document herein mentioned,  have the meanings herein specified,
to be equally  applicable  to both the  singular  and plural forms of any of the
terms herein defined. Unless otherwise defined in this Indenture, all terms used
herein shall have the meanings assigned to such terms in the Act.

          "Accountant"   means  any  firm  of   independent   certified   public
accountants  (not an  individual)  selected by the Company and acceptable to the
Bank.

          "Act" means Chapter 12 of Title 10 of the Vermont Statutes  Annotated,
as amended.

          "Additional  Payments"  means any payments  required to be made by the
Company  pursuant to the  Agreement  which are not required to be (i) applied to
the payment of scheduled debt service on, or the Purchase Price of, the Bonds or
(ii)  reimbursed to the Letter of Credit Bank for monies drawn on the Letters of
Credit to pay debt service on, or the Purchase Price of, the Bonds.

                                       4
<PAGE>

          "Administrative  Expenses" means those expenses of the Authority,  the
Trustee and the Bank which are properly  chargeable to the Company on account of
the Bonds and the Bond  Documents as  administrative  expenses  under  Generally
Accepted Accounting  Principles and include,  without limiting the generality of
the foregoing,  the following:  (a) fees and expenses of the Trustee, the Tender
Agent,  the  Authority,  the  Bank  and the  Placement  Agent;  and (b) fees and
expenses of the Authority's,  the Bank's, the Trustee's,  the Tender Agent's and
the Placement  Agent's  professional  advisors  reasonably  necessary and fairly
attributable to the Projects,  including  without limiting the generality of the
foregoing,  fees and expenses of the Authority's,  the Trustee's, the Bank's and
the Placement Agent's counsel.

          "Agreement"  means the Loan  Agreement  dated as of  December 1, 1999,
between the Authority and the Company,  together with all  supplements  thereto.
"Authority"  means the Vermont Economic  Development  Authority created pursuant
to, and as defined in, the Act, and its successors.

          "Authority  Board" shall mean at any given time the governing  body of
the Authority.

          "Authorized  Representative"  means with respect to the  Company,  the
Chief  Financial  Officer  or  any  other  person  designated  as an  Authorized
Representative  of the  Company  by a  Certificate  of the  Company  signed by a
President,  Vice President,  Secretary,  Assistant Secretary or Treasurer of the
Company and filed with the Trustee.

          "Available  Moneys" means (i) moneys  derived from drawings  under the
letters  of  Credit,  (ii)  moneys  held by the  Trustee  in funds and  accounts
established  under  this  Indenture  for  a  period  of  at  least  one  hundred
twenty-four  (124) days and not commingled with any moneys so held for less than
said one  hundred  twenty-four  (124) day  period  and during and prior to which
period,  no  petition in  bankruptcy  was filed by or against the Company or the
Authority  under the  Bankruptcy  Code or any  applicable  state  bankruptcy  or
insolvency  law,  unless such petition was dismissed and all  applicable  appeal
periods  have  expired  without an appeal  having been filed,  (iii)  investment
income  derived from the  investment of moneys  described in clauses (i) or (ii)
above,  or (iv) any other  moneys,  if the Trustee and the Letter of Credit Bank
have  received  an opinion  of  nationally  recognized  counsel  experienced  in
bankruptcy matters to the effect that payment of the principal or Purchase Price
of or  interest  on the  Bonds  with  such  moneys  would  not,  in the event of
bankruptcy of the Company, the Authority,  any affiliate of the Company or other
payor,  constitute  a  voidable  preference  under  the  Bankruptcy  Code or any
applicable state bankruptcy or insolvency law.

          "Bank"  means  First  Union   National   Bank,   a  national   banking
association,  organized  and  existing  under the laws of the  United  States of
America,  whose  principal  office is  located in the City of  Charlotte,  North
Carolina,  its lawful  successors and assigns and, if applicable,  the issuer of
any Substitute Letter of Credit hereunder.

                                       5
<PAGE>

          "Bankruptcy Code" means the federal Bankruptcy Code, 11 U.S.C.  ss.101
et seq., as amended and supplemented from time to time.

          "Bond  Documents"  means any or all of the Agreement,  this Indenture,
the  Tender  Agent  Agreement,  the  Remarketing  Agreement  and all  documents,
certificates and instruments executed in connection therewith.

          "Bond  Fund"  means the fund  created in Section  6.01  hereof.  "Bond
Registrar"  means  any  bank,  national  banking  association  or trust  company
designated as registrar for the Bonds,  and its  successor  appointed  under the
Indenture.

          "Bonds" means,  collectively,  the Authority's  Series A Bonds and the
Authority's Series A-T Bonds.

          "Business Day" means any day other than (i) a Saturday or Sunday, (ii)
a legal  holiday on which  banking  institutions  in the State of New York,  the
State, the City of New York, the City of Charlotte,  North Carolina, the city in
which the principal  corporate trust office of the Trustee is located,  the city
in which the delivery office of the Tender Agent is located or the city in which
the principal  office of the Bank is located,  are authorized or required by law
to close, or (iii) a day on which the New York Stock Exchange is closed.

          "Cede & Co." means Cede & Co.,  as  nominee  of The  Depository  Trust
Company, New York, New York.

          "Certificate," "Statement," "Request," "Requisition" and "Order" means
(a) with respect to the Authority,  a written certificate,  statement,  request,
requisition  or order  signed  in the  name of the  Authority  by its  Executive
Director,  Director of Finance  Programs or General Counsel or such other person
as may be  designated  and  authorized  to sign for the  Authority,  or (b) with
respect to the Company, a written certificate,  statement,  request, requisition
or  order  signed  by an  Authorized  Representative  of the  Company.  Any such
instrument and  supporting  opinions or  representations,  if any, may, but need
not, be combined in a single  instrument with any other  instrument,  opinion or
representation, and the two or more so combined shall be read and construed as a
single  instrument.  If and to the extent required by Section 1.02 hereof,  each
such instrument shall include the statements  provided for in such Section 1.02.
"Certified  Resolution  of the  Authority"  means a copy of a resolution  of the
Authority  Board  certified by the  Secretary  or an Assistant  Secretary of the
Authority,  or other officer serving in a similar capacity,  under its corporate
seal, to have been duly adopted by the  Authority  Board and to be in full force
and  effect  on the date of such  certification.

          "Certified  Resolution of the Company" means a copy of a resolution of
the  Company,  duly  adopted  and in full force and effect as of the date of the
execution and delivery of the Bonds and the Letters of Credit.

          "Closing  Date" means January 28, 2000, or such other date which shall
be the date of the  execution  and delivery of the  Agreement and the other Bond
Documents and the issuance and delivery of the Bonds.

                                       6
<PAGE>

          "Code"  means the Internal  Revenue  Code of 1986,  as amended and all
regulations  promulgated  thereunder.  "Collateral"  means all of the rights and
assets of the Company or any other Person in which the  Authority or the Trustee
is now or hereafter  granted a lien or security  interest in order to secure the
performance of (i) the Company's  obligations  under the Agreement or any of the
Collateral Documents or (ii) the obligations of the Authority hereunder or under
the Bonds.

          "Collateral  Documents" means all documents  executed and delivered or
to be executed  and  delivered  and under which the  Authority or the Trustee is
granted a lien or  security  interest  in any of the  rights  and  assets of the
Company or any other Person in order to secure the  performance of the Company's
obligations  under the Agreement or any other Bond Documents or the  obligations
of the Authority hereunder or under the Bonds.

          "Company" means, collectively, Vermont Pure Holdings, Ltd., a Delaware
corporation,  and  Vermont  Pure  Springs,  Inc.,  a  Delaware  corporation,  as
co-borrowers under the Agreement.

          "Completion  Date" means the date of completion of a Project,  as that
date  shall  be  certified  as  provided  in  Section  2.03  of  the  Agreement.
"Construction  Fund"  means the fund by that name  established  pursuant  to the
provisions of Section 6.05 hereof.

          "Conversion  Date" means the  Optional  Conversion  Date.  "Conversion
Option" means the option granted to the Company in Section 5.01 hereof  pursuant
to which the interest rate on the Bonds of a Series is converted from a Floating
Rate to a Fixed Rate as of the Optional Conversion Date.

          "Cost" or "Costs," means any cost in respect of the Projects permitted
under the Act and the Code.

          "Counsel" means an attorney-at-law or law firm (who may be counsel for
the Company or for the Authority) not unsatisfactory to the Trustee.

          "Debt  Service  Requirements,"  with  reference to a specified  period
means, with respect to Bonds:

               (a) amounts  required to be paid into any mandatory  sinking fund
account  during the period;  and

               (b)  amounts  needed to pay the  principal  of such  indebtedness
maturing during the period and not to be redeemed prior to maturity from amounts
on deposit in any sinking  fund or  redemption,  retirement  or similar  fund or
account; and (c) interest payable on the subject indebtedness during the period,

                                       7
<PAGE>

excluding capitalized interest and amounts on deposit with the Trustee which are
available under the Indenture to pay interest with respect to such indebtedness.

          "Demand  Purchase  Notice"  means  a  notice  delivered   pursuant  to
paragraph (i) of Section 5.04 hereof.

          "Demand  Purchase  Option" means the option granted to Owners of Bonds
to require  that Bonds be  purchased  prior to a  Conversion  Date  pursuant  to
Section 5.04 hereof.

          "Determination  Date" means with respect to any  Floating  Rate Bonds,
each Wednesday or if such  Wednesday is not a Business Day, the next  succeeding
Business Day.

          "Determination  of  Taxability"  means,  with  respect to any Series A
Bond,  the  first to occur of the  following  events:  (i) the date on which the
Company  determines  that an Event of Taxability has occurred by filing with the
Trustee a  statement  to that  effect  supported  by one or more tax  schedules,
returns  or  documents  that  disclose  that  such an  Event of  Taxability  has
occurred;  (ii) the date on which the  Company  or the  Trustee  is  advised  by
private ruling,  technical  advice or any other written  communication  from any
authorized official of the Internal Revenue Service that, based upon any filings
of the Company or any other person or entity, or upon any review or audit of the
Company or any other person or entity, or upon any other grounds whatsoever,  an
Event of  Taxability  has  occurred;  (iii) the date on which the Trustee or the
Company is advised in writing that a court of competent  jurisdiction has issued
an  order,  declaration,  ruling  or  judgment  to the  effect  that an Event of
Taxability has occurred;  (iv) the date the Trustee shall have received  written
notice  from any Owner of the  Series A Bonds  that such  Owner has  received  a
written  assertion or claim by any authorized  official of the Internal  Revenue
Service that an Event of Taxability has occurred; or (v) the date the Trustee is
notified in writing  that the  Internal  Revenue  Service has issued any private
ruling,  technical  advice or any other  written  communication,  with or to the
effect that an Event of Taxability has occurred;  provided, however, that (x) no
Determination  of  Taxability  described  in clauses  (i) or (v) above  shall be
deemed to have occurred unless the Trustee shall have received a written opinion
addressed  to the Trustee of Palmer & Dodge LLP or other  nationally  recognized
bond counsel  satisfactory to the Bank and the Company and not unsatisfactory to
the Trustee, and in form and substance  satisfactory to the Bank and the Company
and not unsatisfactory to the Trustee, to the effect that an Event of Taxability
has occurred;  and (y) no Determination  of Taxability  described above shall be
deemed  to have  occurred  until  180 days  shall  have  elapsed  from the dates
described  in  clauses  (i),  (ii),  (iii),  (iv)  or  (v)  above  without  such
Determination of Taxability having been rescinded or cancelled.

          "Event of Default"  means any of the events  specified in Section 8.01
of this Indenture.

          "Event of  Taxability"  means,  with  respect to any Series A Bond,  a
change of law or regulations,  or the interpretation  thereof, or the occurrence
of any  other  event or the  existence  of any other  circumstances  (including,
without  limitation,  the fact that any  representations  or  warranties  of the
Company or the Authority  made in  connection  with the issuance of any Series A
Bond is or was untrue or that a covenant of the Company has been  breached) that

                                       8
<PAGE>

has the effect of causing interest payable on any Series A Bond to be includible
in gross income for federal  income tax purposes  under  Section 103 of the Code
other than by reason that such interest (i) is includible in the gross income of
an owner or former  owner of any Series A Bond while such owner or former  owner
is or was a "substantial  user" or a "related person" to a "substantial user" of
the Project Facilities (as such terms are used in Section 147(a)(1) of the Code)
or (ii) is deemed an item of tax  preference,  including  without  limitation an
item subjec to any alternative minimum tax.

          "Fiscal  Year" means with  respect to the Company the period of twelve
(12)  consecutive  months  beginning  May 1 of each year,  or such other  period
established by the Company as its new Fiscal Year.

          "Fixed Rate" means the  interest  rate in effect on any Bonds from and
after a Conversion  Date, as said rate is determined in accordance  with Section
2.02(d) hereof.

          "Fixed Rate Bonds" means any Bonds which shall be converted to a Fixed
Rate in accordance  with the provisions of this  Indenture.  "Fixed Rate Period"
means,  with respect to any Bonds,  a period during which interest on such Bonds
accrues at a Fixed Rate.

          "Floating Rate" means a variable rate of interest equal to the minimum
rate of interest  necessary,  in the sole judgment of the Remarketing  Agent, to
sell the Bonds of any Series at a price equal to the principal  amount  thereof,
exclusive of accrued interest,  if any, thereon;  said rate of interest to be in
effect on such Bonds  from the date of  issuance  of such  Bonds  until (but not
including)  the  Conversion  Date for such Bonds,  as said rate is determined in
accordance with Section  2.02(c)  hereof.

          "Floating  Rate  Bonds"  means any Bonds  which bear  interest  at the
Floating Rate.

          "Generally  Accepted  Accounting  Principles"  means those  accounting
principles  applicable in the  preparation  of financial  statements of business
institutions  or  industrial  development   authorities,   as  appropriate,   as
promulgated  by the  Financial  Accounting  Standards  Board or such  other body
recognized  as  authoritative  by the American  Institute  of  Certified  Public
Accountants  or  any  successor  body.

          "Government   Obligations"  means  direct  obligations  of  (including
obligations issued or held in book entry form), or obligations, the principal of
and  interest  on which are  unconditionally  guaranteed  as to full and  timely
payment by the United  States of  America.

          "Holder,"  "Owner" or "Bondholders"  whenever used herein with respect
to a Bond,  means the  person  in whose  name  such  Bond is  registered  on the
registration  books  maintained  by the  Trustee.

          "Indenture" means this Trust Indenture,  as originally  executed or as
it  may  from  time  to  time  be  supplemented,  modified  or  amended  by  any
Supplemental  Indenture.

                                       9
<PAGE>

          "Interest Payment Date" means, prior to a Conversion Date with respect
to a Series of Bonds,  the first (1st) day of each  calendar  month,  or if such
date is not a Business Day, the next succeeding  Business Day,  commencing March
1, 2000 and from and after a Conversion  Date with respect to a Series of Bonds,
January 1 and July 1 of each year,  commencing  on the  January 1 or July 1 next
following  such  Conversion  Date.

          "Investment  Securities"  means any of the following which at the time
are legal  investments under the laws of the State for moneys held hereunder and
then proposed to be invested  therein:

          (A) Government Obligations;

          (B) bonds, debentures, notes or other evidences of indebtedness issued
by any agency or other governmental or  government-sponsored  agencies which may
be hereafter created by the United States, provided,  however, that the full and
timely   payment   of  the   securities   issued   by  each   such   agency   or
government-sponsored  agency is  secured  by the full  faith  and  credit of the
United States;

          (C)  certificates  of deposit of, or time or demand  deposits  in, any
bank  (including  the  Trustee  and any of its  affiliates)  or savings and loan
association  rated or having securities rated in one of the three highest Rating
Categories (without regard to modifiers) of Moody's or S&P;

          (D) certificates  which evidence ownership of the right to the payment
of the principal of and interest on obligations described in clauses (A) and (B)
of this definition,  provided that such obligations are held in the custody of a
bank or trust company  acceptable to the Trustee in a special  account  separate
from the general assets of such custodian;

          (E) obligations  which are rated,  at the time of purchase,  in one of
the two highest Rating  Categories  (without regard to modifiers) of Moody's and
the interest on which is not  includible in gross income for federal  income tax
purposes  and the timely  payment of the  principal  of and interest on which is
fully  provided  for by the  deposit  in trust or escrow of cash or  obligations
described in clauses (A) or (B) of this definition;

          (F)  guaranteed   investment  contracts  or  other  similar  financial
instruments  with a  commercial  bank,  insurance  company  or  other  financial
institution  (including the Trustee and any of its  affiliates)  whose long term
debt  obligations are rated, at the time of purchase,  in one of the two highest
Rating Categories (without regard to modifiers) by Moody's;

          (G) mutual  funds  invested  primarily  in  obligations  described  in
clauses (A), (B) and (H) of this definition, and rated, at the time of purchase,
in one of the two highest  Rating  Categories  (without  regard to modifiers) by
Moody's,  including,  if such fund meets the  criteria  described in this clause
(G), money market mutual funds, including,  without limitation,  any mutual fund
for which the  Trustee  or an  affiliate  of the  Trustee  serves as  investment
manager,  administrator,   shareholder  servicing  agent,  and/or  custodian  or
subcustodian,  notwithstanding  that  (i) the  Trustee  or an  affiliate  of the
Trustee  receives fees from such funds for services  rendered,  (ii) the Trustee
charges and collects  fees for  services  rendered  pursuant to this  Indenture,
which  fees are  separate  from the fees  received  from such  funds,  and (iii)
services  performed  for such funds and pursuant to this  Indenture may at times
duplicate those provided to such funds by the Trustee or its affiliates;

                                       10
<PAGE>

          (H) repurchase agreements issued by financial institutions  (including
the  Trustee  and any of its  affiliates)  (i)  insured by the  Federal  Deposit
Insurance  Corporation  or (ii) whose  senior  debt  obligations  at the time of
purchase are rated in any of the three highest Rating Categories (without regard
to modifiers) by Moody's;  provided,  such repurchase  agreements are subject to
perfected security interests in the Investment  Securities of the kind specified
in paragraphs  (A) or (B) above,  which have a fair market  value,  exclusive of
accrued  interest,  at least  equal to the  amount  invested  in the  repurchase
agreement;  and provided further (1) the Trustee or a custodian acting on behalf
of the Trustee has possession of the collateral, (2) the Trustee has a perfected
first security interest in the collateral,  (3) the collateral is free and clear
of any  third-party  liens and (4) failure to maintain the requisite  collateral
percentage will require the Trustee to liquidate the collateral; and

          (I) any other  security or  obligation  provided that the Bank and the
Company  consent to the  investment  of funds in such  security  or  obligation.

          "Issue  Date"  means the date on which the Trustee  authenticates  the
Bonds  and on  which  the  Bonds  are  delivered  to or upon  the  order  of the
purchasers thereof upon original issuance.

          "Letter of Credit" means each of the Irrevocable Direct Pay Letters of
Credit  issued by the Letter of Credit Bank  pursuant to the  provisions  of the
Reimbursement  Agreement,  for the  benefit of the Holders of the Series A Bonds
and of the Series A-T Bonds,  respectively,  or, in the event of  delivery  of a
Substitute Letter of Credit, such Substitute Letter of Credit.

          "Letter of Credit  Bank"  means the Bank,  as issuer of the Letters of
Credit, and its lawful successors and assigns, and to the extent applicable, the
issuer of any Substitute Letter of Credit.

          "Letter of Credit  Termination  Date" means the later of (i) that date
upon which a Letter of Credit shall  expire or terminate  pursuant to its terms,
or (ii) that date to which  the  expiration  or  termination  of such  Letter of
Credit may be  extended,  from time to time,  either by  extension or renewal of
such Letter of Credit or the issuance of a Substitute Letter of Credit.

          "Moody's" means Moody's Investors Service, a corporation organized and
existing  under  the laws of the State of  Delaware,  its  successors  and their
assigns,  or, if such  corporation  shall be dissolved or liquidated or shall no
longer perform the functions of a securities rating agency, any other nationally
recognized  securities  rating  agency  designated  by the  Authority,  with the
written  approval of the Company.

          "Net  Proceeds,"  when used with respect to any insurance  proceeds or
any condemnation  award, means the amount remaining after deducting all expenses
(including attorneys' fees and disbursements) incurred in the collection of such
proceeds or award from the gross proceeds thereof.

                                       11
<PAGE>

          "Obligation  Termination  Date"  means  the  date on  which  the  Bank
delivers to the Trustee a certificate to the effect that all  obligations  owing
to the Bank under the Reimbursement Agreement have been paid in full.

          "Officers'  Certificate"  means  with  respect  to  the  Authority,  a
Certificate,  duly  executed  by the  Executive  Director,  Director  of Finance
Programs or General Counsel of the Authority;  or with respect to the Company, a
Certificate  duly  executed  by an  Authorized  Representative  of the  Company.

          "Opinion of Counsel"  means a written  opinion of Counsel  (who may be
counsel for the  Authority)  selected by the  Authority  and  acceptable  to the
Trustee. If and to the extent required by the provisions of Section 1.02 hereof,
each Opinion of Counsel shall include in substance the  statements  provided for
in such Section 1.02.

          "Optional Conversion Date" means each January 1 or July 1 (or the next
succeeding  Business Day to such January 1 or July 1) while any Bond of a Series
is outstanding,  from and after which the interest rate on a Series of the Bonds
may be  converted  from a  Floating  Rate to a Fixed  Rate  as a  result  of the
exercise by the Company of the Conversion Option in accordance with the terms of
this  Indenture.

          "Outstanding,"  when used as of any particular  time with reference to
Bonds, means (subject to the provisions of Section 12.10) all Bonds theretofore,
or  thereupon  being,  authenticated  and  delivered  by the Trustee  under this
Indenture,  except (1) Bonds theretofore  canceled by the Trustee or surrendered
to the Trustee for  cancellation;  (2) Bonds with respect to which all liability
of the Authority  shall have been  discharged in accordance  with Section 11.02,
including Bonds (or portions of Bonds)  referred to in Section 12.10;  (3) Bonds
for the transfer or exchange of or in lieu of or in substitution for which other
Bonds shall have been  authenticated  and  delivered by the Trustee  pursuant to
this Indenture and (iv) Undelivered Bonds.

          "Participants"  means  those  financial   institutions  for  whom  the
Securities  Depository  effects  book-entry  transfers and pledges of securities
deposited with the Securities Depository, as such listing of Participants exists
at the time of such  reference.  "Permitted  Encumbrances"  means  any  liens or
encumbrances permitted under the Reimbursement  Agreement or otherwise permitted
by the Bank.

          "Person"  means  an  individual,   corporation,   firm,   association,
partnership,  trust,  or other legal  entity or group of  entities,  including a
governmental entity or any agency or political  subdivision thereof.

          "Placement Advisor" means First Union Securities, Inc., its successors
and assigns.

          "Pledge Agreement" means (i) the Pledge and Security  Agreement  dated
as of  January  28,  2000,  by and  between  the Bank and the  Company,  and any
amendments or supplements  thereto,  and (ii) the pledge and security  agreement
entered into by the Company with any  Substitute  Bank,  and any  amendments  or
supplements thereto.

                                       12
<PAGE>

          "Pledged   Bonds"  means  any  Bonds  which  shall,  at  the  time  of
determination  thereof,  be held in pledge  for the  benefit  of the Bank by the
Pledged  Bonds  Custodian  pursuant  to the  Pledge  Agreement.  "Pledged  Bonds
Custodian" means that banking  corporation or national banking association which
serves as the custodian for the Pledged Bonds under the terms and  conditions of
the Pledge  Agreement.  The initial  Pledged Bonds Custodian shall be the Tender
Agent.

          "Principal  Office" means the  corporate  trust office of the Trustee,
which at the date of the  execution  of the  Indenture  is located at 213 Market
Street,  Harrisburg,  Pennsylvania  17101.

          "Project"  means the  construction,  acquisition and improvement of an
approximately 38,000 square foot addition to the Company's existing spring water
production and bottling facility located on Route 66 in the Catamount Industrial
Park within the Town of Randolph,  together with related machinery and equipment
for such addition and for the existing  production  facilities at such location,
and the  payment of a portion of the costs of  issuance  of the Bonds.

          "Project  Facilities" shall mean all of the Company's right, title and
interest in and to the facilities  constituting  the Project.

          "Purchase Price" means an amount equal to 100% of the principal amount
of any Bond tendered or deemed tendered  pursuant to Sections 5.01, 5.03 or 5.04
hereof,  plus  accrued  and unpaid  interest  thereon  to the date of  purchase.
"Rating  Agency"  means Moody's if the Bonds are rated by Moody's and S&P if the
Bonds are  rated by S&P.

          "Rating  Category"  means  one of the  general  rating  categories  of
Moody's or S&P,  without  regard to any  refinement  or gradation of such rating
category by a numerical modifier or otherwise.

          "Rebate Fund" means the fund by that name established pursuant
 to the  provisions  of Section 6.13  hereof.

          "Record Date" means, prior to a Conversion Date, that day which is the
Business  Day next  preceding  any  Interest  Payment  Date and from and after a
Conversion  Date  with  respect  to a Series of  Bonds,  that date  which is the
fifteenth  calendar day next preceding any Interest Payment Date for such Series
of Bonds.

          "Reimbursement  Agreement" means the Reimbursement  Agreement dated as
of January 28,  2000,  by and  between  the Company and the Bank,  and any other
similar agreement entered into in connection with the issuance of any Substitute
Letter of Credit  and any and all  modifications,  alterations,  amendments  and
supplements thereto.

                                       13
<PAGE>

          "Remarketing Agent" means (singly or collectively, as the case may be)
the  remarketing  agent(s)  appointed  by the Company and at the time serving as
such  under  the  Remarketing  Agreement.

          "Remarketing  Agreement" means the Remarketing Agreement,  dated as of
December 1, 1999,  by and between the Company and First Union  Securities,  Inc.

          "Replacement Bonds" means Bonds issued to the beneficial owners of the
Bonds in  accordance  with  Section 2.13  hereof.

          "Revenues"  means all amounts received by the Authority or the Trustee
for the account of the  Authority  pursuant or with respect to the  Agreement or
the  Letters  of Credit,  including,  without  limiting  the  generality  of the
foregoing,  payments under the Agreement  (including  both timely and delinquent
payments and any late charges,  and whether paid from any source),  prepayments,
insurance proceeds,  condemnation proceeds,  and all interest,  profits or other
income derived from the investment of amounts in any fund or account established
pursuant to this Indenture.

          "S&P" means Standard & Poor's, a division of McGraw Hill Companies,  a
corporation organized and existing under the laws of the State of Delaware,  its
successors  and their  assigns,  or, if such  corporation  shall be dissolved or
liquidated  or shall no longer  perform the  functions  of a  securities  rating
agency, any other nationally  recognized  securities rating agency designated by
the Authority, with the written approval of the Company.

          "Securities  Depository"  means The  Depository  Trust Company and its
successors and assigns or if (i) the then-Securities Depository resigns from its
functions as depository of the Bonds or (ii) the Company discontinues use of the
then-Securities  Depository  pursuant  to  Section  2.13,  any other  securities
depository  which agrees to follow the  procedures  required to be followed by a
securities  depository in connection with the Bonds and which is selected by the
Company.

          "Securities   Depository   Nominee"   means,   as  to  any  Securities
Depository,  such  Securities  Depository  or the  nominee  of  such  Securities
Depository  in whose name there shall be registered  on the  registration  books
maintained  by  the  Trustee  the  Bond  certificates  to be  delivered  to  and
immobilized at such  Securities  Depository  during the  continuation  with such
Securities Depository of participation in its book-entry system.

          "Series" means each separately  designated  series of Bonds authorized
to be  issued  under  this  Indenture.

          "Series  A Bonds"  means  the  Authority's  $3,195,000  Variable  Rate
Demand/Fixed Rate Revenue Bonds (Vermont Pure Springs, Inc. Project) 1999 Series
A  authorized  to be issued under this  Indenture.

          "Series A-T Bonds"  means the  Authority's  $1,105,000  Variable  Rate
Demand/Fixed Rate Revenue Bonds (Vermont Pure Springs, Inc. Project) 1999 Series
A-T (Taxable)  authorized to be issued under this  Indenture.

                                       14
<PAGE>

          "State" means the State of Vermont.

          "Substitute Bank" means a savings and loan association or savings bank
or a commercial  bank organized and doing  business in the United  States,  or a
branch or agency of a foreign  commercial bank located and doing business in the
United States and subject to regulation by state or federal  banking  regulatory
authorities,  that has been  assigned the same or higher rating as the Letter of
Credit  it is  being  issued  to  replace  in  effect  immediately  prior to the
substitution  of the  Substitute  Letter of Credit  pursuant  to the  provisions
herein.

          "Substitute  Letter of Credit"  means a letter of credit  delivered to
the Trustee in  compliance  with Section 4.07 of the Agreement (i) issued by the
Bank or a Substitute  Bank, (ii) replacing any existing Letter of Credit,  (iii)
dated no later than the date of the expiration or replacement date of the Letter
of Credit for which the same is to be substituted,  (iv) which shall expire on a
date which is 15 days after an Interest Payment Date for the Bonds, (v) having a
term of at least one year and (vi) issued on  substantially  identical terms and
conditions as the then existing  Letter of Credit it is being issued to replace,
except that the stated amount of the Substitute Letter of Credit shall equal the
sum of (A) the aggregate principal amount of Bonds at the time Outstanding, plus
(B) an amount equal to (i) prior to the  Conversion  Date for a Series of Bonds,
forty-six (46) days' interest  (computed at a rate of 15% per annum with respect
to the Series A Bonds and at a rate of 17% per annum with  respect to the Series
A-T Bonds) on all the Bonds of such Series at the time Outstanding and (ii) from
and after the Conversion Date for a Series of Bonds,  two hundred fourteen (214)
days'  interest  (computed  at  the  Fixed  Rate  on  such  Bonds  at  the  time
Outstanding).

          "Substitution   Date"  shall  mean  the  date  the  Company   delivers
Substitute  Letters of Credit to the  Trustee in  accordance  with the terms and
conditions of Section 4.07 of the Agreement.

          "Supplemental Indenture" means any indenture hereafter duly authorized
and entered into between the Authority and the Trustee, supplementing, modifying
or amending this Indenture, but only if and to the extent that such Supplemental
Indenture is specifically authorized hereunder.

          "Tax Certificate"  means the Tax Certificate and Agreement,  delivered
by the Authority and the Company at the time of and with respect to the issuance
and delivery of the Series A Bonds.

          "Tender  Agent" means First Union National Bank and its successors and
any corporation or association  resulting from or surviving any consolidation or
merger  to  which it or its  successors  may be a party  or any  corporation  or
association to which it may sell all or substantially all of its corporate trust
business and any successor  Tender Agent at the time serving as successor Tender
Agent hereunder and under the Tender Agent Agreement.  "Delivery  Office" of the
Tender Agent means 213 Market Street, Harrisburg,  Pennsylvania 17101 Attention:
Corporate  Trust Services and  "Principal  Office" of the Tender Agent means 213
Market  Street,  Harrisburg,  Pennsylvania  17101,  Attention:  Corporate  Trust
Services or such other address as may be designated in writing to the Authority,
the Trustee, the Remarketing Agent and the Company.

                                       15
<PAGE>

          "Tender Agent  Agreement" means the Tender Agent Agreement dated as of
December 1, 1999 among the  Company,  the  Trustee and the Tender  Agent and any
amendments and supplements thereto.

          "Trust  Estate" means all property  rights and interests  transferred,
assigned,  or  otherwise  pledged to the  Trustee  and the Letter of Credit Bank
pursuant to the Granting Clauses hereof.

          "Trustee"  means  First  Union  National  Bank,  a  national   banking
association  organized and existing  under the laws of the United States and its
successor and any  corporation  or  association  resulting from or surviving any
consolidation  or  merger  to which it or its  successors  may be a party or any
corporation  or  association  to which it may sell or otherwise  transfer all or
substantially  all of its corporate trust business and any successor  trustee at
the time serving as successor trustee hereunder.

          "Undelivered  Bonds"  shall have the  meaning  given to such phrase in
Sections 5.01, 5.03 or 5.04 hereof.

          "Unremarketed Bonds" means Bonds which have been purchased pursuant to
Sections 5.01, 5.03 or 5.04 hereof but which have not been  remarketed.

          "Weekly  Period"  shall  mean,  while  the  Bonds  bear  interest at a
Floating Rate,  the weekly period that begins on and includes  Wednesday of each
calendar  week  and  ends at the  close  of  business  on  Tuesday  of the  next
succeeding week.

     Section 1.02.  Content of Certificates  and Opinions.  The Trustee may, but
shall not be obligated to, require that every  certificate  or opinion  provided
for in this Indenture with respect to compliance with any provision hereof shall
include  (1) a  statement  to the effect  that the Person  making or giving such
certificate  or  opinion  has read such  provision  and the  definitions  herein
relating  thereto;  (2) a brief  statement  as to the  nature  and  scope of the
examination or investigation upon which the certificate or opinion is based; (3)
a statement  to the effect that in the  opinion of such  person,  he has made or
caused to be made such  examination or  investigation  as is necessary to enable
him to express an informed  opinion with respect to the subject matter  referred
to in the  instrument to which his signature is affixed;  (4) a statement of the
assumptions  upon which  such  certificate  or  opinion is based,  and that such
assumptions are reasonable; and (5) a statement as to whether, in the opinion of
such person,  such  provision has been complied  with.  Any such  certificate or
opinion  made or given by an  officer of the  Authority  or the  Company  may be
based, insofar as it relates to legal or accounting matters,  upon a certificate
or opinion of or representation by Counsel or an accountant, unless such officer
knows,  or in the  exercise of  reasonable  care  should  have  known,  that the
certificate,  opinion or  representation  with respect to the matters upon which
such certificate or statement may be based, as aforesaid, is erroneous.

     Any such  certificate  or opinion made or given by Counsel or an accountant
may be based,  insofar as it relates to factual  matters  (with respect to which
information  is in the  possession of the Authority or the Company,  as the case
may be) upon a certificate or opinion of or  representation by an officer of the
Authority or the Company,  unless such Counsel or  accountant  knows,  or in the

                                       16
<PAGE>

exercise of reasonable  care should have known,  that the certificate or opinion
or  representation  with  respect  to  the  matters  upon  which  such  person's
certificate  or  opinion  or  representation  may be  based,  as  aforesaid,  is
erroneous. The same officer of the Authority or the Company, or the same Counsel
or  accountant,  as the case  may be,  need not  certify  to all of the  matters
required to be certified  under any provision of this  Indenture,  but different
officers, Counsel or accountants may certify to different matters, respectively.

     Section 1.03.  Interpretation.

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

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

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

          (d) Whenever in this  Indenture it is required that notice be provided
to the Bank or that consent of the Bank be obtained,  such  provisions  shall be
effective only when (i) a Letter of Credit is in effect or (ii) the Bank, in its
capacity  as  provider  of the  Letters of  Credit,  is the Holder of any Bonds.

                                   ARTICLE II.

                                    THE BONDS

     Section 2.01. Authorization of Bonds.

     (a) The  Bonds  shall be  issued  hereunder  in order to  obtain  moneys to
finance the Project for the benefit of the Authority and the Company.  The Bonds
shall be designated as "Vermont  Economic  Development  Authority  Variable Rate
Demand/Fixed Rate Revenue Bonds (Vermont Pure Springs, Inc. Project) 1999 Series
A" and "Vermont Economic  Development  Authority Variable Rate Demand/Fixed Rate
Revenue Bonds (Vermont Pure Springs,  Inc.  Project) 1999 Series A-T (Taxable),"
respectively.

     (b) The  aggregate  principal  amount  of Bonds  which  may be  issued  and
Outstanding  under this  Indenture  shall not exceed Four Million  Three Hundred
Thousand  Dollars  ($4,300,000).  No  additional  bonds may be issued under this
Indenture.  The Bonds shall be issued in the aggregate  principal amount of Four
Million  Three  Hundred  Thousand  Dollars  ($4,300,000),  comprising  aggregate
principal  amount of Three  Million One  Hundred  Ninety-Five  Thousand  Dollars
($3,195,000) of Series A Bonds and One Million One Hundred Five Thousand Dollars
($1,105,000)  of Series A-T  Bonds.  This  Indenture  constitutes  a  continuing

                                       17
<PAGE>

agreement by the  Authority  for the benefit of the Holders from time to time of
the Bonds to secure the full payment of the principal and Purchase  Price of and
premium,  if any,  and  interest  on all such Bonds  subject  to the  covenants,
provisions  and  conditions  herein  contained.

     Section 2.02. Terms of Bonds; Interest on the Bonds.

          (a) The Bonds shall be issued in fully  registered  form. Prior to the

Conversion  Date with  respect  to a Series of Bonds,  (i) such  Bonds  shall be
Outstanding in denominations  of $100,000 or any integral  multiple of $5,000 in
excess thereof;  and (ii) the Bonds may not be issued,  exchanged or transferred
except in the authorized  denominations of $100,000 or any integral  multiple of
$5,000 in excess  thereof.  From and after the Conversion Date with respect to a
Series of Bonds,  subject to the  requirements of the following  paragraph,  (i)
such Bonds  shall be  Outstanding  in  denominations  of $5,000 or any  integral
multiple  of  $5,000  and  (ii)  such  Bonds  may not be  issued,  exchanged  or
transferred  except in the  authorized  denominations  of $5,000 or any integral
multiple of $5,000 in excess thereof. The Bonds shall be dated as of the date of
delivery and shall  mature,  subject to prior  redemption,  as provided  herein.
Unless the Authority shall otherwise  direct,  prior to the Conversion Date with
respect to a Series of Bonds,  the Bonds of such Series  shall be lettered  "VR"
and shall be numbered consecutively from 1 upward, and after the Conversion Date
with  respect to a Series of Bonds,  the Bonds of such Series  shall be lettered
"FR"  and  shall be  numbered  consecutively  from 1  upward.

          On or after its  respective  Conversion  Date, the Bonds of any Series
may be issued in denominations of five thousand dollars ($5,000) or any integral
multiple  thereof  upon  delivery  to the Trustee of (A) a  disclosure  document
relating to such Bonds, and (B) an opinion or opinions of independent counsel to
the effect that such disclosure  document  fairly and accurately  describes such
Bonds, the security for such Bonds and the financing  documents relating to such
Bonds and such security,  and that the disclosure document (except the financial
and statistical  data therein as to which no opinion need be expressed) does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances in which
they were made,  not  misleading,  and (C) a certificate of the Company that the
Company has undertaken to provide continuing disclosure  information as required
by United States Securities and Exchange  Commission Rule  ss.240.15c2-12  ("the
Rule")  as in  effect on such  Conversion  Date,  or an  opinion  of  nationally
recognized  bond counsel,  who may be counsel to the Authority,  the Remarketing
Agent  or the  Trustee,  to the  effect  that  compliance  with  the Rule is not
required.

          (b) Each Bond shall be dated the Issue  Date and shall bear  interest,
payable (i) prior to the Conversion  Date with respect to a Series of Bonds,  on
the first day of each calendar month, or if such date is not a Business Day, the
next  succeeding  Business Day commencing  March 1, 2000, (ii) on the Conversion
Date with respect to a Series of Bonds, (iii) from and after the Conversion Date
with  respect  to a  Series  of  Bonds,  on  January  1 or July 1 of each  year,
commencing on the January 1 or July 1 next  following the  Conversion  Date, and
(iv) on the  maturity  date for  such  Bond  set  forth  in the next  succeeding
paragraph,  in each case from the Interest  Payment Date next preceding the date
of authentication  thereof to which interest has been paid or duly provided for,
unless  the date of  authentication  thereof  is  after a Record  Date and on or

                                       18
<PAGE>

before the succeeding  Interest  Payment Date, in which case from the succeeding
Interest  Payment Date, or unless no interest has been paid or duly provided for
on the Bonds, in which case from the Issue Date,  until payment of the principal
thereof has been made or duly provided for.  Notwithstanding  the foregoing,  if
the  Company  shall  default in the  payment of  interest  due on such  Interest
Payment  Date,  then such  Bond  shall  bear  interest  from the next  preceding
Interest  Payment Date to which interest has been paid or duly provided for, or,
if no interest has been paid or duly provided for on the Bonds, from the Date of
Issue.

          The Series A Bonds  shall  mature on  January 1, 2020.  The Series A-T
Bonds shall mature on January 1, 2011.

          (c) (i) From the Issue Date to the  Conversion  Date with respect to a
Series of Bonds,  the Bonds of such Series  shall bear  interest at the Floating
Rate therefor. The Floating Rate for each Series of Bonds shall be determined by
the  Remarketing  Agent by 9:30  a.m.  on each  Determination  Date and shall be
effective  on such  Determination  Date  for the  immediately  following  Weekly
Period.

          (ii) The Remarketing Agent shall advise the Company and the Trustee of
the Floating  Rate for each Series of Bonds by telephone  (confirmed by telecopy
to the Trustee) at or before the close of business on each  Determination  Date.
Upon  request  of any  Bondholder,  the  Remarketing  Agent  shall  notify  such
Bondholder of the Floating Rate then borne by the Bonds held by such Bondholder.

          (iii) If for any reason the interest rate on any Series A Bond for any
Weekly Period is not  determined  by the  Remarketing  Agent  pursuant to (c)(i)
above,  or a court  holds that the  Floating  Rate set as  provided  pursuant to
(c)(i) above is invalid or unenforceable, the Floating Rate for such Bonds shall
be for the  first  such  week  that a  Floating  Rate is not  determined  by the
Remarketing Agent or has been determined  invalid or  unenforceable,  a rate per
annum equal to the Floating Rate  established by the Remarketing  Agent pursuant
to  (c)(i)  on  the  immediately  preceding   Determination  Date  and  on  each
Determination  Date  thereafter,  shall be a rate per annum  equal to 85% of the
interest rate per annum for 30-day  commercial  paper having a rating of A-2/P-2
as reported in The Wall Street  Journal on each  Determination  Date. If for any
reason the  interest  rate on any  Series A-T Bond for any Weekly  Period is not
determined by the  Remarketing  Agent pursuant to (c)(i) above, or a court holds
that the  Floating  Rate set as provided  pursuant to (c)(i) above is invalid or
unenforceable, the Floating Rate for such Bonds shall be for the first such week
that a Floating  Rate is not  determined  by the  Remarketing  Agent or has been
determined invalid or unenforceable, a rate per annum equal to the Floating Rate
established  by the  Remarketing  Agent  pursuant  to (c)(i) on the  immediately
preceding Determination Date and on each Determination Date thereafter, shall be
a rate  per  annum  equal to 115% of the  interest  rate per  annum  for  30-day
commercial  paper  having a rating of A-2/P-2  as  reported  in The Wall  Street
Journal on each Determination  Date.

          (iv) The  determination of the Floating Rate by the Remarketing  Agent
or in accordance  with (c)(iii)  above shall be conclusive  and binding upon the
Authority, the Trustee, the Bank, the Company, the Remarketing Agent, the Tender
Agent  and  the  Owners  of  the  Bonds.

                                       19
<PAGE>

          Anything  herein to the contrary  notwithstanding,  the Floating  Rate
with respect to the Series A Bonds shall in no event  exceed 15% per annum,  and
the  Floating  Rate with  respect to the Series A Bonds shall in no event exceed
17% per annum.

          (d) The Bonds of a Series shall bear interest at a Fixed Rate from and
after the  Conversion  Date for such Series until the maturity of such Series of
Bonds.  The Fixed Rate for any Series of Bonds shall be a fixed annual  interest
rate on the Bonds  established by the Remarketing  Agent as the rate of interest
for which the Remarketing  Agent has received  commitments from purchasers on or
prior to the 5th Business Day preceding the Conversion  Date to purchase all the
Outstanding  Bonds on the  Conversion  Date at a price of par.

          (e) Prior to the  Conversion  Date for a Series of Bonds,  interest on
such Bonds shall be computed on the basis of a 365/366-day  year, for the actual
number of days elapsed.  On and after the Conversion Date for a Series of Bonds,
interest  on such  Bonds  shall be  computed  on the basis of a 360-day  year of
twelve  30-day  months.

          Interest on the Bonds shall be payable on each  Interest  Payment Date
to the persons in whose name the Bonds are  registered  at the close of business
on the Record Date for the respective  Interest Payment Date.  Interest shall be
paid by check mailed on the  applicable  Interest  Payment Date to each Owner at
the  addresses  shown  on the  registration  books  maintained  by the  Trustee,
provided that such  interest  shall be paid by wire transfer to (i) the Bank and
(ii) any Holder of at least  $1,000,000 in aggregate  principal amount of Bonds,
if the Holder  makes a written  request of the Trustee at least 15 days before a
Record Date specifying the account address and wiring instructions,  which shall
be to a bank in the  United  States.  Such a request  may  provide  that it will
remain in effect for  subsequent  interest  payments until changed or revoked by
written  notice to the  Trustee or upon the  transfer or  reregistration  of the
Bond.

          The  principal  of the Bonds  shall be payable in lawful  money of the
United  States of America at the  designated  office of the  Trustee;  provided,
however  that  payment  of the  Purchase  Price of Bonds  tendered  pursuant  to
Sections 5.01,  5.03 and 5.04 hereof shall be paid in lawful money of the United
States of America  at the  Delivery  Office of the Tender  Agent to the Owner of
Bonds entitled to receive such Purchase Price. Except as permitted under Section
2.13 hereof,  no payment of principal  shall be made on any Bond until such Bond
is surrendered to the Trustee at its Principal  Corporate Trust Office.

     Section 2.03.  Execution of Bonds.  The Bonds shall be executed in the name
and on behalf of the  Authority  with the manual or  facsimile  signature of its
Executive Director,  Director of Finance Programs or General Counsel,  under its
seal.  Such seal may be in the form of a facsimile of the  Authority's  seal and
may be reproduced,  imprinted or impressed on the Bonds. The Bonds shall then be
delivered to the Trustee for  authentication  by it. In case any of the officers
who  shall  have  signed  any of the Bonds  shall  cease to be such  officer  or
officers  of  the  Authority   before  the  Bonds  so  signed  shall  have  been
authenticated or delivered by the Trustee or issued by the Authority, such Bonds
may  nevertheless  be  authenticated,   delivered  and  issued  and,  upon  such
authentication,  delivery and issue,  shall be as binding upon the  Authority as
though  those who  signed  the same had  continued  to be such  officers  of the
Authority,  and also any  Bond may be  signed  and  attested  on  behalf  of the
Authority  by such persons as at the actual date of execution of such Bond shall
be the proper  officers of the  Authority  although at the nominal  date of such
Bond any such person  shall not have been such  officer of the  Authority.

                                       20
<PAGE>

          Only  such of the  Bonds  as  shall  bear  thereon  a  certificate  of
authentication substantially in the form set forth on the forms of Bond attached
hereto as Exhibits A, B, C and D,  manually  executed by the  Trustee,  shall be
valid  or  obligatory  for any  purpose  or  entitled  to the  benefits  of this
Indenture, and such certificate of the Trustee shall be conclusive evidence that
the Bonds so authenticated have been duly executed,  authenticated and delivered
hereunder and are entitled to the benefits of this Indenture.

     Section 2.04. Authentication.

          (a)  The   Authority   hereby   appoints   the   Tender   Agent  as  a
co-authenticating  agent for the Bonds.

          (b) No Bond shall be valid or  obligatory  for any purpose or entitled
to any security or benefit under this  Indenture  unless and until a certificate
of authentication on such Bond,  substantially in the form set forth in Exhibits
A, B, C and D attached  hereto,  shall have been duly executed by the Trustee or
by the Tender Agent and such executed  certificate  of  authentication  upon any
such Bond shall be conclusive evidence that such Bond has been authenticated and
delivered under this Indenture.  The certificate of  authentication  on any Bond
shall be deemed to have been  executed  by the  Trustee or the  Tender  Agent if
signed by an  authorized  signatory of the Trustee or the Tender  Agent,  as the
case may be, but it shall not be necessary that the same  signatory  execute the
certificate  of  authentication  on all  of the  Bonds.

          (c) In the event any Undelivered Bond is deemed tendered to the Tender
Agent as provided  in Section  5.01,  5.03 or 5.04 hereof but is not  physically
delivered to the Tender Agent,  the  Authority  shall execute and the Trustee or
the Tender  Agent  shall  authenticate  a new Bond of like  denomination  as the
Undelivered  Bond.

     Section 2.05. Form of Bonds. The Floating Rate Bonds and the certificate of
authentication  to be endorsed  thereon  prior to the  Conversion  Date for each
Series of Bonds are to be in substantially  the form set forth in Exhibits A and
C attached  hereto,  with  appropriate  variations,  omissions and insertions as
permitted or required by this Indenture and applicable law. The Fixed Rate Bonds
and the  certificate  of  authentication  to be  endorsed  thereon  are to be in
substantially  the forms set forth in  Exhibit  B and D  attached  hereto,  with
appropriate  variations,  omissions  and  insertions as permitted or required by
this Indenture.

     Section 2.06. Transfer of Bonds. Except as provided in Section 2.13 hereof,
any Bond may be transferred in accordance with its terms upon the books required
to be kept  pursuant to the  provisions  of Section 2.08 hereof.  Such  transfer
shall be made, in accordance with the  requirements  of Section 2.02 hereof,  by
the person in whose name it is registered,  in person or by his duly  authorized
attorney,  upon surrender of such registered Bond for cancellation,  accompanied
by  delivery  of a written  instrument  of  transfer,  duly  executed  in a form
approved by the  Trustee.

     Whenever any Bond or Bonds shall be surrendered for transfer, the Authority
shall  execute and the Trustee or the Tender  Agent,  as the case may be,  shall

                                       21
<PAGE>

authenticate  and  deliver  a new Bond or Bonds  of the same  Series  for a like
aggregate principal amount. The Trustee shall require the Bondholder  requesting
such transfer to pay any tax or other  governmental  charge  required to be paid
with  respect to such  transfer,  and may in  addition  require the payment of a
reasonable  sum to cover  expenses  incurred by the  Authority or the Trustee in
connection with such transfer.

     During a Fixed Rate Period,  the Trustee  shall not be required to transfer
any Bond  during the period  beginning  15 days  before the mailing of notice of
redemption calling the Bond or any portion of the Bond for redemption and ending
on the redemption date.

     Section 2.07.  Exchange of Bonds.  Bonds may be exchanged at the designated
office of the Trustee for a like aggregate principal amount of Bonds of the same
Series of other authorized  denominations in accordance with the requirements of
Section 2.02 hereof.  The Trustee shall require the Bondholder  requesting  such
exchange to pay any tax or other  governmental  charge  required to be paid with
respect  to  such  exchange,  and  may in  addition  require  the  payment  of a
reasonable  sum to cover  expenses  incurred by the  Authority or the Trustee in
connection with such exchange.

     During a Fixed Rate Period,  the Trustee  shall not be required to exchange
any Bond  during the period  beginning  15 days  before the mailing of notice of
redemption calling the Bond or any portion of the Bond for redemption and ending
on the  redemption  date.

     Section  2.08.  Bond  Register.  The Trustee is hereby  appointed  the Bond
Registrar of the Authority and the Tender Agent is hereby  appointed the Co-Bond
Registrar of the Authority. The Trustee or the Tender Agent, as the case may be,
will keep or cause to be kept sufficient books for the registration and transfer
of the Bonds,  which  shall at all times be open to  inspection  during  regular
business  hours upon prior  written  notice by any  Bondholder or its agent duly
authorized in writing, the Authority,  the Company, the Bank and the Remarketing
Agent; and, upon presentation for such purpose, the Trustee or the Tender Agent,
as the  case  may be,  shall,  under  such  reasonable  regulations  as they may
prescribe,  register or transfer or cause to be  registered or  transferred,  on
such books, Bonds as hereinbefore  provided.

     Section 2.09.  Temporary  Bonds.  The Bonds may be issued in temporary form
exchangeable  for definitive  Bonds when ready for delivery.  Any temporary Bond
may be printed,  lithographed or typewritten,  shall be of such  denomination as
may be determined by the Authority,  shall be in fully  registered  form without
coupons  and  may  contain  such  reference  to any of the  provisions  of  this
Indenture as may be  appropriate.  Every temporary Bond shall be executed by the
Authority and be  authenticated  by the Trustee or the Tender Agent, as the case
may be, upon the same  conditions  and in  substantially  the same manner as the
definitive  Bonds. If the Authority  issues  temporary Bonds it will execute and
deliver to the Trustee  definitive Bonds as promptly  thereafter as practicable,
and thereupon the  temporary  Bonds may be  surrendered,  for  cancellation,  in
exchange therefor at the designated office of the Trustee and the Trustee or the
Tender Agent, as the case may be, shall authenticate and deliver in exchange for
such temporary Bonds an equal aggregate  principal amount of definitive Bonds of
authorized  denominations.  Until so  exchanged,  the  temporary  Bonds shall be
entitled  to  the  same  benefits  under  this  Indenture  as  definitive  Bonds
authenticated  and delivered  hereunder.

                                       22
<PAGE>

     Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall
become  mutilated,  the  Authority,  at the  expense of the Holder of said Bond,
shall execute,  and the Trustee shall thereupon  authenticate and deliver, a new
Bond of like  tenor and  number in  exchange  and  substitution  for the Bond so
mutilated,  but only upon  surrender  to the  Trustee of the Bond so  mutilated.
Every  mutilated Bond so surrendered to the Trustee shall be cancelled by it and
delivered to, or upon the written order of, the Authority.  If any Bond shall be
lost,  destroyed or stolen,  evidence of such loss,  destruction or theft may be
submitted to the Authority and the Trustee and, if such evidence be satisfactory
to both and indemnity  satisfactory to them both shall be given,  the Authority,
at the expense of the Holder,  shall  execute,  and the Trustee shall  thereupon
authenticate and deliver,  a new Bond of like tenor and number in lieu of and in
substitution  for the Bond so lost,  destroyed  or  stolen  (or if any such Bond
shall have matured or shall be about to mature,  instead of issuing a substitute
Bond,  the Trustee at the written  direction of the  Authority  may pay the same
without  surrender  thereof  with funds  provided by the  Authority or available
hereunder for such purpose).  The Authority may require payment by the Holder of
a sum not exceeding the actual cost of preparing each new Bond issued under this
Section  and of the  expenses  which may be incurred  by the  Authority  and the
Trustee in connection  therewith.  Any Bond issued under the  provisions of this
Section  in lieu of any Bond  alleged  to be lost,  destroyed  or  stolen  shall
constitute  an original  additional  contractual  obligation  on the part of the
Authority whether or not the Bond so alleged to be lost,  destroyed or stolen be
at any time enforceable by anyone, and shall be entitled to the benefits of this
Indenture  with  all  other  Bonds  secured  by this  Indenture.

     Section 2.11.  Cancellation and Destruction of Surrendered Bonds. All Bonds
surrendered  for  payment or  redemption  and all Bonds  purchased  with  moneys
available for that purpose in any funds established under this Indenture, shall,
at the time of such payment or  redemption,  be cancelled  and  destroyed by the
Trustee. The Trustee shall deliver to the Authority  certificates of destruction
with respect to all Bonds  destroyed in accordance  with this  Section.

     Section 2.12. Acts of Bondholders;  Evidence of Ownership. Any action to be
taken  by  Bondholders  may  be  evidenced  by one or  more  concurrent  written
instruments of similar tenor signed or executed by such Bondholders in person or
by agents appointed in writing. The fact and date of the execution by any Person
of any such instrument may be proved by acknowledgment before a notary public or
other officer empowered to take  acknowledgments or by an affidavit of a witness
to such  execution.  Any  action by the Holder of any Bond shall bind all future
holders  of the same  Bond in  respect  of any  thing  done or  suffered  by the
Authority or the Trustee in pursuance thereof.

     Section 2.13. Book-Entry Bonds; Securities Depository.

          (a) The Bonds shall initially be registered to Cede & Co., the nominee
for the Securities Depository, and no beneficial owner will receive certificates
representing  its  respective  interests  in the Bonds,  except in the event the
Trustee issues  Replacement  Bonds as provided in subsection  (b) hereof.  It is
anticipated  that during the term of the Bonds,  the Securities  Depository will
make  book-entry  transfers  among its  Participants  and receive  and  transmit
payment of principal and Purchase  Price of,  premium,  if any, and interest on,

                                       23
<PAGE>

the Bonds to the  Participants  until and unless the Trustee  authenticates  and
delivers  Replacement  Bonds to the beneficial owners as described in subsection
(b).

          (b) If  the Company determines (1) to change the Securities Depository
or (2) to discontinue the book-entry  system,  then the Company shall notify the
Trustee  in writing  of such  determination  and the  Trustee  shall  notify the
Securities   Depository  of  such  determination  or  such  notice  and  of  the
availability of certificates for the beneficial  owners requesting the same, and
the  Trustee  shall  register  in the  name  of  and  authenticate  and  deliver
Replacement  Bonds to the  beneficial  owners  or their  nominees  in  principal
amounts  representing  the interest of each bond based solely upon  registration
information   provided  to  the  Trustee  by  the   Securities   Depository   or
Participants, making such adjustments as it may find necessary or appropriate as
to accrued  interest and previous calls for  redemption;  provided,  that in the
case of a determination under (1) of this subsection (b), the Company,  with the
consent  of the  Trustee,  may  select  a  successor  Securities  Depository  in
accordance with subsection (c) hereof to effect  book-entry  transfers.  In such
event,  all references to the Securities  Depository  herein shall relate to the
period of time when the  Securities  Depository  has  possession of at least one
Bond.  Upon  the  issuance  of  Replacement  Bonds,  all  references  herein  to
obligations  imposed  upon  or to be  performed  by  the  Securities  Depository
relating  to the  payment of the Bonds  shall be deemed to be  imposed  upon and
performed  by the  Trustee,  to the  extent  applicable  with  respect  to  such
Replacement  Bonds.  If the  Securities  Depository  resigns  and the Company or
beneficial  owners are unable to locate a qualified  successor of the Securities
Depository  in accordance  with  subsection  (c) hereof,  then the Trustee shall
authenticate and cause delivery of Replacement  Bonds to beneficial  owners,  as
provided  herein.  The Trustee may  conclusively  rely on  information  from the
Securities Depository and its Participants as to the names, addresses, amount of
Bonds beneficially owned, and taxpayer  identification numbers of the beneficial
owners of the Bonds. The cost of printing Replacement Bonds shall be paid for by
the Company.

          (c) In the  event  the  Securities  Depository  resigns,  is unable to
properly discharge its  responsibilities,  or is no longer qualified to act as a
securities  depository  and  registered  clearing  agency  under the  Securities
Exchange Act, the Company may appoint a successor Securities Depository provided
the Trustee receives  written evidence  satisfactory to the Trustee with respect
to  the  ability  of  the  successor  Securities  Depository  to  discharge  its
responsibilities. Any such successor Securities Depository shall be a securities
depository which is a registered  clearing agency under the Securities  Exchange
Act,  or other  applicable  statute or  regulation  that  operates a  securities
depository upon reasonable and customary  terms. The Trustee upon its receipt of
a Bond or Bonds from the acting  Securities  Depository for  cancellation  shall
cause  the  delivery  of  Bonds  to  the  successor  Securities   Depository  in
appropriate  denominations and form as provided herein.

          (d) Notwithstanding  any provision herein to the contrary,  so long as
the Bonds are  subject  to a system of  book-entry  transfers  pursuant  to this
Section 2.13, any  requirement  for the delivery of Bonds to the Tender Agent in
connection  with a tender pursuant to Section 5.01, 5.03 or 5.04 shall be deemed
satisfied  upon  the  transfer,  on the  registration  books  of the  Securities
Depository,  of the  beneficial  ownership  interests in such Bonds tendered for
purchase  to  the  account  of a  Participant  acting  on  behalf  of or at  the
discretion of the beneficial owner purchasing such Bonds.

                                       24
<PAGE>

                                  ARTICLE III.

                   ISSUANCE OF BONDS; APPLICATION OF PROCEEDS

     Section  3.01.  Issuance of the Bonds.  At any time after the  execution of
this  Indenture,  the Authority may execute and the Trustee or the Tender Agent,
as the case may be,  shall  authenticate  and,  upon  Request of the  Authority,
deliver  the  Bonds in the  aggregate  principal  amount of Four  Million  Three
Hundred Thousand Dollars ($4,300,000),  comprising aggregate principal amount of
Three Million One Hundred Ninety-Five  Thousand Dollars ($3,195,000) of Series A
Bonds and One Million One Hundred Five Thousand  Dollars  ($1,105,000) of Series
A-T Bonds.

     Section 3.02.  Disposition of Proceeds of the Bonds and Other Amounts.  The
Authority  shall deposit or cause to be deposited with the Trustee,  immediately
upon receipt thereof, all proceeds derived from the sale of the Bonds,  together
with any monies deposited by the Company as an equity contribution,  if any. The
Trustee  shall  deposit all such  amounts in a special fund which the Trustee is
hereby  directed to  establish,  to be known as the  Clearing  Fund,  and in the
following order, the Trustee shall:

          (a)  Transfer  to the  Persons  identified  on the  Closing  Statement
delivered  to the Trustee on the Closing  Date to pay or reserve for payment any
and all costs of issuance incurred in connection with the Bonds;

          (b)  Transfer  to the  Company  the amount  identified  on the Closing
Statement to reimburse the Company for costs of the Project  previously  paid by
the Company; and

          (c) Transfer to the credit of the Construction Fund the balance of the
Clearing Fund not otherwise  reserved for the payment of the items  described in
subsections (a) and (b) above.

                                  ARTICLE IV.

                      REDEMPTION OF BONDS BEFORE MATURITY

     Section 4.01. Extraordinary and Mandatory Redemption.

          (a)  Extraordinary  Redemption  of Bonds.  The Bonds are  callable for
extraordinary  redemption in the event (i) the Project Facilities or any portion
thereof  are  damaged or  destroyed  or taken in a  condemnation  proceeding  as
provided in Section 6.04 of the Agreement or (ii) the Company shall exercise its
option to cause the Bonds to be  redeemed  as  provided  in Section  9.02 of the
Agreement.  If  called  for  redemption  at any time  pursuant  to this  Section
4.01(a),  the Bonds  shall be  subject to  redemption  by the  Authority  on any
Interest  Payment Date, in whole or in part, at a redemption price equal to 100%
of the principal  amount thereof being  redeemed,  plus accrued  interest to the
redemption date.

          (b)  Mandatory  Redemption  of Bonds.

                                       25
<PAGE>

               (1) The Bonds are  subject  to  mandatory  redemption  within one
          hundred eighty (180) days after the occurrence of a  Determination  of
          Taxability,  in whole,  at a  redemption  price  equal to one  hundred
          percent (100%) of the aggregate  principal amount of Bonds Outstanding
          plus accrued interest to the redemption date.

               (2) The  Bonds of each  Series  are  also  subject  to  mandatory
          redemption  five (5)  Business  Days  prior to the  Letter  of  Credit
          Termination  Date  corresponding  to  such  Series,  in  whole,  at  a
          redemption  price equal to one hundred percent (100%) of the principal
          amount thereof being redeemed plus accrued  interest to the redemption
          date if, on the thirtieth  (30th) Business Day prior to such Letter of
          Credit  Termination  Date,  the  Trustee  shall  not have  received  a
          Substitute  Letter of Credit  for such  Series of Bonds  which will be
          effective  on or before such Letter of Credit  Termination  Date.

          (c) Mandatory Sinking Fund Redemption.

               (1) The Series A Bonds are subject to mandatory redemption on the
          Interest Payment Date occurring in the month of January in each of the
          years  set  forth  below  commencing  on  the  Interest  Payment  Date
          occurring  in January of 2001  (each,  a  "Mandatory  Sinking  Account
          Payment Date"),  at a redemption  price equal to 100% of the principal
          amount thereof plus accrued interest as follows:

                                       26
<PAGE>

                                              Mandatory Sinking
                   Year                       Account Payments
                   2001                          $215,000
                   2002                           215,000
                   2003                           215,000
                   2004                           215,000
                   2005                           215,000
                   2006                           215,000
                   2007                           215,000
                   2008                           215,000
                   2009                           215,000
                   2010                           215,000
                   2011                            55,000
                   2012                           110,000
                   2013                           110,000
                   2014                           110,000
                   2015                           110,000
                   2016                           110,000
                   2017                           110,000
                   2018                           110,000
                   2019                           110,000
                   2020*                          110,000

--------------------
*Final maturity

               (2) The Series A-T Bonds are subject to mandatory  redemption  on
          the Interest Payment Date occurring in the month of January in each of
          the years set forth below  commencing  on the  Interest  Payment  Date
          occurring  in January of 2001  (each,  a  "Mandatory  Sinking  Account
          Payment Date"),  at a redemption  price equal to 100% of the principal
          amount thereof plus accrued interest as follows: Mandatory Sinking

                  Year                       Account Payments
                  2001                            $105,000
                  2002                             105,000
                  2003                             105,000
                  2004                             105,000
                  2005                             105,000
                  2006                             105,000
                  2007                             105,000
                  2008                             105,000
                  2009                             105,000
                  2010                             105,000
                  2011*                             55,000

                                       27
<PAGE>

--------------------
*Final maturity

     Section 4.02. Optional Redemption. On or prior to the Conversion Date for a
Series of Bonds,  the Bonds of such  Series  are  subject to  redemption  by the
Authority,  at the option of the Company,  at any time, subject to provisions of
Section 4.03 hereof, in whole or in part, at the redemption price of 100% of the
principal  amount thereof being redeemed plus accrued interest to the redemption
date.

     After the Conversion Date for a Series of Bonds, if the length of time from
the Conversion  Date to the final maturity date of such Series of Bonds is seven
(7) years or more,  the Bonds of such  Series are subject to  redemption  by the
Authority,  at the option of the Company,  on or after the fifth  anniversary of
such  Conversion  Date, in whole at any time or in part on any Interest  Payment
Date,  at the  redemption  price of 100% of the principal  amount  thereof being
redeemed plus accrued interest to the redemption date.

     Section  4.03.  Notice of  Redemption.  Notice of the call for  redemption,
identifying  the Bonds or  portions  thereof to be redeemed  and the  redemption
price (including the premium,  if any), shall be given by the Trustee by mailing
a copy of the redemption  notice by  first-class  mail at least thirty (30) days
but not more than sixty (60) days prior to the date fixed for  redemption to the
Owner of each Bond to be redeemed  in whole or in part at the  address  shown on
the registration  books. Such notice shall contain such matters specified in the
Bonds for the  redemption  thereof  and shall  state  that  such  redemption  is
conditional upon the receipt of Available Monies by the Trustee for such purpose
on or prior to the  redemption  date.  Any  notice  mailed as  provided  in this
Section shall be conclusively  presumed to have been duly given,  whether or not
the Owner  receives  the notice.  The Trustee  shall  deliver a copy of any such
redemption notice to the Tender Agent, the Company and to the Remarketing Agent.

     Section 4.04.  Interest on Bonds Called for Redemption.  Upon the giving of
notice and the deposit of Available  Moneys for redemption at the required times
on or prior to the date  fixed for  redemption,  as  provided  in this  Article,
interest on the Bonds or portions  thereof  thus called  shall no longer  accrue
after the date fixed for redemption.

     Section 4.05. Cancellation. All Bonds which have been redeemed shall not be
reissued but shall be cancelled and destroyed by the Trustee in accordance  with
Section 2.11 hereof.

     Section 4.06. Partial Redemption of Bonds.

          (a) If less  than all the  Bonds are to be  redeemed,  the  particular
Bonds or  portions  thereof to be  redeemed  shall be selected by the Trustee by
lot.  If less than all of the  Bonds  are to be  redeemed  pursuant  to  Section
4.01(a) hereof, the particular Bonds or portions thereof to be redeemed shall be
selected  pro rata  from  each  Series  and  within a  Series  by lot.

          (b) Upon  surrender  of any  Bond for  redemption  in part  only,  the
Authority  shall execute and the Trustee shall  authenticate  and deliver to the
Owner thereof a new Bond or Bonds of authorized  denominations,  in an aggregate
principal amount equal to the unredeemed portion of the Bond surrendered. If all
or a portion of Bonds tendered for purchase pursuant to Section 5.04 hereof have

                                       28
<PAGE>

been selected by the Trustee for redemption,  the Tender Agent,  upon receipt of
such tendered  Bonds,  shall  authenticate  and  redeliver  only such portion of
tendered Bonds not subject to redemption.  The Tender Agent shall deliver to the
tendering Bondholder a copy of the notice of redemption,  indicating the portion
of the Bonds subject thereto,  and upon receipt of funds as provided herein,  an
amount  representing  the  principal of and interest on the Bonds not called for
redemption.  The  principal  of and  interest  accrued  on the Bonds  called for
redemption  shall be paid to such Bondholder on the redemption  date. The Tender
Agent shall  cancel the Bond or such portion  thereof  tendered for purchase and
subject  to  redemption,   and  shall  deliver  a  certificate  evidencing  such
cancellation and the cancelled Bond to the Trustee.

          (c) (i) Prior to the Conversion  Date for a Series of Bonds, in case a
Bond of such Series is of a denomination larger than $100,000, a portion of such
Bond ($5,000 or any  integral  multiple  thereof) may be redeemed,  but Bonds of
such Series shall be redeemed only if the remaining  unredeemed  portion of such
Bond is in the principal  amount of $100,000 or any integral  multiple of $5,000
in excess of $100,000.

          (ii) After the Conversion  Date for a Series of Bonds,  in case a Bond
     of such Series is of a denomination  larger than $5,000,  a portion of such
     Bond ($5,000 or any integral multiple  thereof) may be redeemed,  but Bonds
     of such Series shall be redeemed only if the remaining  unredeemed  portion
     of such Bond is in the principal amount of $5,000 or any integral  multiple
     of $5,000.

          (d)  Notwithstanding  anything  to  the  contrary  contained  in  this
Indenture,  whenever  the  Bonds are to be  redeemed  in part,  Bonds  which are
Pledged Bonds at the time of selection of Bonds for redemption shall be selected
for  redemption  prior to the  selection  of any other Bonds.  If the  aggregate
principal amount of Bonds to be redeemed exceeds the aggregate  principal amount
of  Pledged  Bonds  at the time of  selection,  the  Trustee  shall  select  for
redemption Bonds in an aggregate principal amount equal to such excess by lot.

     Section 4.07. Payment of Redemption Price with Available Moneys; Consent of
Letter of Credit Bank to Optional  Redemption.  Notwithstanding any provision to
the contrary contained in this Indenture, the payment of the redemption price of
Bonds shall be made only from Available Moneys from the sources and in the order
provided  in Section  6.03  hereof.  On each date that the Bonds are  subject to
redemption, the Trustee shall draw on the Letter of Credit therefor in an amount
sufficient  to pay the  full  redemption  price of the  Bonds  then  subject  to
redemption.  As long as the Bank is not in default under the terms of any of the
Letters of Credit,  the  Trustee  shall not call Bonds for  optional  redemption
unless it has received  written  consent to such  optional  redemption  from the
Letter of Credit Bank.

                                   ARTICLE V.

                      CONVERSION OF INTEREST RATE; DEMAND
                                PURCHASE OPTION

     Section 5.01.  Conversion of Interest Rate on Conversion Date. The interest
rate on a Series of Bonds  shall be  converted  from a Floating  Rate to a Fixed
Rate upon the exercise by the Company of the Conversion Option, and the Bonds of
such  Series  shall be subject to  mandatory  tender for  purchase by the Owners

                                       29
<PAGE>

thereof  on the  Conversion  Date for such  Series of  Bonds.  To  exercise  the
Conversion  Option for a Series of Bonds,  the Company shall notify the Trustee,
the Tender Agent,  the Bank, the Authority and the Remarketing  Agent in writing
at least  thirty-five  (35) days prior to such  Conversion Date of its intent to
convert the Bonds of a Series and cause the Remarketing  Agent to furnish to the
Trustee the information set forth in paragraph 1 below and, thereafter cause the
Trustee  to deliver or mail by first  class mail a notice at least  twenty  (20)
days but not more than  thirty  (30) days prior to such  Conversion  Date to the
Owner of each Bond being  converted  at the  address  shown on the  registration
books of th Bond Registrar. No such notice may be given unless the Trustee first
receives  (i) a  commitment  from  the  Bank or a  Substitute  Bank  to  issue a
Substitute  Letter of Credit to take effect on such  Conversion  Date,  together
with a form of such Substitute Letter of Credit;  (ii) a Company  Certificate to
the effect that the  representations  and  warranties of the Company made in the
Agreement and in any other  agreements or  certificates  given by the Company in
connection  with the  issuance  of the  Bonds  remain  true and  correct  in all
material respects as of the proposed  Conversion Date; and (iii) with respect to
the Series A Bonds only, an opinion of nationally recognized bond counsel to the
effect that the proposed  conversion  of the interest rate on the Series A Bonds
will not cause the  interest  on the  Series A Bonds to be  includible  in gross
income of the Holders of such Bonds for federal income tax purposes.  Any notice
given as provided in this Section  shall be  conclusively  presumed to have been
duly given,  whether or not the Owner  receives  the notice.  Said notice  shall
state in substance  the  following:

     1. The  Conversion  Date for such  Series  of Bonds.

     2. That the existing  Letter of Credit  securing such Bonds will expire two
(2) Business Days after such  Conversion  Date.

     3. That unless firm  commitments for the purchase of all Outstanding  Bonds
of a Series have been received on or prior to the fifth (5th) Business Day prior
to the  proposed  Conversion  Date,  the  Company  has the  option to rescind an
optional  conversion of such Bonds.

     4.  That in the  event the  Company  elects  not to  rescind  the  optional
conversion of such Bonds, all such Bonds shall be subject to mandatory  purchase
on such  Conversion  Date  pursuant to this  Section  5.01.

On or prior to such Conversion  Date,  Owners of such Bonds shall be required to
deliver such Bonds to the Tender Agent for purchase at the Purchase  Price,  and
any such Bonds not delivered to the Tender Agent on or prior to such  Conversion
Date ("Undelivered  Bonds"),  for which there has been irrevocably  deposited in
trust  with the  Trustee  or the  Tender  Agent an  amount  of  Available  Money
sufficient to pay the Purchase Price of the Undelivered  Bonds,  shall be deemed
to have been  purchased  pursuant to this  Section  5.01 and are deemed to be no
longer  Outstanding with respect to such prior Owners. IN THE EVENT OF A FAILURE
BY AN OWNER OF SUCH  BONDS TO DELIVER  SUCH BONDS ON OR PRIOR TO THE  CONVERSION
DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT (INCLUDING ANY INTEREST TO
ACCRUE ON OR SUBSEQUENT TO THE OPTIONAL CONVERSION DATE) OTHER THAN THE PURCHASE
PRICE FOR SUCH UNDELIVERED BONDS, AND ANY SUCH UNDELIVERED BONDS SHALL NO LONGER
BE ENTITLED TO THE BENEFITS OF THIS INDENTURE, EXCEPT FOR THE PURPOSE OF PAYMENT
OF THE PURCHASE PRICE THEREFOR.

                                       30
<PAGE>

          Notwithstanding  the foregoing  provisions,  to the extent that at the
close of the fifth  Business  Day prior to the  proposed  Conversion  Date,  the
Remarketing  Agent has not  presented  to the Company firm  commitments  for the
purchase  of all of such  Bonds,  the  Company,  at its  option,  may rescind an
optional conversion and the mandatory tender of such Bonds. Any such election to
rescind  must be made by the  close  of the  fourth  Business  Day  prior to the
proposed  Conversion  Date,  and the Company  shall give  written  notice to the
Trustee,  the Tender Agent and the Bank of its decision to rescind by such time.
The  Company  shall  cause the  Trustee  to notify the  affected  Owners of such
rescission  immediately,  and  thereafter  such Bonds shall bear interest at the
Floating Rate in effect for the current Weekly Period and thereafter  such Bonds
shall bear interest at the Floating Rate until any  subsequent  Conversion  Date
effected in accordance with this Indenture.

          The Bonds of a Series are  subject to  mandatory  purchase in whole on
the Conversion  Date, at a purchase price equal to 100% of the principal  amount
thereof being purchased,  plus accrued interest to the purchase date;  provided,
however,  that (i) all Pledged  Bonds for which a commitment to purchase has not
been  received in  connection  with a conversion  of such Bonds to a Fixed Rate,
shall be redeemed or otherwise  paid by the Company on or before the  Conversion
Date;  and (ii) no such  mandatory  purchase  shall  take place in the event the
Company  exercises  its right to rescind  the  conversion.

          Notwithstanding  any provision of this Indenture to the contrary,  the
exercise by the  Company of a  Conversion  Option with  respect to one Series of
Bonds shall not  require or be  conditioned  on the  exercise at any time by the
Company of a Conversion  Option with respect to any other Series of Bonds issued
under this Indenture.

     Section 5.02. Delivery of Bonds After Conversion Date. At any time prior to
the  Record  Date  preceding  the first  Interest  Payment  Date  following  the
Conversion  Date for a Series of Bonds,  the Trustee or the Tender Agent, as the
case may be,  shall  deliver  Bonds in the form of  Exhibits B and D hereto,  as
appropriate.  Prior to the delivery by the Trustee of such Bonds, there shall be
delivered  to the  Trustee  sufficient  Bonds to make the  required  delivery to
Owners  and also  filed  with the  Trustee a request  and  authorization  to the
Trustee  on behalf  of the  Authority  and  signed  by the  Executive  Director,
Director of Finance Programs or General Counsel or any authorized officer of the
Authority to authenticate  and deliver such Bonds, as executed by the Authority,
to the  purchasers  thereof.  Such delivery  shall be made by the Trustee or the
Tender  Agent,  as the case may be, at the  expense of the  Company  and without
making any charge therefor to the Owner of such Bonds.

     Section  5.03.  Mandatory  Tender upon  Substitution  of Letters of Credit.
Prior to the Conversion Date for a Series of Bonds, the Bonds of such Series are
subject to mandatory  purchase in whole on the Substitution  Date, at a purchase
price  equal to 100% of the  principal  amount  thereof  being  purchased,  plus
accrued  interest to the purchase  date.  The Trustee  shall  deliver or mail by
first  class mail a notice at least  twenty  (20) days but not more than  thirty
(30)  days  prior to the  Substitution  Date to the  Owner of each  Bond of such
Series at the  address  shown on the  registration  books of the Bond  Registrar
notifying such Owner that its Bonds are subject to mandatory  purchase.  No such

                                       31
<PAGE>

notice may be given unless the Company shall have  satisfied  the  provisions of
Section 4.07 of the Agreement. Any notice given as provided in this Section 5.03
shall be  conclusively  presumed  to have been  given,  whether or not the Owner
receives the notice. Said notice shall state in substance the following:

          1. The  Substitution  Date for  such  Series  of  Bonds.

          2. That the existing  Letter of Credit securing such Bonds will expire
two (2)  Business  Days  after the  Substitution  Date.

          3. That if the Company satisfies the conditions  precedent to delivery
of the Substitute Letter of Credit, all Bonds of such Series shall be subject to
mandatory purchase on the Substitution Date pursuant to this Section 5.03.

On or prior to the Substitution  Date, Owners of such Bonds shall be required to
deliver their Bonds to the Tender Agent for purchase at the Purchase Price,  and
any such Bonds not delivered to the Tender Agent on or prior to the Substitution
Date ("Undelivered  Bonds"),  for which there has been irrevocably  deposited in
trust  with the  Trustee  or the  Tender  Agent an  amount  of  Available  Money
sufficient to pay the Purchase Price of the Undelivered  Bonds,  shall be deemed
to have been purchased  pursuant to this Section 5.03 and deemed to be no longer
Outstanding  with respect to such prior Owners.  IN THE EVENT OF A FAILURE BY AN
OWNER OF SUCH BONDS TO DELIVER SUCH BONDS ON OR PRIOR TO THE SUBSTITUTION  DATE,
SAID OWNER  SHALL NOT BE  ENTITLED TO ANY  PAYMENT  (INCLUDING  ANY  INTEREST TO
ACCRUE ON OR SUBSEQUENT TO THE SUBSTITUTION  DATE) OTHER THAN THE PURCHASE PRICE
FOR SUCH UNDELIVERED  BONDS,  AND ANY SUCH UNDELIVERED  BONDS SHALL NO LONGER BE
ENTITLED TO THE BENEFITS OF THIS INDENTURE,  EXCEPT FOR THE PURPOSE OF PAYMENT O
THE PURCHASE PRICE THEREFOR.

          Notwithstanding  the foregoing  provisions,  to the extent that at the
close of the fifth  Business Day prior to the proposed  Substitution  Date,  the
Company has not  delivered  to the  Authority,  the Trustee and the  Remarketing
Agent the items set forth in Section 4.07(i) through (iv) of the Agreement,  the
mandatory purchase of such Bonds shall be rescinded and the Trustee shall notify
the Owners of such Bonds of such  rescission  immediately  and  thereafter  such
Bonds  shall  continue  to be  secured  by the  existing  Letters  of  Credit in
accordance  with its terms until their  respective  termination  dates.

     Section 5.04.  Demand Purchase  Option.  Prior to the Conversion Date for a
Series of Bonds,  any Bond of such Series  shall be  purchased  at the  Purchase
Price from the Owner thereof upon:

          (i)  delivery  by such Owner to the  Trustee  and the Tender  Agent at
their Principal Office and Delivery Office, respectively, and to the Remarketing
Agent at its office set forth in Section 12.08 hereof,  of a notice (the "Demand
Purchase  Notice")  (said notice to be  irrevocable  and effective upon receipt)
which states (1) the aggregate principal amount and bond numbers of the Bonds of
such  Series to be  purchased;  and (2) the date on which  such  Bonds are to be
purchased, which date shall be a Business Day not prior to the seventh (7th) day

                                       32
<PAGE>

next  succeeding  the date of  delivery  of such  notice and which date shall be
prior to the Conversion Date for such Series of Bonds;  and

          (ii)  delivery to the Tender Agent at its Delivery  Office at or prior
to 10:00 A.M.,  New York City time, on the date  designated  for purchase in the
applicable  Demand  Purchase  Notice,  of such  Bonds to be  purchased,  with an
appropriate  endorsement for transfer or accompanied by a bond power endorsed in
blank.

Any Bonds, as to which a Demand  Purchase Notice has been delivered  pursuant to
paragraph (i) above,  must be delivered to the Tender Agent, as provided in (ii)
above,  and any such Bonds not so  delivered  ("Undelivered  Bonds"),  for which
there has been  irrevocably  deposited  in trust with the  Trustee or the Tender
Agent an amount of Available Money sufficient to pay the Purchase Price thereof,
shall be deemed to have been  purchased at the Purchase  Price  pursuant to this
Section  5.04 and shall be deemed to be no longer  Outstanding  with  respect to
such  tendering  Owner.  IN THE EVENT OF A FAILURE  BY AN OWNER OF SUCH BONDS TO
DELIVER SUCH BONDS AS SPECIFIED  ABOVE,  SAID OWNER SHALL NOT BE ENTITLED TO ANY
PAYMENT  (INCLUDING  ANY  INTEREST  TO  ACCRUE  ON OR  SUBSEQUENT  TO  THE  DATE
DESIGNATED FOR PURCHASE IN THE APPLICABLE DEMAND PURCHASE NOTICE) OTHER THAN THE
PURCHASE PRICE FOR SUCH UNDELIVERED  BONDS,  AND ANY UNDELIVERED  BONDS SHALL NO
LONGER BE ENTITLED TO THE BENEFITS OF THE  INDENTURE,  EXCEPT FOR THE PAYMENT OF
THE PURCHASE PRICE THEREFOR.

          Notwithstanding the foregoing provisions,  in the event any Bond as to
which the Owner thereof has exercised the Demand  Purchase  Option is remarketed
to such Owner pursuant to the Remarketing Agreement, such Owner need not deliver
such Bond to the Tender  Agent as  provided in (ii)  above,  although  such Bond
shall be deemed to have been delivered to the Tender Agent,  redelivered to such
Owner,  and  remarketed  for  purposes  of this  Indenture,  including,  without
limitation,  for purposes of adjusting the Floating Rate as provided in Sections
2.02(C) and 2.02(D) hereof.

     Section 5.05.  Funds for Purchase of Bonds.

          (a) On the date Bonds are to be  purchased  pursuant to Section  5.01,
Section  5.03 or Section  5.04  hereof,  such Bonds  shall be  purchased  at the
Purchase  Price only from the funds listed below.  Subject to the  provisions of
Section  6.12(c),  funds for the payment of the Purchase  Price shall be derived
from the following sources in the order of priority indicated:

          (i) moneys  drawn by the  Trustee  under the Letter of Credit for such
     Bonds (in the event of a drawing on the Letter of Credit to fund payment of
     the Purchase Price of Bonds tendered  pursuant to Section 5.03 hereof,  the
     Trustee shall draw on the existing  Letter of Credit for such Bonds and not
     the Substitute Letter of Credit to fund such payment);

          (ii) proceeds of the remarketing of Bonds; and

                                       33
<PAGE>

          (iii) any other  Available  Moneys  furnished  to the  Trustee  or the
     Tender  Agent  and  available  for such  purpose.

          (b) Payment for Bonds  purchased  pursuant to Sections  5.01,  5.03 or
5.04  shall be made as  follows:

               (i) On the date on which  such  Bonds  are to be  purchased  (the
          "Purchase  Date"),  the Trustee  shall make a drawing  pursuant to the
          Letter of Credit for such Bonds in  respect of the  Purchase  Price of
          such Bonds.  In  connection  therewith,  the Trustee shall prepare and
          present to the Bank the appropriate  certificates required such Letter
          of  Credit by 12:00  noon,  New York  City  time on the  Business  Day
          immediately  preceding the Purchase Date.

               (ii) By not later than  10:00  a.m.,  New York City time,  on the
          Purchase Date, the  Remarketing  Agent shall give  telephonic  notice,
          promptly confirmed in writing, to the Bank, the Trustee and the Tender
          Agent,  specifying:

                    (1) The total principal amount of Bonds, if any,  remarketed
               by it.

                    (2) The names of the  persons  to whom such  Bonds were sold
               and are to be registered,  each such person's  address and social
               security   number  or   taxpayer   identification   number,   the
               denominations in which replacement Bonds are to be prepared,  and
               any other appropriate registration and transfer instructions.

               (iii) There is hereby established with the Tender Agent a special
          fund to be  designated  the  "Bond  Purchase  Fund"  and  therein  two
          separate  and   segregated   accounts  to  be  designated   the  "Bond
          Remarketing  Account" and the "Bond Bank  Account." An amount equal to
          the  proceeds  received  by the  Trustee  pursuant to a draw under the
          Letters of Credit shall be  transferred  by the Trustee in immediately
          available  funds to the  Tender  Agent  for  deposit  in the Bond Bank
          Account no later than 12:30 p.m., New York City time on the applicable
          Purchase  Date.

               (iv) No later  than  1:00  p.m.,  New  York  City  time,  on each
          Purchase Date, the Tender Agent shall give telephonic notice (promptly
          confirmed  by  telecopy)  to  the  Remarketing  Agent  of  the  amount
          deposited  in the Bond Bank  Account on such date.  No later than 2:00
          p.m., New York City time, on each Purchase Date the Remarketing  Agent
          shall (x) transfer to the Bank the proceeds of the  remarketing of the
          Bonds but not more than an amount equal to the amount deposited in the
          Bond Bank Account on such Purchase Date; (y) transfer the remainder of
          the proceeds of the  remarketing  of the Bonds to the Tender Agent for
          deposit in the Bond  Remarketing  Account  and shall  give  telephonic
          notice  (promptly  confirmed  by  telecopy) to the Tender Agent of the
          amount  of  such  proceeds  transferred  to the  Bank;  and  (z)  give
          telephonic notice,  promptly  confirmed in writing,  to the Company of
          the total  principal  amount of  Unremarketed  Bonds,  if any.

               (v)  The  Tender  Agent  shall  pay  the  Purchase  Price  to the
          tendering  Bondholders  from the  amounts  on deposit in the Bond Bank
          Account  to the  extent  available.  If amounts on deposit in the Bond
          Bank  Account  are  insufficient  to pay  the  Purchase  Price  to the

                                       34
<PAGE>

          tendering  Bondholders,  the  Tender  Agent  shall  make  up any  such
          deficiency  from amounts on deposit in the Bond  Remarketing  Account.

               (vi) The  Bank shall give  telephonic  confirmation to the Tender
          Agent  and the  Trustee  by  4:00  p.m.,  New  York  City  time on the
          applicable  Purchase Date of its receipt of the  remarketing  proceeds
          described in Section 5.05(b)(iv) hereof.

     Section 5.06.  Delivery of Purchased  Bonds.

          (a)  Remarketed  Bonds shall be delivered by the Tender Agent,  at its
Delivery  Office,  to  or  upon  the  Order  of  the  purchasers  thereof.

          (b) Unremarketed  Bonds purchased with funds drawn under the Letter of
Credit for such Bonds  shall be  delivered  by the Tender  Agent to the  Pledged
Bonds  Custodian or otherwise  upon the order of the Bank pursuant to the Pledge
Agreement.

          (c)  Unremarketed  Bonds  purchased  with moneys  described in Section
5.05(a)(iii)  hereof shall, at the direction of the Company, be (i) delivered as
instructed  by the Company or (ii)  delivered  to the Trustee for  cancellation;
provided,  however,  that any Bonds so purchased after the selection  thereof by
the Trustee for redemption  shall be delivered to the Trustee for  cancellation.

          Bonds delivered as provided in this Section shall be registered in the
manner directed by the recipient thereof.

     Section  5.07.  Sale of Bonds by  Remarketing  Agent.

          (a) On each Purchase Date, the Remarketing  Agent shall offer for sale
and use its best efforts to sell, as agent of the Company, all Bonds tendered or
deemed tendered for purchase on such Purchase Date at the Purchase Price thereof
and,  if such  Bonds are not sold on such  date,  the  Remarketing  Agent  shall
continue, for a period not in excess of thirty (30) days thereafter,  to use its
best efforts to sell such Bonds.

          (b)   Notwithstanding   anything  to  the  contrary  herein,  (i)  the
Remarketing  Agent shall use its best efforts to remarket any Bonds  tendered or
deemed  tendered for purchase in such a manner that,  immediately  following the
remarketing of any Bonds,  at least one (1) Holder will own at least $200,000 in
aggregate  principal  amount of Bonds and (ii) the  Remarketing  Agent shall not
remarket  any Bonds to the  Authority,  the Company or any  affiliates  thereof.

     Section 5.08.  Delivery of Proceeds of Sale of Purchased  Bonds.

          (a) Except in the case of the sale of any Pledged Bonds,  the proceeds
of the sale of any Bonds  delivered  or deemed  delivered  to the  Tender  Agent
pursuant to Sections  5.01,  5.03 or 5.04 hereof,  to the extent not required to
pay the Purchase  Price to tendering  Bondholders  and not required to reimburse
the Bank under the Reimbursement  Agreement,  shall be paid to or upon the order
of the Company.

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<PAGE>

          (b) In the event the  Remarketing  Agent  shall  have  remarketed  any
Pledged Bonds and the Company or the  Remarketing  Agent shall have directed the
Bank to cause the Pledged  Bonds  Custodian to deliver such Pledged Bonds to the
Tender Agent pursuant to the Pledge Agreement,  such Bonds shall be delivered to
the Tender  Agent and the  proceeds of sale of such Bonds shall be  delivered to
the Principal  Office of the Tender Agent and shall be paid to or upon the order
of the Bank;  provided that any amounts so paid in excess of amounts then due to
the Bank in respect of drawings  under the Letter of Credit for such Bonds shall
be delivered by the Bank to or upon the order of the Company;  provided  further
that  Pledged  Bonds shall not be delivered to the Tender Agent until the Letter
of Credit for such Bonds has been reinstated in accordance with the terms of the
Pledge Agreement and such Letter of Credit.

     Section  5.09.  Duties of Trustee and Tender Agent with Respect to Purchase
of Bonds.

          (a) The Tender Agent shall hold all Bonds  delivered to it pursuant to
Sections  5.01,  5.03 or 5.04 hereof in trust for the benefit of the  respective
Owners  of  Bonds  which  shall  have  so  delivered  such  Bonds  until  moneys
representing  the Purchase  Price of such Bonds shall have been  delivered to or
for the  account of or to the order of such  Owners of Bonds.  Upon  delivery of
monies representing the Purchase Price of such Bonds to or for the account of or
to the  order of such  Owners of Bonds,  the  Tender  Agent  shall  deliver  all
Unremarketed  Bonds,  the funds for which have been  obtained by a drawing under
the Letter of Credit for such Bonds, to the Pledged Bonds Custodian  pursuant to
Section  5.06(b)  hereof for the  purpose  of  perfecting  the  Bank's  security
interest  therein  under the Pledge  Agreement  unless the Bank shall direct the
Tender  Agent  to  deliver  such  Bonds  to or upon  the  order  of the  Bank in
accordance with Section 5.06 hereof.

          (b) The Trustee and the Tender  Agent shall hold all moneys  delivered
to them  pursuant  to this  Indenture  for the  purchase  of Bonds  in  separate
accounts,  in trust for the  benefit  of the Bank or, in the case of  remarketed
Bonds, the purchasers of such Bonds,  until the Bonds purchased with such moneys
shall have been delivered to or for the account of the Pledged Bonds  Custodian,
the Bank or to such other  purchaser,  as  appropriate.

          (c) The  Trustee  shall  deliver to the Company and the Bank a copy of
each notice  delivered  to it in  accordance  with  Section  5.04 within two (2)
Business  Days of the receipt  thereof.

          (d) As soon as  possible,  but not later than the close of business on
any date  designated for purchase of Bonds in accordance  with Section 5.04, the
Tender Agent shall give  telephonic  or  telegraphic  notice to the  Remarketing
Agent and the Trustee  specifying  the  principal  amount of Bonds  delivered or
deemed  delivered  for purchase on such date.

          (e) The Trustee  shall draw  moneys  under the  appropriate  Letter of
Credit in accordance  with the terms thereof to the extent  required by Sections
5.05 and 6.12  hereof to provide  for timely  payment of the  Purchase  Price of
Bonds.

     Section  5.10. No Purchases or Sales After  Certain  Defaults.  Anything in
this Indenture to the contrary  notwithstanding,  there shall be no purchases or
sales of Bonds  pursuant to Section 5.04 if there shall have  occurred any Event

                                       36
<PAGE>

of Default in respect of which the principal of all Bonds Outstanding shall have
been  declared  immediately  due and payable  pursuant to Section  8.02 and such
declaration  shall not have been  annulled.  If the  Trustee  shall have given a
notice of a call for redemption  pursuant to Section 4.03 hereof and such notice
shall not have been rescinded,  the Remarketing  Agent shall provide a notice of
such redemption to any prospective  purchaser of such Bonds upon the remarketing
of any Bonds tendered  pursuant to Section 5.04 hereof.  Nothing in this Section
is intended to limit secondary trading or transfer of the Bonds.

                                  ARTICLE VI.

                               REVENUES AND FUNDS

     Section  6.01.  Creation  of the Bond  Fund.  There is hereby  created  and
established  with the  Trustee a trust fund to be  designated  "Bond Fund" which
shall be used to pay when due the principal and Purchase Price of,  premium,  if
any, and interest on the Bonds.

     Section 6.02.  Payments into the Bond Fund.  There shall be deposited  into
the  Bond  Fund  from  time  to  time  the  following:

          (a) any amount in the  Construction  Fund directed to be paid into the
Bond Fund in  accordance  with the  provisions  of Section 6.07 hereof;

          (b) any amount  deposited  into the Bond Fund pursuant to Section 6.04
hereof;

          (c) all payments  specified in Sections 3.03 and 3.04 of the Agreement
(other than amounts paid for the Trustee's or the Authority's own account);

          (d) any moneys received pursuant to the Collateral Documents;

          (e) any moneys drawn under the Letters of Credit which moneys shall be
deposited  or credited  (in the case of a draw to pay the  Purchase  Price) in a
separate  subaccount of the Bond Fund and shall not be commingled with any other
moneys held by the Trustee;

          (f)  amounts,  if any,  held by the Trustee  pursuant to Section  5.09
hereof; and

          (g) all other moneys received by the Trustee under and pursuant to any
of the  provisions  of the  Agreement  which  are  required  to be or which  are
accompanied  by  directions  that such moneys are to be paid into the Bond Fund.

     Section  6.03.  Use of  Moneys in the Bond  Fund.  Except  as  provided  in
Sections  5.05,  5.09 and 6.11  hereof,  moneys in the Bond  Fund  shall be used
solely for the payment of the principal of, premium, if any, and interest on the
Bonds,  for the redemption of the Bonds prior to maturity and for payment of the
Acceleration Price as defined in Section 8.02 hereof.  Subject to the provisions
of  Section  6.12(c)  hereof,  funds for the  payment  of  redemption  price and
principal  of and  premium,  if any,  and interest on the Bonds shall be derived
from the following sources in the order of priority indicated:

          (i) moneys  drawn by the  Trustee  under the  Letters of Credit;

                                       37
<PAGE>

          (ii) amounts  deposited into the Bond Fund which constitute  Available
     Moneys  (other  than  moneys  drawn by the  Trustee  under the  Letters  of
     Credit);  and

          (iii) any other moneys furnished to the Trustee and available for such
     purpose.

     Section 6.04. Custody of Separate Trust Fund. The Trustee is authorized and
directed to hold all Net Proceeds  from any insurance  proceeds or  condemnation
award and disburse such proceeds in accordance with Article VI of the Agreement.
If the  Company  directs  that any  portion of such Net  Proceeds  be applied to
redeem  Bonds,  the  Trustee  shall  deposit  such Net  Proceeds  in a  separate
sub-account of the Bond Fund, and the Authority covenants and agrees to take and
cause to be taken  any  action  requested  of the  Authority  to  redeem  on the
earliest  possible  redemption  date the  amount  of Bonds so  specified  by the
Company.

     Section 6.05.  Construction  Fund.  There is hereby created and established
with the Trustee a trust fund to be designated the "Construction  Fund".

     Section  6.06.  Payments into the  Construction  Fund;  Disbursements.  The
Construction  Fund shall  initially  consist of those monies  deposited  therein
pursuant to Section 3.02.  Moneys on deposit in the  Construction  Fund shall be
applied to pay the costs of the Project.  The Trustee is hereby  authorized  and
directed to make  disbursements from the Construction Fund upon the receipt of a
requisition in the form of Exhibit "E" hereto signed by the Company and approved
by the Bank in the form of  Exhibit  "F"  hereto.  The  Trustee  shall  keep and
maintain   adequate  records   pertaining  to  the  Construction  Fund  and  all
disbursements therefrom,  including records of all Requisitions made pursuant to
the  Agreement,  and the Trustee  shall,  upon request of the  Company,  furnish
statements  concerning the Construction Fund in the form customarily prepared by
the Trustee. The Trustee shall hold all monies and investments from time to time
on deposit in the Construction  Fund for the Owners and for the Bank, the rights
of the Bank being subject and  subordinate  to the rights of the Trustee so long
as any amount due in respect of the Bonds remains  unpaid.

     Section 6.07. Use of Money in the  Construction  Fund Upon Default.  If the
principal  of the Bonds shall have  become due and  payable  pursuant to Article
VIII hereof, any balance remaining in the Construction Fund after payment of the
Bonds  shall  without  further   authorization   (i)  prior  to  the  Obligation
Termination  Date,  if any  amounts  are due and owing  under the  Reimbursement
Agreement, be transferred immediately to the Bank, as long as the Bank is not in
default of its obligations  under the terms of any of the Letters of Credit,  or
(ii) after the Obligation  Termination  Date, be transferred into the Bond Fund.

     Section 6.08. Use of Money in the Construction  Fund Upon Completion of the
Project.  The  completion of the Project and payment or provision for payment of
all Costs of the Project  shall be  evidenced  by the filing with the Trustee of
the  certificate  required  by  Section  2.03  of  the  Agreement.  As  soon  as
practicable  and in any  event not more  than  sixty  (60) days from the date of
receipt by the Trustee of the certificate referred to in the preceding sentence,
any balance remaining in the Construction Fund (except amounts the Company shall
have directed the Trustee to retain for any Cost of the Project not then due and
payable) shall,  without further  authorization  be transferred  into a separate
sub-account within the Bond Fund. Thereafter, such funds shall be transferred by
the Trustee on the next  Interest  Payment Date or Dates to the Letter of Credit

                                       38
<PAGE>

Bank to reimburse  the Letter of Credit Bank for a drawing or drawings  affected
pursuant to Section 6.12(b) hereof.

     Section 6.09.  Nonpresentment  of Bonds. In the event any Bond shall not be
presented  for  payment  when the  principal  thereof  becomes  due,  either  at
maturity,  or at the  date  fixed  for  redemption  thereof,  or  otherwise,  if
Available Moneys  sufficient to pay any such Bond shall have been made available
to the  Trustee  for the  benefit of the Owner  thereof,  all  liability  of the
Authority  to the Owner  thereof  for the  payment of such Bond shall  forthwith
cease,  determine  and be completely  discharged,  and thereupon it shall be the
duty of the  Trustee  to hold  such  funds  uninvested,  without  liability  for
interest thereon, for the benefit of the Owner of such Bond who shall thereafter
be restricted  exclusively to such funds for any claim of whatever nature on his
part under this  Indenture  with  respect to such Bond.

          Any moneys so deposited with and held by the Trustee not so applied to
the  payment  of Bonds  within  five (5) years  after the date on which the same
shall have become due shall be repaid by the Trustee to the Company upon written
direction of an Authorized  Representative of the Company, and thereafter Owners
of Bonds shall be entitled  to look only to the  Company for  payment,  and then
only to the extent of the amount so repaid,  and all  liability  of the  Trustee
with respect to such money shall thereupon  cease,  and the Company shall not be
liable for any  interest  thereon and shall not be regarded as a trustee of such
money.

     Section  6.10.  Moneys  to be Held in  Trust.  All  moneys  required  to be
deposited  with or paid to the  Trustee  for the  account of any fund or account
referred to in any provision of this Indenture or the Agreement shall be held by
the Trustee or its agent in trust,  and (except for the moneys from time to time
required to be deposited and maintained in the Rebate Fund) shall, while held by
the Trustee,  constitute part of the Trust Estate and be subject to the lien and
security  interest created hereby.

     Section  6.11.  Repayment to the Bank and the Company from the Bond Fund or
the Construction  Fund. Any amounts remaining in the Bond Fund, the Rebate Fund,
the  Construction  Fund, or any other fund or account  created  hereunder  after
payment in full of the principal of, premium, if any, and interest on the Bonds,
the fees,  charges and expenses of the Trustee and all other amounts required to
be paid  hereunder,  including  payment to the  United  States of America of the
final installment of the Rebate Amount, if any, pursuant to Section 6.13 hereof,
shall be paid as soon as  possible  to the Bank  unless  the Bank  notifies  the
Trustee to the  contrary in writing,  in which case such  amounts  shall be paid
directly to the Company.

     Section 6.12. Letters of Credit

          (a)  During  the term of a Letter of Credit,  the  Trustee  shall draw
moneys under such Letter of Credit in  accordance  with the terms thereof (i) in
an amount sufficient to pay when due (whether by reason of maturity, redemption,
conversion,  acceleration  or otherwise)  the principal of, and interest and, to
the extent the Letter of Credit  covers same,  any premium on the Bonds to which
such Letter of Credit relates,  and (ii) in an amount sufficient to pay when due
the Purchase  Price of such Bonds.  Within two (2) Business  Days after the last
Determination  Date of each month,  the Trustee shall give written notice (which
notice may be  transmitted  via facsimile) to the Company of the amount that the
Trustee will draw under each Letter of Credit on the next Interest Payment Date.

                                       39
<PAGE>

          (b)  Notwithstanding  any  provision  to  the  contrary  which  may be
contained in this Indenture, including, without limitation, Section 6.12(a), (i)
in  computing  the amount to be drawn under a Letter of Credit on account of the
payment of the  principal or Purchase  Price of,  interest or, to the extent the
Letter of Credit  covers same,  any  premium,  on the Bonds,  the Trustee  shall
exclude  any such  amounts in  respect  of any Bonds  which it is advised by the
Tender  Agent are Pledged  Bonds prior to the date such payment is due, and (ii)
amounts  drawn by the Trustee  under a Letter of Credit  shall not be applied to
the payment of the Purchase  Price of any Bonds which are Pledged Bonds prior to
the date such  payment is due.

          (c) Each Letter of Credit shall terminate in accordance with its terms
on the Letter of Credit  Termination Date therefor.  Upon such termination,  the
Trustee shall deliver the terminated Letter of Credit to the Bank, together with
such  certificates  as may be  required  by the terms of such  Letter of Credit.

     Section 6.13.  Rebate Fund.

          (a) The Trustee shall  establish and maintain a fund separate from any
other fund established and maintained  hereunder  designated as the Rebate Fund.
The Rebate  Fund shall be held for the  benefit of the United  States of America
and not for the  benefit of the  Holders of the  Series A Bonds,  which  Holders
shall have no rights in or to such fund.

          (b) Subject to subsection (c) of this Section 6.13, as of the last day
of each fifth Bond Year (each, a "Rebate  Computation  Date"), the Company shall
calculate, or cause to be calculated,  the amount relating to the Series A Bonds
required  to be paid to the  United  States of  America  (the  "Rebate  Amount")
pursuant to Section 148 of the Code.  On or before the  sixtieth  day after such
date,  the  Trustee at the written  direction  of, and upon the receipt of funds
from, the Company shall deposit in the Rebate Fund the amount, if any, needed to
increase the amount in such Fund to an amount equal to ninety  percent  (90%) of
the Rebate  Amount for the period  from the date of issuance of the Bonds to the
Rebate  Computation Date at issue, or shall transfer from the Rebate Fund to the
Bond Fund the amount,  if any, needed to reduce the amount in the Rebate Fund to
90% of the amount of the Rebate  Amount for such period.

          Subject to subsection  (c) of this Section 6.13, as of the last day on
which the last  Series A Bond  remaining  outstanding  is  retired  (the  "Final
Computation Date"), the Company, on behalf of the Authority, shall calculate, or
cause to be calculated,  the amount  required to be paid to the United States of
America pursuant to Section 148 of the Code. On or before the sixtieth day after
such date,  the Trustee,  at the written  direction  of, and upon the receipt of
funds from,  the Company,  shall deposit in the Rebate Fund the amount,  if any,
needed to  increase  the  amount in such Fund to an amount  equal to the  Rebate
Amount for the  period  from the date of  issuance  of the Series A Bonds to the
Final  Computation Date, or shall transfer from the Rebate Fund to the Bond Fund
the amount, if any, needed to reduce the amount in the Rebate Fund to the amount
of the Rebate Amount for such period.

                                       40
<PAGE>

          After making any transfer  required for a Rebate  Computation Date and
the Final  Computation  Date, the Trustee shall  immediately  pay or cause to be
paid to the United States of America, as directed in writing by the Company, the
amount in the Rebate  Fund.  The amounts in the Rebate Fund shall not be subject
to the claim of any party,  including any  Bondholder,  and shall not be paid to
any party other than the United States.

          All  amounts in the Rebate  Fund  shall be used and  withdrawn  by the
Trustee  solely for the  purposes  set forth in this  Section.  In the event the
amount in the Rebate  Fund is for any reason  insufficient  to pay to the United
States of America the amounts due as calculated in this Section, the Company, or
the  Trustee at the  direction  of,  and upon the  receipt  of funds  from,  the
Company,  shall deposit in the Rebate Fund the amount for such  deficiency.

          (c)  Notwithstanding  the other  provisions of this Section 6.13,  the
Company  hereby  agrees and covenants to calculate the amount to be deposited in
the Rebate  Fund and the  amount to be  rebated to the United  States of America
pursuant to Section 148(f) of the Code in any manner not  inconsistent  with its
arbitrage  covenants set forth in the Tax  Certificate  delivered on the date of
issuance of the Series A Bonds.  Such calculation  shall be made with due regard
to all regulations under such Section 148(f) that are applicable to the Series A
Bonds, including any temporary regulations heretofore or hereafter released.

          (d) The  Authority and the Company agree that the Trustee shall not be
liable for any damages,  costs or liabilities  resulting from the performance of
the Trustee's  duties and obligations  under this Section 6.13,  except that the
Trustee  shall be liable for its gross  negligence  or willful  misconduct.  The
Company  shall  indemnify  and hold  harmless  the  Trustee  and its  directors,
officers,  employees  and  agents  (collectively,  the  "Indemnitees")  from and
against any liabilities, claims, losses, damages, fines, penalties and expenses,
including out-of-pocket expenses and legal fees and expenses (collectively,  the
"Losses")  which the Trustee may incur in the  exercise and  performance  of its
duties and  obligations  under this Section 6.13,  excepting only those damages,
costs,  expenses or  liabilities  caused by the  Trustee's  gross  negligence or
willful  misconduct.  In  addition  to and not in  limitation  of the  preceding
sentence,  the Company shall indemnify and hold the Indemnitees and each of them
harmless  from and against  all Losses  that may be imposed  on,  incurred by or
asserted against the Indemnitees or any of them for following any instruction or
direction given pursuant to this Section 6.13. In making any deposit or transfer
to or payment from the Rebate Fund, the Trustee shall be entitled to rely solely
on the  written  instructions  of the  Company and shall have no duty to examine
such written instruments to determine the accuracy of the Company's  calculation
of the Rebate  Amount or the  amounts to be paid to the  United  States.  In the
event that the Company or the Authority  shall not comply with their  respective
obligations  under this Section  6.13,  the Trustee  shall have no obligation to
cause compliance on its behalf.

     Section 6.14. Investment of Moneys in Funds. All moneys in any of the funds
established  pursuant to this Indenture (except moneys obtained from a draw on a
Letter of Credit,  which moneys shall be held  uninvested)  shall be invested by
the  Trustee,  as  directed  in writing  by the  Company,  solely in  Investment
Securities  except with respect to Available  Moneys held by the Trustee for the
payment of  Undelivered  Bonds,  which  Available  Moneys the Trustee  shall not
invest. Investment Securities may be purchased at such prices as the Trustee may
in its discretion determine or as may be directed by the Company. All investment

                                       41
<PAGE>

directions  of the  Company  shall be  subject to the  limitations  set forth in
Section 7.09 hereof, and all Investment  Securities shall be acquired subject to
the limitations as to maturities  hereinafter in this Section set forth and such
additional  limitations or requirements  consistent with the foregoing as may be
established  by  Request  of the  Company.

          To the extent the Bank has not been reimbursed under the Reimbursement
Agreement and has notified the Trustee of same in writing, all interest, profits
and other income received from the investment of moneys in any fund  established
pursuant  to this  Indenture  shall be  transferred  to the  Bank in the  amount
specified in writing by the Bank. Otherwise,  such amounts shall be deposited to
the  appropriate   fund  or  account  in  which  such   investments  were  made.
Notwithstanding  anything to the contrary contained in this paragraph, an amount
of interest received with respect to any Investment Security equal to the amount
of accrued interest,  or premium,  if any, paid as part of the purchase price of
such  Investment  Security shall be credited to the fund from which such accrued
interest was paid.

          Investment  Securities acquired as an investment of moneys in any fund
established under this Indenture shall be credited to such fund. For the purpose
of determining  the amount in any fund, all  Investment  Securities  credited to
such fund shall be valued at the lesser of cost or par value plus,  prior to the
first payment of interest following purchase, the amount of accrued interest, if
any, paid as a part of the purchase  price.

          The Trustee may act as  principal  or agent in the making or disposing
of any investment. The Trustee may sell at the best price obtainable, or present
for  redemption,  any  Investment  Securities so purchased  whenever it shall be
necessary to provide moneys to meet any required payment,  transfer,  withdrawal
or disbursement from the fund to which such Investment Security is credited, and
the Trustee shall not be liable or responsible  for any loss resulting from such
investment or sale.

                                  ARTICLE VII.

                      THE AUTHORITY; PARTICULAR COVENANTS

     Section 7.01. Covenant as to Payment;  Faith and Credit of Commonwealth Not
Pledged.  The Authority  covenants that it will promptly pay or cause to be paid
the principal of, interest,  premium,  if any, and other charges, if any, on the
Bonds at the place,  on the dates and in the manner  provided  herein and in the
Bonds, provided, however, that the Bonds do not now and shall never constitute a
general  obligation of the Authority or a debt or pledge of the faith and credit
or the taxing power of the State or of any political  subdivision,  municipality
or  other  local  agency  thereof  and are not and  will  not be  secured  by an
obligation  or pledge of any moneys  raised by taxation,  and all  covenants and
undertakings by the Authority hereunder and under the Bonds to make payments are
special  obligations of the Authority payable solely from the revenues and funds
pledged hereunder.

     Section  7.02.  Extension  of Payment  of Bonds.  The  Authority  shall not
directly or indirectly  extend or assent to the extension of the maturity of any
of the Bonds or the time of payment of any claims for  interest by the  purchase
or funding of such Bonds or claims for interest or by any other  arrangement and
in case the  maturity  of any of the  Bonds or the time of  payment  of any such

                                       42
<PAGE>

claims for interest  shall be extended,  such Bonds or claims for interest shall
not be  entitled,  in case of any  default  hereunder,  to the  benefits of this
Indenture,  except  subject to the prior payment in full of the principal of all
of the Bonds then Outstanding and of all claims for interest thereon which shall
not have been so extended.  Nothing in this Section shall be deemed to limit the
right  of the  Authority  to  issue  Bonds  for the  purpose  of  refunding  any
Outstanding  Bonds,  and such  issuance  shall not be deemed  to  constitute  an
extension  of  maturity  of  Bonds.

     Section 7.03.  Against  Encumbrances.  The Authority  shall not create,  or
permit the creation of, any pledge,  lien,  charge or other encumbrance upon the
Revenues and other assets pledged or assigned under this Indenture  while any of
the Bonds are  Outstanding,  except the pledge  and  assignment  created by this
Indenture  and will  assist the Trustee in  contesting  any such  pledge,  lien,
charge or other  encumbrance  which may be created.  Subject to this limitation,
the  Authority  expressly  reserves  the right to enter  into one or more  other
indentures for any of its corporate purposes, including other programs under the
Act, and reserves the right to issue other obligations for such purposes.

     Section  7.04.  Power to Issue  Bonds and Make Pledge and  Assignment.  The
Authority represents and covenants that it is duly authorized pursuant to law to
issue the Bonds and to enter  into this  Indenture  and to pledge and assign the
Revenues  and other  assets  pledged  and  assigned,  respectively,  under  this
Indenture in the manner and to the extent provided in this Indenture.  The Bonds
and the  provisions  of this  Indenture  are and will be the  legal,  valid  and
binding limited obligations of the Authority in accordance with their terms, and
the Authority and Trustee  shall at all times,  to the extent  permitted by law,
and at the expense of the Company,  defend, preserve and protect said pledge and
assignment  of Revenues and other  assets and all the rights of the  Bondholders
under this Indenture against all claims and demands of all Persons whomsoever.

Section 7.05. Accounting Records and Financial Statements.

          (a) The Trustee shall at all times keep,  or cause to be kept,  proper
books of record and account as shall be consistent with prudent  corporate trust
industry  practice,  in which complete and accurate entries shall be made of all
transactions relating to the proceeds of Bonds, the Revenues,  the Agreement and
all funds  established  pursuant  to this  Indenture.  Such  books of record and
account shall be available for  inspection by the  Authority,  the Company,  the
Bank and any  bondholder,  or his agent or  representative  duly  authorized  in
writing,  at  reasonable  hours and under  reasonable  circumstances  upon prior
written notice.

          (b) The  Trustee  shall  within 30 days  after  the end of each  month
furnish to the Company a monthly  statement (which need not be audited) covering
receipts,  disbursements,  allocation and  application of Revenues and any other
moneys  (including  proceeds  of  Bonds)  in  any  of  the  funds  and  accounts
established  pursuant to this  Indenture  for such month.

     Section 7.06. Other Covenants.

          (a) The  Trustee  shall  promptly  collect  all  amounts  due from the
Company  pursuant to the Agreement,  shall (subject to the provisions of Article
IX hereof)  perform all duties  imposed upon it pursuant to the  Agreement  and,
subject to the provisions of Article IX hereof,  shall diligently  enforce,  and

                                       43
<PAGE>

take all steps, actions and proceedings reasonably necessary for the enforcement
of all of the rights of the Authority and all of the obligations of the Company.

          (b) The  Authority  shall not amend,  modify or  terminate  any of the
terms of the  Agreement,  or  consent  to any such  amendment,  modification  or
termination,  without the written  consent of the Trustee and the  Company.  The
Trustee  shall  give  such  written  consent  only if (1)  notification  of such
amendment,  modification or termination has been given to the Rating Agency then
rating the Bonds,  (2) the Trustee  receives  the  written  consent of the Bank,
(3)(i) such amendment, modification or termination will not materially adversely
affect the interests of the Bondholders or result in any material  impairment of
the security hereby given for the payment of the Bonds or (ii) the Trustee first
obtains  the  written  consent  of the Bank and the  Holders  of a  majority  in
principal amount of the Bonds then  Outstanding to such amendment,  modification
or  termination  and  provides   notice  of  such  amendment,   modification  or
termination  and of such written  consent to the Holders,  provided that no such
amendment,  modification or termination shall reduce the amount of loan payments
to be made to the  Authority  or the  Trustee  by the  Company  pursuant  to the
Agreement,  or extend the time for making  such  payments,  without  the written
consent  of all of the  Holders  of the  Bonds  then  Outstanding,  and  (4) the
Authority shall have delivered to the Trustee an opinion of Counsel satisfactory
to the  Trustee  that all of the  provisions  and  conditions  set forth in this
Section 7.06(b) have been satisfied.

     Section 7.07.  Waiver of Laws.  The Authority  shall not at any time insist
upon or plead  in any  manner  whatsoever,  or  claim  or take  the  benefit  or
advantage of, any stay or extension provided by law now or at any time hereafter
in force  that  may  affect  the  covenants  and  agreements  contained  in this
Indenture or in the Bonds,  and all benefit or advantage of any such law or laws
is hereby  expressly  waived by the  Authority  to the extent  permitted by law.

     Section 7.08.  Further  Assurances.  The Authority  will make,  execute and
deliver any and all such further  indentures,  instruments and assurances as may
be  reasonably  necessary or proper to carry out the  intention or to facilitate
the  performance  of this  Indenture and for the better  assuring and confirming
unto the  Holders  of the Bonds of the  rights  and  benefits  provided  in this
Indenture.

     Section 7.09. Tax Covenants.  The Authority  covenants to the extent it has
control of any proceeds of the Series A Bonds,  and the Company has  covenanted,
not to take any  action,  or fail to take any  action,  if any  such  action  or
failure to take action would adversely affect the exclusion from gross income of
the  interest on the Series A Bonds under  Section 103 and  Sections 141 through
150, inclusive,  of the Code. The Authority and the Company will not directly or
indirectly  use or permit the use of any  proceeds  of the Series A Bonds or any
other funds of the Authority or the Company,  or take or omit to take any action
that would cause the Series A Bonds to be  "arbitrage  bonds" within the meaning
of  Section  148(a)  of the Code.  To that end,  the  Authority,  to the  extent
applicable,  and the Company will comply with all requirements of Section 148 of
the Code to the extent  applicable  to the Series A Bonds.  In the event that at
any time the  Authority  or the Company is of the opinion  that for  purposes of
this  Section  7.09 it is  necessary  to  restrict  or  limit  the  yield on the
investment of any moneys held by the Trustee under this Indenture, the Agreement
or  otherwise,  or  otherwise to provide for the payment of rebate to the United
States,  the  Authority or the Company shall so instruct the Trustee in writing,

                                       44
<PAGE>

and  the  Trustee  shall  take  such  action  as  shall  be set  forth  in  such
instructions,  including,  without  limitation,  the  establishment  of separate
subaccounts  within the funds established  hereunder for the deposit of proceeds
of the Series A Bonds and the Series A-T Bonds,  respectively.  The covenants of
the Authority and the Company contained in the Agreement are fully  incorporated
herein by reference and are made a part of this  Indenture as if fully set forth
herein.

          Without  limiting the generality of the  foregoing,  the Authority and
the  Company  agree  that  there  shall be paid  from  time to time all  amounts
relating  to the Series A Bonds  required  to be  rebated  to the United  States
pursuant  to Section  148(f) of the Code and any  temporary,  proposed  or final
Treasury  Regulations  as may be  applicable  to the Series A Bonds from time to
time.  This covenant shall survive payment in full or defeasance of the Series A
Bonds.  The  Company  specifically  covenants  to pay or cause to be paid to the
United  States at the times and in the amounts  determined  under  Section  6.13
hereof the Rebate Amounts, as described in the Tax Certificate.

          Notwithstanding  any  provision  of this Section 7.09 and Section 6.13
hereof, if the Company shall provide to the Authority and the Trustee an opinion
of  nationally  recognized  bond counsel to the effect that any action  required
under this Section 7.09 and Section 6.13 hereof is no longer required, or to the
effect that some further  action is required,  to maintain  the  exclusion  from
gross  income of  interest  on the Bonds,  the  Authority,  the  Trustee and the
Company may rely conclusively on such opinion.

     Section  7.10.  Corporate   Organization,   Authorization  and  Power.  The
Authority represents and warrants as follows:

          (i) it is a body corporate and politic and a public instrumentality of
     the State  created  under the Act, with the power under and pursuant to the
     Act to execute and deliver this  Indenture and the Agreement and to perform
     its obligations hereunder, and to issue and sell the Bonds pursuant to this
     Indenture and the Agreement; and

          (ii) it has taken  all  necessary  action  and has  complied  with all
     provisions  of the  Constitution  of the State and the Act required to make
     this Indenture and the Agreement and the Bonds the valid obligations of the
     Authority which they purport to be; and, when executed and delivered by the
     parties  hereto,  this Indenture and the Agreement  will each  constitute a
     valid and binding agreement of the Authority enforceable in accordance with
     its terms,  except as  enforceability  may be subject  to the  exercise  of
     judicial discretion in accordance with general equitable  principles and to
     applicable  bankruptcy,  insolvency,  reorganization,  moratorium and other
     laws for the  relief of  debtors  heretofore  or  hereafter  enacted to the
     extent  that the same  may be  constitutionally  applied;  and

          (iii) when  delivered  to and paid for by the  initial  purchasers  in
     accordance  with the terms of this  Indenture,  the Bonds  will  constitute
     valid  and  binding  special  obligations  of  the  Issuer  enforceable  in
     accordance with their terms, except as enforceability may be subject to the
     exercise  of judicial  discretion  in  accordance  with  general  equitable
     principles  and  to  applicable  bankruptcy,  insolvency,   reorganization,

                                       45
<PAGE>

     moratorium and other laws for the relief of debtors heretofore or hereafter
     enacted to the extent that the same may be  constitutionally  applied,  and
     will be entitled to the benefits of this Indenture and the  Agreement;  and

          (iv)  The  Authority  makes no other  representations  or  warranties,
     either  express  or  implied,  of any  nature or kind,  including,  without
     limitation,  a  representation  or warranty  that  interest on the Series A
     Bonds is or will  continue  to be  exempt  from  federal  or  state  income
     taxation.

     Section  7.11.  Rights and Duties of the  Authority.

          (a) Remedies of the Authority.  Notwithstanding any contrary provision
in this Indenture and the Agreement,  the Authority shall have the right to take
any action not prohibited by law or make any decision not prohibited by law with
respect to proceedings for indemnity  against the liability of the Authority and
its  officers,   directors,   employees   and  agents  and  for   collection  or
reimbursement of moneys due to it under this Indenture and the Agreement for its
own account.  The Authority may enforce its rights under this  Indenture and the
Agreement  which have not been assigned to the Trustee by legal  proceedings for
the  specific  performance  of  any  obligation  contained  herein  or  for  the
enforcement  of any other legal or  equitable  remedy,  and may recover  damages
caused by any breach by the Company of its  obligations  to the Authority  under
the Agreement, including any amounts required to be paid by the Company pursuant
to the Agreement,  court costs,  reasonable  attorney's fees and other costs and
expenses  incurred in enforcing such  obligations.

          (b)  Limitations  on  Actions.  Without  limiting  the  generality  of
Subsection 7.11(c), the Authority shall not be required to monitor the financial
condition  of the  Company  and  shall  not  have  any  responsibility  or other
obligation  with respect to reports,  notices,  certificates  or other documents
filed with it hereunder.

          (c)  Responsibility.  The Authority shall be entitled to the advice of
counsel  (who may be  counsel  for any  party)  and shall not be liable  for any
action  taken or omitted to be taken in good faith in reliance  on such  advice.
The Authority  may rely  conclusively  on any  communication  or other  document
furnished to it under this Indenture or the Agreement and reasonably believed by
it to be genuine.  The Authority shall not be liable for any action (i) taken by
it in good faith and  reasonably  believed by it to be within the  discretion or
powers  conferred  upon  it,  or (ii) in good  faith  omitted  to be taken by it
because reasonably believed to be beyond the discretion or powers conferred upon
it, (iii) taken by it pursuant to any  direction or  instruction  by which it is
governed  under this  Indenture and the Agreement or (iv) omitted to be taken by
it by reason of the lack of direction or  instruction  required for such action,
nor  shall it be  responsible  for the  consequences  of any  error of  judgment
reasonably  made by it. It shall in no event be liable  for the  application  or
misapplication  of funds, or for other acts or defaults by any person except its
own directors,  officers and employees.  When any consent or other action by the
Authority is called for by this Indenture and the  Agreement,  the Authority may
defer  such  action  pending  such  investigation  or inquiry or receipt of such
evidence, if any, as it may require in support thereof. It shall not be required
to take any remedial action (other than the giving of notice) unless  reasonable
indemnity is provided for any expense or  liability to be incurred  thereby.  It
shall be entitled to reimbursement for expenses  reasonably incurred or advances

                                       46
<PAGE>

reasonably  made, with interest at the "base rate" of the Trustee,  as announced
from time to time (or, if none, the nearest equivalent),  in the exercise of its
rights or the  performance of its obligations  hereunder,  to the extent that it
acts without previously obtaining indemnity. No permissive right or power to act
shall be construed as a requirement  to act; and no delay in the exercise of any
such right or power shall affect the subsequent exercise of that right or power.
The  Authority  shall not be required to take notice of any breach or default by
the  Company  under  this  Agreement  except  when given  notice  thereof by the
Trustee. No recourse shall be had by the Company,  the Trustee or any Bondholder
for any  claim  based on this  Indenture  and the  Agreement,  the  Bonds or any
agreement securing the same against any director,  officer, agent or employee of
the Authority alleging personal liability on the part of such person unless such
claim is based upon the willful dishonesty of or intentional violation of law by
such person. No covenant, stipulation,  obligation or agreement of the Authority
contained in this Indenture and the Agreement  shall be deemed to be a covenant,
stipulation, obligation or agreement of any present or future director, officer,
employee or agent of the  Authority in his or her  individual  capacity,  and no
person executing a Bond shall be liable personally  thereon or be subject to any
personal  liability or  accountability  by reason of the issuance  thereof.

          (d) Financial Obligations.  Nothing contained in this Indenture or the
Agreement is intended to impose any  pecuniary  liability on the  Authority  nor
shall it in any way obligate the Authority to pay any debt or meet any financial
obligations  to any person at any time in relation  to the  Project  except from
moneys  received  under the  provisions  of this  Indenture  and the  Agreement;
provided,  however,  that nothing  contained in this Indenture and the Agreement
shall in any way obligate the Authority to pay such debts or meet such financial
obligations from moneys received from the Authority's own account.

                                 ARTICLE VIII.

                 EVENTS OF DEFAULT AND REMEDIES OF BONDHOLDERS

     Section 8.01.  Events of Default.  The following  events shall be Events of
Default:

          (a) default in the due and  punctual  payment of the  principal of any
Bond when and as the same shall become due and  payable,  whether at maturity as
therein expressed, by proceedings for redemption, by acceleration, or otherwise;
or

          (b)  default in the due and  punctual  payment of any  installment  of
interest on any Bond when and as the same shall become due and  payable;  or

          (c) failure to pay the Purchase Price on any Bond tendered pursuant to
Article V when such  payment  is due;  or

          (d) default by the  Authority  in the  observance  of any of the other
covenants,  agreements  or  conditions  on its part in this  Indenture or in the
Bonds,  if such  default  shall have  continued  for a period of sixty (60) days
after written notice thereof,  specifying such default and requiring the same to
be  remedied,  shall have been  given to the  Authority  and the  Company by the
Trustee, or to the Authority,  the Company and the Trustee by the Holders of not

                                       47

<PAGE>

less than twenty-five per cent (25%) in aggregate  principal amount of the Bonds
at the time  Outstanding;  or

          (e) if there occurs an Event of Default as defined in Sections 8.01(a)
through (d) of the  Agreement;  or

          (f) the  Trustee's  receipt of written  notice  from the Bank that the
Bank has declared an Event of Default under the provisions of the  Reimbursement
Agreement and  instructing  the Trustee to declare the  principal  amount of the
Outstanding  Bonds to be  immediately  due and  payable;  or

          (g) if, at any time after a draw under a Letter of Credit, the Trustee
shall  have  received  notice  from  the  Bank  that  the  amount  of such  draw
corresponding to the payment of interest on the Bonds shall not be reinstated in
the amount and in the manner  set forth in such  Letter of Credit.

          Upon actual  knowledge of the  existence of any Event of Default,  the
Trustee  shall  as soon  as  practicable  notify  the  Bank,  the  Company,  the
Authority,  the Tender Agent and the Remarketing  Agent.  Anything  contained in
this  Indenture to the contrary  notwithstanding,  (i) no Event of Default under
subsections  (d) or (e) above shall occur without the prior  written  consent of
the Bank so long as the Bank is not in  default  under  the  terms of any of the
Letters  of Credit and (ii) the  Trustee  shall not  notify  Bondholders  of the
existence of any Event of Default  without the prior written consent of the Bank
(except upon the occurrence of an Event of Default under Section  8.01(f) or (g)
hereof),  as long as the Bank is not in  default  under  the terms of any of the
Letters of Credit.  The Trustee shall not be deemed to have actual  knowledge of
the existence of an Event of Default under Section  8.01(d) or (e) unless it has
received  written  notice  thereof from the Bank, the Authority or the Owners of
25%  in  principal   amoun  of  the  Bonds  then   Outstanding.

     Section  8.02.  Acceleration.  If any Event of Default  under  Section 8.01
hereof  occurs,  the Trustee (with the written  consent of the Bank provided the
Bank is not in default of its obligations  under the terms of any of the Letters
of Credit) may, and upon request of the Owners of 25% in principal amount of the
Bonds then Outstanding  shall, by written notice to the Holders,  the Authority,
the Bank and the  Company,  declare  the  principal  amount  of all  Bonds  then
Outstanding  and the interest  accrued  thereon to such date (the  "Acceleration
Date") to be immediately due and the Acceleration  Price (as hereafter  defined)
shall  thereupon  become  payable on the first (1st)  Business Day following the
Acceleration  Date (the "Payment  Date").  Thereupon,  the Trustee,  among other
things,  shall draw  immediately upon each of the Letters of Credit as set forth
in Section 6.12 hereof.  Interest on the accelerated Bonds shall cease to accrue
on the Acceleration Date. Accelerated Bonds shall be payable at a price equal to
100% of the aggregate  principal  amount  thereof plus  interest  accrued to the
Acceleration Date (the "Acceleration Price"). Notwithstanding anything contained
herein to the contrary,  upon the occurrence of an Event of Default described in
Section 8.01(f) or (g), the Trustee shall by written notice to the Holders,  the
Bank,  the Company and the  Authority  declare  immediately  due and payable the
principal  amount of, and interest  accrued on, the Outstanding  Bonds.

                                       48
<PAGE>

          Any such  declaration is subject to the condition that if, at any time
after such  declaration and before any judgment or decree for the payment of the
moneys due shall have been obtained or entered, the Letters of Credit shall have
been reinstated in full as to principal and interest and the reasonable  charges
and expenses of the Trustee, and any and all other defaults known to the Trustee
(other than in the  payment of  principal  of and  interest on the Bonds due and
payable solely by reason of such declaration) shall have been made good or cured
to the  satisfaction  of the  Trustee or  provision  deemed by the Trustee to be
adequate  shall have been made  therefor,  then,  and in every  such  case,  the
Holders  of not less than 25% in  aggregate  principal  amount of the Bonds then
Outstanding,  by written notice to the Authority,  the Bank, the Company and the
Trustee,  or the Trustee if such  declaration  was made by the Trustee,  may, on
behalf of the Holders of all of the Bonds,  rescind  and annul such  declaration
and its consequences  and waive such default;  but such rescission and annulment
shall not extend to or affect any  subsequent  default,  and shall not impair or
exhaust any right or power in consequence thereof. The foregoing to the contrary
notwithstanding,  Holders of not less than 25% in principal  amount of the Bonds
then  Outstanding  shall have no right to request the Trustee to accelerate  the
Bonds  under this  Section  8.02 and the Trustee  shall not give any  Bondholder
notice of a default under the Indenture  (except upon the occurrence of an Event
of Default  under  Section  8.01(f) or (g) hereof),  the  Agreement or any other
documents  executed and  delivered in  connection  with the Bonds or declare the
principal  amount of all Bonds then  Outstanding and interest accrued thereon to
such date to be  immediately  due,  unless  directed  in  writing by the Bank or
unless the Bank shall be in default of its obligations under terms of any of the
Letters of Credit or a voluntary or  involuntary  case has been commenced by the
filing of a petition  under the United States  Bankruptcy  Code or any other law
relating to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts by or against the Bank.

          Upon any declaration of acceleration  hereunder,  the Trustee shall as
soon as possible give written notice of the  acceleration  to the Bondholders as
set forth below. In addition,  notice of such  acceleration  shall be mailed, by
registered or certified mail or overnight mail, to the Rating Agency then rating
the Bonds,  if any,  but  failure  to mail any such  notice or any defect in the
mailing thereof shall not affect the validity of such acceleration.  Such notice
of  acceleration  (i) shall be given in the name of the  Authority,  (ii)  shall
identify  the  accelerated  Bonds (by name,  date of  issue,  interest  rate and
maturity date);  (iii) shall specify the  Acceleration  Date; (iv) shall specify
the Payment Date and the  Acceleration  Price; (v) shall state that the interest
on the accelerated  Bonds ceased to accrue on the Acceleration  Date; (vi) shall
state the reason for the acceleration; and (vii) shall state that on the Payment
Date the Acceleration  Price will be payable at the office of the Trustee stated
in such  notice.  The  Trustee  shall use "CUSIP"  numbers on such  notices as a
convenience to Bondholders and such notice shall state that no representation is
made as to the  correctness  of such  "CUSIP"  numbers  either as printed on the
Bonds or as contained  in any notice of  acceleration  and that  reliance may be
placed  on  the  registration  and  description   printed  on  the  Bonds.

          Upon  acceleration  pursuant to this Section  8.02,  the Trustee shall
immediately  exercise  such rights as it may have under the Agreement to declare
all payments  thereunder to be immediately due and payable and shall immediately
draw upon the Letters of Credit as provided in Section  6.12 hereof in an amount
that is sufficient to pay the Acceleration Price due on the Outstanding Bonds on
the Payment Date.

                                       49

<PAGE>

          Upon  receipt by the  Trustee  of any  amount  from the Bank under the
preceding  paragraphs  of this Section 8.02 (or after  receipt by the Trustee of
any amounts from the Bank under any other provision of this Indenture), the Bank
shall be  subrogated  to the right,  title and  interest  of the Trustee and the
Bondholders in and to the Indenture,  the Agreement, and any other security held
for the payment of the Bonds (other than said funds), all of which, upon payment
of any  fees  and  expenses  due and  payable  to the  Trustee  pursuant  to the
Agreement  or this  Indenture,  shall be  assigned  by the  Trustee to the Bank.

     Section  8.03.  Other  Remedies.  If any  Event of  Default  occurs  and is
continuing,  the Trustee,  before or after  declaring the principal of the Bonds
immediately  due and payable,  may enforce  each and every right  granted to the
Authority or the Trustee  under the  Indenture,  the  Agreement,  the Letters of
Credit or any other security instrument,  or under any supplements or amendments
thereto,  and shall,  at all times complying with the provisions of Section 8.02
hereof,  apply any  Revenues  or  Available  Moneys in the Bond Fund held by the
Trustee to the payment of principal of or interest on the Bonds.  In  exercising
such  rights and the rights  given the  Trustee  under this  Article  VIII,  the
Trustee shall take such action, as in the judgment of the Trustee,  applying the
standards  described in Section 9.01 hereof,  would best serve the  interests of
the  Bondholders.

     Section 8.04.  Legal  Proceedings  by Trustee.  If any Event of Default has
occurred and is  continuing,  the Trustee in its  discretion  may and,  upon the
written  request  of the Bank or the  Owners of 25% in  principal  amount of the
Bonds then Outstanding  (subject to the consent of the Bank, as long as the Bank
is not in default of its  obligations  under  terms of any of the the Letters of
Credit or a voluntary or  involuntary  case has not been commenced by the filing
of a petition under the United States  Bankruptcy Code or any other law relating
to  bankruptcy,  insolvency,   reorganization,   winding-up  or  composition  or
adjustment  of debts by or against  the Bank) and  receipt of  indemnity  to its
satisfaction  shall,  in its own name:

          A. By mandamus,  other suit, action or proceeding at law or in equity,
enforce  all  rights of the  Bondholders,  including  the right to  require  the
Authority to collect the amounts payable under the Agreement;

          B. Bring suit upon the Bonds;

          C. By action or suit in equity  require the Authority to account as if
it were the trustee of an express trust for the Bondholders; and

          D. By action or suit in equity  enjoin any acts or things  that may be
unlawful  or in  violation  of the  rights  of the  Bondholders.

     Section 8.05.  Discontinuance of Proceedings by Trustee.  If any proceeding
taken by the  Trustee on account of any Event of Default is  discontinued  or is
determined adversely to the Trustee, the Authority, the Trustee, the Bondholders
and the Bank shall be restored to their former positions and rights hereunder as
though no such proceeding had been taken,  but subject to the limitations of any
such adverse  determination.

     Section 8.06. Bondholders May Direct Proceedings. The Holders of a majority
in principal amount of the Bonds  Outstanding  hereunder shall have the right to

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direct  the method  and place of  conducting  all  remedial  proceedings  by the
Trustee  hereunder,  provided that such direction shall not be otherwise than in
accordance  with law or the provisions of this  Indenture,  and that the Trustee
shall not be  required to comply  with any such  direction  which it deems to be
unlawful or unjustly  prejudicial to Bondholders  not parties to such direction.
The foregoing  provisions of this Section 8.06 to the contrary  notwithstanding,
the Bank shall  have the right to direct the method and the place of  conducting
all remedial proceedings by the Trustee hereunder,  provided that the Trustee is
provided  indemnification and that such direction shall not be otherwise than in
accordance  with law or the  provisions  of this  Indenture  as long as the Bank
shall not be in default under the terms of any of the Letters of Credit.

     Section  8.07.  Limitations  on Actions by  Bondholders.  Anything  in this
Indenture to the contrary notwithstanding, no Bondholder shall have any right to
pursue any remedy hereunder or under the Agreement unless:

          (a) The Trustee  shall have been given  written  notice of an Event of
Default;

          (b) The Holders of at least 25% in aggregate  principal  amount of the
Bonds Outstanding shall have requested the Trustee,  in writing, to exercise the
powers  hereinabove  granted  or to pursue  such  remedy in its or their name or
names;

          (c) The Trustee shall have been offered  indemnity  satisfactory to it
against costs,  expenses and  liabilities;

          (d) The Trustee shall have failed to comply with such request within a
reasonable  time; and

          (e) The Bank shall be in default of its obligations under the terms of
any of the  Letters  of  Credit  or a  voluntary  or  involuntary  case has been
commenced by the filing of a petition under the United States Bankruptcy Code or
any other law relating to bankruptcy, insolvency, reorganization,  winding-up or
composition  or adjustment of debts by or against the Bank;

provided,  however,  that nothing herein shall affect or impair the right of any
Owner of any Bond to  enforce  payment of the  principal  thereof  and  interest
thereon at and after the maturity thereof, or the obligation of the Authority to
pay such  principal  and interest to the  respective  Owners of the Bonds at the
time and place,  from the source and in the manner  expressed  herein and in the
Bonds, provided further that such action shall not disturb or prejudice the lien
of this Indenture.

     Section 8.08.  Trustee May Enforce Rights Without  Possession of Bonds. All
rights under the Indenture and the Bonds may be enforced by the Trustee  without
the  possession  of any Bonds or the  production  thereof  at the trial or other
proceedings  relative  thereto,  and any  proceedings  instituted by the Trustee
shall be brought in its name for the ratable benefit of the Owners of the Bonds.

     Section  8.09.  Delays  and  Omissions  Not to Impair  Rights.  No delay or
omission in respect of exercising  any right or power accruing upon any Event of
Default shall impair such right or power or be a waiver of such Event of Default
and every remedy given by this Article VIII may be exercised, from time to time,
and as often as may be deemed expedient.

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<PAGE>

     Section 8.10. Application of Moneys in Event of Default. Any money received
by the  Trustee  under this  Article  VIII shall be applied in the order  listed
below  (provided that any money received by the Trustee upon a drawing under the
Letters of Credit,  any money held by the  Trustee  upon the  nonpresentment  of
Bonds and any money held by the Trustee for the  defeasance of Bonds pursuant to
Article XI shall be applied  only as  provided in clause B below and only to pay
outstanding principal and accrued interest, as provided in this Indenture,  with
respect to the Bonds):

          A. To the  payment of the fees and  expenses  of the  Trustee  and the
Authority, including reasonable counsel fees and expenses, and any disbursements
of the Trustee with interest thereon and its reasonable compensation;

          B. To the payment of principal, Purchase Price and interest then owing
on the Bonds,  including  any  interest on overdue  interest,  and, in case such
money  shall be  insufficient  to pay the same in full,  then to the  payment of
principal  and  interest  ratably,  without  preference  or priority of one over
another  or  of  any  installment  of  principal  or  interest  over  any  other
installment of principal or interest;  and

          The surplus,  if any,  remaining after the application of the money as
set forth  above  shall to the  extent  of any  unreimbursed  drawing  under the
Letters of Credit,  or other  obligations owing by the Company to the Bank under
the Reimbursement  Agreement,  be paid to the Bank. Any remaining money shall be
paid to the  Company or the person  lawfully  entitled  to receive the same as a
court  of  competent   jurisdiction  may  direct.

     Section 8.11.  Trustee and Bondholders  Entitled to All Remedies Under Act;
Remedies Not Exclusive. It is the purpose of this Article VIII to provide to the
Trustee and the Bondholders  all rights and remedies as may be lawfully  granted
under the  provisions of the Act; but should any remedy  herein  granted be held
unlawful,  the Trustee and the  Bondholders  shall  nevertheless  be entitled to
every  remedy  permitted  by the Act. It is further  intended  that,  insofar as
lawfully  possible,  the  provisions  of this Article VIII shall apply to and be
binding upon any trustee or receiver  appointed  under the Act.

          No remedy  herein  conferred  is intended to be exclusive of any other
remedy or  remedies,  and each remedy is in addition to every other remedy given
hereunder  or now or  hereafter  existing  at law or in  equity  or by  statute.

     Section  8.12.  Trustee's  Right to  Receiver.  As provided by the Act, the
Trustee shall be entitled as of right to the appointment of a receiver;  and the
Trustee,  the  Bondholders  and any receiver so appointed shall have such rights
and  powers  and be  subject  to such  limitations  and  restrictions  as may be
contained in or permitted by the Act.

     Section 8.13.  Subrogation Rights of Bank. The Trustee agrees that the Bank
or other  provider of a Substitute  Letter of Credit shall be  subrogated to all
rights,  remedies  and  collateral  of the  Trustee  under  the  Indenture,  the
Agreement or any other document or  instrument,  to the extent the Bank or other
provider of a Substitute Letter of Credit has honored a draw under any Letter of
Credit or any Substitute  Letter of Credit, as the case may be, and has not been
reimbursed or paid  therefor.

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     Section 8.14.  Waiver of Default.  As long as the Bank is not in default of
its obligations  under the terms of any of the Letters of Credit and the Letters
of Credit are in full force and  effect,  the Bank may waive an Event of Default
and, if the Bank does so, the Trustee must also waive such Event of Default. The
Trustee may not waive an Event of Default under this  Indenture if any Letter of
Credit has not been  reinstated to cover  principal and interest on the Bonds in
accordance with the terms of such Letter of Credit.

                                   ARTICLE IX.

                         THE TRUSTEE; THE TENDER AGENT
                           AND THE REMARKETING AGENT

     Section 9.01. Duties, Immunities and Liabilities of Trustee.

          (a) The Trustee  shall,  prior to an Event of  Default,  and after the
curing of all Events of Default which may have occurred, perform such duties and
only such duties as are  specifically  set forth in this Indenture.  The Trustee
shall,  during the existence of any Event of Default (which has not been cured),
exercise such of the rights and powers vested in it by this  Indenture,  and use
the same degree of care and skill in their  exercise,  as a prudent person would
exercise or use under the  circumstances in the conduct of his own affairs.

          (b) The Authority shall remove the Trustee if at any time requested to
do so by an  instrument  or  concurrent  instruments  in  writing  signed by the
Holders of not less than a majority in aggregate  principal  amount of the Bonds
then  Outstanding  (or their  attorneys  duly  authorized  in writing) or if the
Trustee  shall become  incapable  of acting,  or shall be adjudged a bankrupt or
insolvent,  or a receiver of the Trustee or its property shall be appointed,  or
any  public  officer  shall  take  control  or charge of the  Trustee  or of its
property  or  affairs  for  the  purpose  of  rehabilitation,   conservation  or
liquidation,  in each  case by giving  written  notice  of such  removal  to the
Trustee,  and  thereupon  shall  appoint,  with the  consent of the Bank and the
Company, a successor Trustee by an instrument in writing.

          (c) The  Trustee may at any time  resign by giving  written  notice of
such  resignation to the  Authority,  the Company and the Bank and by giving the
Bondholders  notice of such  resignation  by mail at the addresses  shown on the
registration  books  maintained by the Trustee.  Upon  receiving  such notice of
resignation,  the Authority  shall  promptly  appoint,  at the discretion of the
Company and with the consent of the Bank, a successor  Trustee by an  instrument
in writing.

          (d) Any removal or  resignation  of the Trustee and  appointment  of a
successor  Trustee shall become  effective upon acceptance of appointment by the
successor  Trustee.  If no successor  Trustee shall have been appointed and have
accepted  appointment within forty-five (45) days of giving notice of removal or
notice of resignation as aforesaid,  the resigning Trustee or any Bondholder (on
behalf of himself and all other Bondholders) may petition, at the expense of the
Company, any court of competent  jurisdiction for the appointment of a successor
Trustee, and such court may thereupon, after such notice (if any) as it may deem
proper,  appoint such successor  Trustee.  Any successor Trustee appointed under
this  Indenture,  shall signify its acceptance of such  appointment by executing
and  delivering  to the  Authority  and to its  predecessor  Trustee  a  written

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<PAGE>

acceptance  thereof,  and thereupon such successor Trustee,  without any further
act,  deed or  conveyance,  shall  become  vested with all the moneys,  estates,
properties,  rights,  powers, trusts, duties and obligations of such predecessor
Trustee,   with  like  effect  as  if  originally  named  Trustee  herein;  but,
nevertheless  at the request of the  Authority  or the request of the  successor
Trustee,  such  predecessor  Trustee  shall  execute  and  deliver  any  and all
instruments  of conveyance or further  assurance and do such other things as may
reasonably be required for more fully and certainly vesting in and confirming to
such  successor  Trustee all the right,  title and interest of such  predecessor
Trustee in and to any  property  held by it under this  Indenture  and shall pay
over,  transfer,  assign and deliver to the successor Trustee any money or other
property subject to the trusts and conditions  herein set forth. Upon request of
the  successor  Trustee,  the  Authority  shall  execute and deliver any and all
instruments as may be reasonably  required for more fully and certainly  vesting
in  and  confirming  to  such  successor  Trustee  all  such  moneys,   estates,
properties,  rights, powers, trusts, duties and obligations.  Upon acceptance of
appointment by a successor  Trustee as provided in this subsection,  the Company
shall mail or cause to be mailed a notice of the  succession  of such Trustee to
the  trusts  hereunder  to  the  Bondholders  at  the  addresses  shown  on  the
registration books maintained by the Trustee.  If the Company fails to mail such
notice within fifteen (15) days after acceptance of appointment by the successor
Trustee,  the  successor  Trustee  shall  cause such  notice to be mailed at the
expense of the Company.

          (e) Any Trustee  appointed  under the  provisions  of this  Section in
succession  to the Trustee shall be a trust company or bank having the requisite
trust  powers and having a combined  capital and surplus of at least One Hundred
Million Dollars ($100,000,000), subject to supervision or examination by federal
or  state  authorities  and if the  Bonds  are  rated by a  Rating  Agency,  any
successor trustee shall be rated, or its main banking affiliate or parent entity
shall be rated,  at least  Baa3/P-3 or  otherwise  be  acceptable  to the Rating
Agency.  If such bank or trust company  publishes a report of condition at least
annually, pursuant to law or to the requirements of any supervising or examining
authority  above  referred  to,  then for the  purpose  of this  subsection  the
combined capital and surplus of such bank or trust company shall be deemed to be
its  combined  capital  and  surplus as set forth in its most  recent  report of
condition so published.

     Section 9.02.  Merger or  Consolidation.  Any company or  association  into
which  the  Trustee  may  be  merged  or  converted  or  with  which  it  may be
consolidated or any company or association resulting from any merger, conversion
or  consolidation  to which it shall be a party or any company or association to
which the Trustee may sell or transfer all or substantially all of its corporate
trust business,  provided such company shall be eligible under subsection (e) of
Section 9.01,  shall be the  successor to such Trustee  without the execution or
filing  of any  paper  or any  further  act,  anything  herein  to the  contrary
notwithstanding.

     Section 9.03.  Liability of Trustee.

          (a) The recitals of facts herein,  in the other Bond  Documents and in
the Bonds contained shall be taken as statements of the Authority or the parties
thereto,  and the Trustee shall assume no responsibility  for the correctness of
the same, or make any  representations as to the validity or sufficiency of this
Indenture  or  of  the  Trust  Estate  or  of  the  Bonds  or  shall  incur  any
responsibility  in respect thereof,  other than in connection with the duties or
obligations  herein or in the Bonds  assigned to or imposed upon it. The Trustee

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<PAGE>

makes no  representation  that the proceeds of the Bonds will be sufficient  for
purpose of the Projects.  The Trustee shall,  however,  be  responsible  for its
representations contained in its certificate of authentication on the Bonds. The
Trustee shall not be responsible for any use of moneys disbursed by it under the
terms of this Indenture.  The Trustee shall not be liable in connection with the
performance  of its duties  hereunder,  except for its own gross  negligence  or
willful  misconduct.  The  Trustee  may  become the owner of Bonds with the same
rights it would have if it were not Trustee and, to the extent permitted by law,
may act as depositary  for and permit any of its officers or directors to act as
a member of, or in any other  capacity with respect to, any committee  formed to
protect the rights of Bondholders, whether or not such committee shall represent
the Holders of a majority in principal amount of the Bonds then Outstanding. The
Trustee may have other trust and financial relationships with the Authority, the
Bank and the  Company.

          (b) The Trustee  shall not be liable for any error of judgment made in
good faith by a responsible officer,  unless it shall be proved that the Trustee
was grossly negligent in ascertaining the pertinent facts. The permissive rights
of the Trustee to do things  enumerated in this Indenture shall not be construed
as a duty.

          (c) The Trustee  shall not be liable with  respect to any action taken
or omitted to be taken by it in good faith in  accordance  with the direction of
the Holders of not less than a majority  in  aggregate  principal  amount of the
Bonds  at the  time  Outstanding  relating  to the  time,  method  and  place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power  conferred  upon the Trustee  under this  Indenture.

          (d) The Trustee  shall be under no  obligation  to exercise any of the
rights or powers vested in it by this Indenture (other than the making of a draw
under the Letters of Credit in accordance  with their  respective  terms and the
terms hereof,  declaring the  principal of the Bonds to be  immediately  due and
payable when required hereunder or making payments on the Bonds when due) at the
request, order or direction of any of the Bondholders pursuant to the provisions
of this  Indenture  unless such  Bondholders  shall have  offered to the Trustee
indemnification  to its satisfaction for indemnity  against the costs,  expenses
and liabilities which may be incurred therein or thereby.

          (e) The Trustee shall not be liable for any action taken by it in good
faith and believed by it to be authorized or within the  discretion or rights or
powers  conferred  upon  it by this  Indenture.

          (f) The Trustee  shall not be  required to file any bond or  security.

          (g) The Trustee may employ and act through agents and attorneys in the
performance of its duties  hereunder and shall not be responsible  for the costs
of such agents and attorneys selected by it with reasonable care.

          (h) The  Trustee  shall not be required to expend its own funds in the
performance of its duties  hereunder.

     Section  9.04.  Right of  Trustee to Rely on  Documents.  The  Trustee  may
conclusively  rely,  and  shall  be  protected  in  acting,   upon  any  notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
paper or  document  believed  by it to be  genuine  and to have  been  signed or

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<PAGE>

presented by the proper party or parties.  The Trustee may consult with counsel,
who may be counsel of or to the  Authority or the Company,  with regard to legal
questions,  and  the  opinion  of  such  counsel  shall  be  full  and  complete
authorization  and  protection  in respect of any action taken or suffered by it
hereunder in good faith and in accordance therewith.

     The Trustee  shall not be bound to recognize  any person as the Holder of a
Bond unless and until such Bond is submitted for  inspection,  if required,  and
his title thereto is satisfactorily established, if disputed by reference to the
Bond Register.

     Whenever  in the  administration  of the  trusts  imposed  upon  it by this
Indenture  the Trustee  shall deem it necessary  or  desirable  that a matter be
proved or established  prior to taking or suffering any action  hereunder,  such
matter  (unless  other  evidence  in  respect  thereof  be  herein  specifically
prescribed)  may be  deemed  to be  conclusively  proved  and  established  by a
Certificate of the Authority,  and such Certificate shall be full warrant to the
Trustee for any action taken or suffered in good faith under the  provisions  of
this  Indenture in reliance upon such  Certificate,  but in its  discretion  the
Trustee  may,  in lieu  thereof,  accept  other  evidence  of such matter or may
require  such  additional  evidence  as it may deem  reasonable.

     Section 9.05. Preservation and Inspection of Documents.

          (a) All documents received by the Trustee under the provisions of this
Indenture  shall be retained in its possession in accordance  with its retention
schedules and shall be subject during normal  business hours of the Trustee upon
prior written notice to the inspection of the Authority and any Bondholder,  and
their agents and representatives duly authorized in writing, at reasonable hours
and under reasonable  conditions.

          (b) The Trustee  covenants and agrees that it shall maintain a current
list  of  the  names  and  addresses  of  all  the  Bondholders.

     Section  9.06.  Compensation.  The  Trustee  shall  be  paid  (solely  from
Additional Payments) from time to time reasonable  compensation for all services
rendered under this Indenture, and also all reasonable expenses,  charges, legal
and consulting fees and other  disbursements and those of its attorneys,  agents
and  employees,  incurred in and about the  performance of its powers and duties
under this Indenture.

     Section 9.07.  The Tender Agent.  First Union  National  Bank,  the initial
Tender Agent appointed by the Company, and each successor tender agent appointed
in accordance herewith, shall designate its office and signify its acceptance of
the duties and  obligations  imposed  upon it as  described  herein by a written
instrument  of acceptance  delivered to the Trustee  (unless the Trustee is also
the Tender  Agent) and the Company  under which the Tender  Agent  shall,  among
other things:

          (a) hold all Bonds  delivered to it hereunder in trust for the benefit
of the respective Owners of Bonds which shall have so delivered such Bonds until
moneys  representing  the Purchase Price of such Bonds shall have been delivered
to or for the account of or to the order of such Owners of Bonds.  Upon delivery
of moneys representing the Purchase Price of such Bonds to or for the account of
or to the order of such  Owners of Bonds,  the Tender  Agent shall hold all such

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Bonds which are required to be delivered to the Pledged Bonds Custodian pursuant
to  Section  5.06(b)  hereof,  as the  agent  of the  Bank  for the  purpose  of
perfecting  the Bank's  security  interest  therein  under the Pledge  Agreement
(which agency shall terminate upon delivery of such Bonds by the Tender Agent to
the Pledged  Bonds  Custodian or upon the order of the Bank in  accordance  with
such Section  5.06(b));  and

          (b) hold all moneys  delivered  to it  hereunder  and under the Tender
Agent  Agreement  for the purchase of such Bonds in a separate  account in trust
for the  benefit of the person or entity  which  shall  have so  delivered  such
moneys until required to transfer such funds as provided  herein.

     Section 9.08. Qualifications of Tender Agent.

          (a) The Tender Agent shall be a bank or trust  company duly  organized
under  the laws of the  United  States  of  America  or any  state or  territory
thereof,  having a combined capital stock,  surplus and undivided  profits of at
least Fifty Million Dollars  ($50,000,000) or that is a wholly-owned  subsidiary
of such a bank or trust  company,  and  authorized  by law to perform all duties
imposed  upon it by this  Indenture  and  shall be  rated,  or its main  banking
affiliate or parent entity shall be rated,  at least  Baa3/P-3 by Moody's if the
Bonds are then rated by Moody's,  or has received  written evidence from Moody's
that the use of such Tender Agent would not result in a reduction or  withdrawal
of the  rating on the  Bonds.  The  Tender  Agent may at any time  resign and be
discharged  of its duties and  obligations  by giving at least  sixty (60) days'
notice to the Authority,  the Trustee,  the Remarketing Agent, the Bank, and the
Company;  provided  that  such  resignation  shall  not take  effect  until  the
appointment of a successor  Tender Agent,  and in accordance with the provisions
hereof.  Upon the written  approval of the Bank, the Tender Agent may be removed
at any time by the Company upon written notice to the Authority, the Trustee and
the  Remarketing  Agent;  provided that such removal shall not take effect until
the  appointment  of a  successor  Tender  Agent,  and in  accordance  with  the
provisions hereof. Successor Tender Agents may be appointed from time to time by
the Company, with the prior written consent of the Bank.

          (b) Upon the  resignation  or removal of the Tender Agent,  the Tender
Agent  shall  deliver  any Bonds and moneys  held by it in such  capacity to its
successor.

          (c) The  Tender  Agent  shall  be  entitled  to the  same  rights  and
immunities provided to the Trustee under this Article IX.

     Section 9.09.  Qualifications of Remarketing Agent;  Resignation;  Removal.
The   Remarketing   Agent  shall  be  a  financial   institution  or  registered
broker/dealer  authorized  by law to perform all the duties  imposed  upon it by
this Indenture.  The Remarketing  Agent may at any time resign and be discharged
of its duties and obligations  created by this Indenture  giving at least thirty
(30) days' notice to the  Authority,  the Company and the Trustee and the Tender
Agent.  The  Remarketing  Agent may be removed  at any time,  upon not less than
thirty (30) days' written notice from the Company filed with the Trustee and the
Tender Agent.  Upon the  resignation or removal of the  Remarketing  Agent,  the
Company shall appoint a successor  Remarketing  Agent and shall provide  written
notice thereof to the Trustee and the Tender Agent.  The  resignation or removal
of  the  Remarketing   Agent  shall  not  become  effective  until  a  successor

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Remarketing  Agent is appointed and accepts such  appointment.  If the Bonds are
rated by a Rating  Agency,  any  successor  Remarketing  Agent shall be rated at
least Baa3/P-3 or otherwise be acceptable to such Rating  Agency.

     Section  9.10.  Construction  of  Ambiguous  Provisions.  The  Trustee  may
construe  any  provision  hereof  insofar as such may appear to be  ambiguous or
inconsistent with any other provision  hereof;  and any construction of any such
provision by the Trustee,  in good faith shall be binding upon the Owners of the
Bonds and the Bank.

                                   ARTICLE X.

                   MODIFICATION OR AMENDMENT OF THE INDENTURE

     Section  10.01.  Amendments  Permitted.  This  Indenture and the rights and
obligations of the Authority, of the Trustee and of the Holders of the Bonds may
be modified or amended from time to time and at any time for any lawful purpose,
by an indenture or indentures  supplemental  hereto, which the Authority and the
Trustee may enter into without the consent of any Bondholders but with the prior
written  consent  of the  Company  and the  Bank  (as long as the Bank is not in
default  under the terms of any of the  Letters of  Credit),  provided  that the
Trustee  determines  that such  modification  or amendment  will not  materially
adversely  affect the  interests  of the  Bondholders  or result in any material
impairment  of the security  hereby  given.  In making such  determination,  the
Trustee  may rely on an opinion of Counsel  selected by the  Trustee.  Any other
modification or amendment must be approved by a majority in aggregate  principal
amount  of the  Bonds  then  Outstanding,  provided  that  such  consent  of the
Bondholders  shall no be required if such modification or amendment is consented
to in writing by the Bank  provided  that (a) the Bank is not then in default of
its  obligations  under the  terms of any of the  Letters  of Credit  and (b) no
voluntary  or  involuntary  case has been  commenced by the filing of a petition
under the United States Bankruptcy Code or any other law relating to bankruptcy,
insolvency, reorganization,  winding-up or composition or adjustment of debts by
or against the Bank.  The  foregoing  to the contrary  notwithstanding,  no such
modification or amendment shall, without the consent of the Holders of all Bonds
then  Outstanding,  (i) extend the  maturity  date of any Bond,  (ii) reduce the
amount of  principal  thereof,  (iii)  extend  the time of payment or change the
method of  computing  the rate of interest  thereon,  without the consent of the
Holder of each Bond so affected,  or eliminate the Holders' rights to tender the
Bonds,  (iv)  extend  the due date for the  purchase  of Bonds  tendered  by the
Holders thereof, or (v) reduce the Purchase Price of such Bonds. It shall not be
necessary for the consent of the  Bondholders to approve the particular  form of
any  Supplemental  Indenture,  but it shall be  sufficient if such consent shall
approve the substance thereof. Promptly after the execution by the Authority and
the Trustee of any  Supplemental  Indenture  pursuant to this Section 10.01, the
Trustee  shall mail a notice,  setting  forth in general  terms the substance of
such Supplemental Indenture, to each Rating Agency then rating the Bonds and the
Holders of the Bonds at the  addresses  shown on the  registration  books of the
Trustee.  Any failure to give such  notice,  or any defect  therein,  shall not,
however,  in any way  impair or affect  the  validity  of any such  Supplemental
Indenture.

     Section 10.02. Effect of Supplemental Indenture.  Upon the execution of any
Supplemental  Indenture pursuant to this Article, this Indenture shall be deemed
to be modified and amended in accordance  therewith,  and the respective rights,

                                       58

<PAGE>

duties and  obligations  under this Indenture of the Authority,  the Trustee and
all Holders of Bonds Outstanding  shall thereafter be determined,  exercised and
enforced  hereunder  subject in all respects to such modification and amendment,
and all the terms and  conditions of any such  Supplemental  Indenture  shall be
deemed to be part of the terms and  conditions of this Indenture for any and all
purposes.

     Section 10.03.  Trustee  Authorized to Join in Amendments and  Supplements;
Reliance on Counsel. The Trustee is authorized to join with the Authority in the
execution and delivery of any supplemental  indenture or amendment  permitted by
this Article X and in so doing shall be fully protected by an opinion of Counsel
that such supplemental  indenture or amendment is so permitted and has been duly
authorized by the Authority and that all things necessary to make it a valid and
binding agreement have been done.

                                  ARTICLE XI.

                                   DEFEASANCE

     Section 11.01. Discharge of Indenture. The Bonds may be paid by the Company
in any of the following  ways,  provided that the Company also pays or causes to
be paid any  other  sums  payable  hereunder  and  under  the  Agreement  by the
Authority or the Company:

          (a) by paying or causing to be paid the  principal  of and interest on
the Bonds,  as and when the same  become due and  payable;

          (b) with  respect to Bonds which bear  interest  at a Fixed  Rate,  by
depositing  or causing to be  deposited  with the Trustee,  in trust,  Available
Moneys or securities purchased with Available Moneys in the necessary amount (as
provided in Section 11.03) to pay or redeem all Bonds then  Outstanding;  or

          (c) by delivering to the Trustee,  for  cancellation  by it, the Bonds
then  Outstanding.

          If the  Company  shall  also pay or cause  to be paid all  Bonds  then
Outstanding  and  shall  also pay or cause to be paid  all  other  sums  payable
hereunder  and under the  Agreement by the Company or the  Company,  then and in
that case, at the election of the Company  (evidenced  by a  Certificate  of the
Company  filed with the  Trustee,  signifying  the  intention  of the Company to
discharge all such indebtedness and this Indenture),  and  notwithstanding  that
any Bonds shall not have been  surrendered  for  payment,  this  Indenture,  the
assignment  of the  Agreement  and the pledge of Revenues  and other assets made
under this Indenture and all covenants,  agreements and other obligations of the
Company under this Indenture and the Agreement  shall cease,  terminate,  become
void and be completely discharged and satisfied.  In such event, upon Request of
the Company, the Trustee shall cause an accounting for such period or periods as
may be requested  by the Company to be prepared and filed with the  Authority to
the extent such  accountin has not been  previously  prepared and filed with the
Authority and shall  execute and deliver to the Authority all such  instruments,
as prepared by or caused to be prepared by the Company, that may be necessary or
desirable to evidence  such  discharge  and  satisfaction,  and the Trustee,  as
directed in writing by the Company, shall pay over, transfer,  assign or deliver
all  moneys  or  securities  or  other  property  held  by it  pursuant  to this

                                       59

<PAGE>

Indenture,  which are not  required  for (i) the  payment of all the charges and
reasonable  expenses of the Trustee  under this  Indenture,  (ii) the payment or
redemption of Bonds not theretofore  surrendered for such payment or redemption,
(iii)  the  payment  of  amounts  owed to the  Bank  by the  Company  under  the
Reimbursement  Agreement  or (iv)  the  payment  of any and all  sums due to the
United  States of America  pursuant  to Section  6.13  hereof,  to the  Company.

     Section 11.02. Discharge of Liability on Bonds. With respect to Bonds which
bear interest at a Fixed Rate,  upon the deposit with the Trustee,  in trust, at
or before maturity,  of money or securities in the necessary amount (as provided
in Section 11.03) to pay or redeem any  Outstanding  Bond (whether upon or prior
to the end of a Fixed Rate Period or the redemption date of such Bond), provided
that,  if  such  Bond  is to be  redeemed  prior  to  maturity,  notice  of such
redemption  shall  have  been  given as in  Article  IV  provided  or  provision
satisfactory  to the Trustee shall have been made for the giving of such notice,
then all liability of the Company in respect of such Bond shall cease, terminate
and be  completely  discharged,  and the  Holder  thereof  shall  thereafter  be
entitled  only to payment  out of such money or  securities  deposited  with the
Trustee as aforesaid for their payment, subject, however, to the provisions of
Section  11.04.

          The Company may at any time surrender to the Trustee for  cancellation
by it any Bonds  previously  issued and  delivered,  which the  Company may have
acquired in any manner  whatsoever,  and such  Bonds,  upon such  surrender  and
cancellation,  shall be deemed to be paid and retired.

     Section  11.03.  Deposit of Money or Securities  with Trustee.  Whenever in
this  Indenture it is provided or permitted that there be deposited with or held
in trust by the Trustee money or  securities  in the necessary  amount to pay or
redeem any Bonds,  the money or  securities  so to be deposited or held shall be
cash  or  Government   Obligations,   which  Government   Obligations  shall  be
noncallable  and not subject to  prepayment,  the  principal  of and interest on
which when due will provide money  sufficient to pay the principal of,  premium,
if any, and all unpaid interest to maturity,  or to the redemption  date, as the
case may be, on the Bonds to be paid or redeemed, as such principal, premium, if
any, and interest  become due,  provided that, in the case of Bonds which are to
be redeemed prior to the maturity thereof,  notice of such redemption shall have
been given as provided in Article IV or  provision  satisfactory  to the Trustee
shall have been made for the giving of such notice; provided, in each case, that
the Truste shall have been irrevocably instructed (by request of the Company) to
apply such money to the payment of such  principal,  premium and  interest  with
respect to such Bonds.

          Whenever  Government  Obligations  are  deposited  with the Trustee in
accordance  with Section 11.03 hereof,  the Company shall provide to the Trustee
and the Rating Agency (i) a verification report from an Accountant, satisfactory
in  form  and  content  to  the  Trustee,   demonstrating  that  the  Government
Obligations so deposited and the income  therefor shall be sufficient to pay the
principal of, premium,  if any, and all unpaid  interest to maturity,  or to the
redemption  date,  as the case may be, on the Bonds to be paid or  redeemed,  as
such  principal,  premium,  if any, and interest  become due and (ii) an opinion
acceptable to the Rating  Agency and the Trustee,  and addressed to the Trustee,
of nationally  recognized  bankruptcy  counsel, to the effect that the provision
for payment of the Bonds  contemplated to be made pursuant to this Section 11.03
will  not  constitute  or  result  in  such  payments'   constituting   voidable
preferences under Section 547 of the Bankruptcy Code.

                                       60

<PAGE>

       Section 11.04.   Payment  of  Bonds   After   Discharge   of   Indenture.
Notwithstanding any provisions of this Indenture, any moneys held by the Trustee
in trust for the payment of the principal of,  premium,  if any, or interest on,
any Bonds and  remaining  unclaimed for five years after the principal of all of
the Bonds has become  due and  payable  (whether  at  maturity  or upon call for
redemption or by  acceleration  as provided in this  Indenture),  if such moneys
were so held at such  date,  or five  years  after the date of  deposit  of such
moneys  if  deposited  after  said date  when all of the  Bonds  became  due and
payable, shall be repaid to the Company, upon its written request, free from the
trusts  created by this  Indenture and all liability of the Trustee with respect
to such  moneys  shall  thereupon  cease;  provided,  however,  that  before the
repayment  of such moneys to the Company as  aforesaid,  the Trustee may (at the
cost and request of the  Company)  first mail to the Holders of Bonds which have
not been paid, at the addresse last shown on the  registration  books maintained
by the  Trustee,  a notice,  in such form as may be  deemed  appropriate  by the
Trustee with respect to the Bonds so payable and not  presented and with respect
to the  provisions  relating to the  repayment to the Company of the moneys held
for the payment thereof.

                                  ARTICLE XII.

                                 MISCELLANEOUS

     Section 12.01. Liability of Authority Limited to Revenues.  Notwithstanding
anything  to the  contrary  contained  in this  Indenture  or in the Bonds,  the
Authority  shall not be required to advance any moneys  derived  from any source
other than the Revenues and other assets pledged under this Indenture for any of
the  purposes  in this  Indenture  mentioned,  whether  for the  payment  of the
principal  or Purchase  Price of or premium and interest on the Bonds or for any
other  purpose  of  this  Indenture.  Notwithstanding  any  provisions  of  this
Indenture to the contrary, no recourse under or upon any obligation, covenant or
agreement contained herein or in any Bond shall be had against the Authority, it
being  expressly  agreed and  understood  that the  obligations of the Authority
hereunder,  and under the Bonds and elsewhere, are solely special obligations of
the Authority and shall be enforceable  only out of the Authority's  interest in
this Indenture and the Agreement  (except for the Authority's  rights to payment
of  certain  costs,  fees  and  expenses  as set  forth in this  Indenture,  the
Agreement  and  elsewhere)  and there  shall be no other  recourse  against  the
Authority  or any  property  now  or  hereafter  owned  by  it.

     Section 12.02. Limitation of Liability of Directors, Etc., of Authority. No
covenant, agreement, provision or obligation contained herein shall be deemed to
be a  covenant,  agreement  or  obligation  of any  present or future  director,
commissioner,  officer, employee, member or agent of the Authority in his or her
individual  capacity,  and neither the members of the Authority,  counsel to the
Authority or any officer of the  Authority  shall be liable  personally  on this
Indenture  or any of the  Bonds  or be  subject  to any  personal  liability  or
accountability by reason of the issuance thereof or this Indenture. No director,
commissioner,  officer,  employee,  member or agent of the Authority shall incur
any  personal  liability  with  respect to any other  action taken by him or her
pursuant to this Indenture or the Act.  Notwithstanding  anything  herein to the
contrary, no provision,  covenant or agreement contained in this Indenture or in
the Bonds or any obligations herein or therein imposed upon the Authority or the
breach thereof,  shall constitute or give rise to or impose upon the Authority a
pecuniary  liability  or a  charge  upon  its  general  credit.  In  making  the
agreements,  provisions and covenants set forth in this Indenture, the Authority
has not  obligated  itself except with respect to its rights and interest in the
Agreement,  as hereinabove  provided.

                                       61

<PAGE>

     Section 12.03. Reserved.

     Section  12.04.   Successor  Is  Deemed   Included  in  All  References  to
Predecessor.  Whenever in this Indenture  either the Authority or the Trustee is
named or referred to, such  reference  shall be deemed to include the successors
or assigns  thereof,  and all the  covenants and  agreements  in this  Indenture
contained by or on behalf of the  Authority or the Trustee  shall bind and inure
to the  benefit of the  respective  successors  and assigns  thereof  whether so
expressed or not.

     Section  12.05.   Limitation  of  Rights  to  Parties,  Bank,  Company  and
Bondholders.  Nothing in this Indenture or in the Bonds  expressed or implied is
intended or shall be construed  to give to any person other than the  Authority,
the Trustee,  the Bank,  the Company and the Holders of the Bonds,  any legal or
equitable  right,  remedy or claim under or in respect of this  Indenture or any
covenant,  condition  or  provision  therein or herein  contained;  and all such
covenants,  conditions  and  provisions are and shall be held to be for the sole
and exclusive benefit of the Authority,  the Trustee,  the Bank, the Company and
the  Holders of the Bonds.

     Section 12.06.  Waiver of Notice.  Whenever in this Indenture the giving of
notice by mail or otherwise is required, the giving of such notice may be waived
in writing by the person  entitled  to receive  such notice and in any such case
the giving or receipt of such notice  shall not be a condition  precedent to the
validity of any action taken in reliance upon such waiver.

     Section 12.07.  Severability of Invalid  Provisions.  If any one or more of
the provisions  contained in this Indenture or in the Bonds shall for any reason
be held to be  invalid,  illegal  or  unenforceable  in any  respect,  then such
provision or provisions shall be deemed severable from the remaining  provisions
contained in this Indenture and such invalidity,  illegality or unenforceability
shall not affect any other provision of this Indenture, and this Indenture shall
be construed as if such invalid or illegal or unenforceable  provision had never
been contained herein.  The Authority hereby declares that it would have entered
into this  Indenture  and each and every  other  Section,  paragraph,  sentence,
clause or phrase  hereof  and  authorized  the  issuance  of the Bonds  pursuant
thereto,  irrespective  of the fact that any one or more  Sections,  paragraphs,
sentences,  clauses or phrases of this Indenture may be held illegal, invalid or
unenforceable.

     Section 12.08.  Notices. All notices to Bondholders shall be given by first
class United States mail, telex, telegram, telecopier or other telecommunication
device  unless  otherwise  provided  herein and  confirmed in writing as soon as
practicable.  All such  notices  shall also be sent to the Holder and any person
designated  by any Holder to receive  copies of such  notices.  Any notice to or
demand upon the Trustee may be served or presented, and such demand may be made,
at the  Principal  Office of the Trustee,  or at such other  address as may have
been filed in writing by the Trustee with the  Authority  and the  Company.  Any
notice  to  or  demand  upon  the  Trustee,  the  Authority,  the  Company,  the
Remarketing  Agent,  the  Tender  Agent or the Bank shall be deemed to have been
sufficiently  given or served for all  purposes  by being  delivered  or sent by
telex or by being  deposited,  first-class  postage  prepaid,  in a post  office
letter box, addressed,  as the case may be,

                                       62

<PAGE>

    To the Trustee:           First Union National Bank
                              123 S. Broad Street
                              Philadelphia, PA 19109

                              Attention:  James Matthews, Assistant
                                          Vice President

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

(or such other address as may have been filed in writing by the  Authority  with
the Trustee),

     To the Company:          Vermont Pure Holdings, Ltd.
                              66 Catamount Center
                              Randolph Center, Vermont 05061

                              Attention:  Bruce MacDonald, Chief
                                          Financial Officer

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

                              Attention:  Bruce MacDonald, Chief
                                          Financial Officer

(or such other address as may have been filed in writing by the Company with the
Trustee), To the

     Remarketing Agent:       First Union Securities, Inc.
                              301 South College Street, DC8
                              Charlotte, North Carolina   28288-0600

                              Attention:  William Bingham, Vice President
                              Telecopier No:  (709) 383-5079

(or such other  address  as may have been  filed in  writing by the  Remarketing
Agent with the Trustee),

     To the Tender Agent:     First Union National Bank
                              Corporate Trust Operations
                              3C3 1525 West W.T. Harris Boulevard
                              Charlotte, North Carolina 28288

(or such other  address  as may have been  filed in writing by the Tender  Agent
with the Trustee),

    To the Bank:              First Union National Bank
                              2240 Butler Pike
                              Plymouth Meeting, Pennsylvania 19462
                              Attention:  Carl Goeltz, Vice President

                                       63

<PAGE>

(or such  other  address  as may have been filed in writing by the Bank with the
Trustee).

     Section 12.09. Evidence of Rights of Bondholders.  Any request,  consent or
other  instrument  required  or  permitted  by this  Indenture  to be signed and
executed  by  Bondholders  may be in any  number of  concurrent  instruments  of
substantially  similar tenor and shall be signed or executed by such Bondholders
in person or by an agent or  agents  duly  appointed  in  writing.  Proof of the
execution  of any such  request,  consent  or other  instrument  or of a writing
appointing any such agent, or of the holding by any person of Bonds transferable
by delivery,  shall be sufficient for any purpose of this Indenture and shall be
conclusive  in favor of the  Trustee  and of the  Company  if made in the manner
provided in this  Section.

     The fact and  date of the  execution  by any  Person  of any such  request,
consent or other  instrument or writing may be proved by the  certificate of any
notary  public or other  officer  of any  jurisdiction,  authorized  by the laws
thereof to take  acknowledgments  of deeds,  certifying  that the person signing
such  request,  consent or other  instrument  acknowledged  to him the execution
thereof,  or by an affidavit of a witness of such execution duly sworn to before
such notary public or other officer.

     The ownership of Bonds shall be proved by the bond registration  books held
by the Trustee.

     Any request,  consent,  or other instrument or writing of the Holder of any
Bond  shall bind  every  future  Holder of the same Bond and the Holder of every
Bond issued in exchange therefor or in lieu thereof, in respect of anything done
or suffered to be done by the Trustee or the Authority in  accordance  therewith
or in reliance thereon.

     Section 12.10.  Disqualified  Bonds. In determining  whether the Holders of
the requisite  aggregate principal amount of Bonds have concurred in any demand,
request,  direction,  consent or waiver  under this  Indenture,  Bonds which are
owned or held by or for the account of the  Authority or the Company,  or by any
other obligor on the Bonds, or by any person directly or indirectly  controlling
or  controlled  by,  or under  direct  or  indirect  common  control  with,  the
Authority,  the Company, or any other obligor on the Bonds, shall be disregarded
and  deemed not to be  Outstanding  for the  purpose of any such  determination.
Bonds so owned  which  have  been  pledged  in good  faith  may be  regarded  as
Outstanding  for the purposes of this Section if the pledgee shall  establish to
the  satisfaction of the Trustee the pledgee's right to vote such Bonds and that
the pledgee is not a person directly or indirectly controlling or controlled by,
or under direct or indirect  common  control with, the Authority or the Company,
or any other  obligor on the Bonds.  In case of a dispute as to such right,  any
decision  by the  Trustee  taken  upon  the  advice  of  Counsel  shall  be full
protection to the Trustee.

     Section  12.11.  Money  Held for  Particular  Bonds.  The money held by the
Trustee for the payment of the interest,  principal,  Purchase  Price or premium
due on any date with  respect to  particular  Bonds (or portions of Bonds in the
case of registered  Bonds  redeemed in part only) shall,  on and after such date

                                       64

<PAGE>

and pending such payment, be set aside on its books and held uninvested in trust
by it for the Holders of the Bonds entitled thereto,  subject,  however,  to the
provisions of Section 11.04 hereof.

     Section 12.12. Funds. Any fund required by this Indenture to be established
and  maintained  by  the  Trustee  may  be  established  and  maintained  in the
accounting records of the Trustee,  either as a fund or an account, and may, for
the purposes of such records,  any audits  thereof and any reports or statements
with respect thereto, be treated either as a fund or as an account; but all such
records  with  respect to all such  funds  shall at all times be  maintained  in
accordance  with  current  corporate  trust  industry  standards,  to the extent
practicable, and with due regard for the requirements of Section 7.09 hereof and
for the  protection  of the security of the Bonds and the rights of every holder
thereof.

     Section 12.13.  Payments Due on Days other than Business Days. If a payment
day is not a Business  Day at the place of payment,  then payment may be made at
that  place  on the next  Business  Day and no  interest  shall  accrue  for the
intervening period.

     Section  12.14.  Execution in Several  Counterparts.  This Indenture may be
executed in any number of counterparts and each of such  counterparts  shall for
all purposes be deemed to be an original; and all such counterparts,  or as many
of them as the Company or the Trustee shall preserve undestroyed, shall together
constitute but one and the same instrument.

                                       65

<PAGE>

    IN WITNESS WHEREOF,  VERMONT ECONOMIC DEVELOPMENT AUTHORITY has caused this
Indenture  to be  signed  in its name by its  Executive  Director,  Director  of
Finance  Programs or General  Counsel and its seal to be hereunto  affixed,  and
First Union National Bank, as Trustee,  in token of its acceptance of the trusts
created hereunder,  has caused this Indenture to be signed in its corporate name
by its duly  authorized  officer and its corporate seal to be hereunto  affixed,
all as of the  day  and  year  first  above  written.

 [SEAL]                                 VERMONT  ECONOMIC DEVELOPMENT
                                        AUTHORITY

                                        By___________________________________
                                                   Rosalea Bradley
                                                       Manager

[SEAL]                                  FIRST UNION NATIONAL BANK, as Trustee

                                        By__________________________________
                                                 Authorized Officer

Attest:_____________________

                                       66
<PAGE>

                                  EXHIBIT "A"

                     (FLOATING RATE FORM OF SERIES A BOND)

No. VR-                                                        ***$_________***

     Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC") to the Authority or its
agent for  registration  of transfer,  exchange or payment,  and any certificate
issued  is  registered  in the name of Cede & Co.  or in such  other  name as is
requested  by an  authorized  representative  of DTC (and any payment is made to
Cede  &  Co.  or  to  such  other  entity  as  is  requested  by  an  authorized
representative  of DTC),  ANY TRANSFER,  PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE  BY OR TO ANY PERSON IS  WRONGFUL  inasmuch  as the  registered  owner
hereof, Cede & Co., has an interest herein.

                            UNITED STATES OF AMERICA

                                STATE OF VERMONT

                     VERMONT ECONOMIC DEVELOPMENT AUTHORITY
                        VARIABLE RATE DEMAND/FIXED RATE

                                  REVENUE BOND

                      (VERMONT PURE SPRINGS, INC. PROJECT)
                                 1999 SERIES A

DATED DATE                          MATURITY DATE                      CUSIP
January 28, 2000                    JANUARY 1, 2020

          THIS BOND DOES NOT CONSTITUTE AN  INDEBTEDNESS OF THE STATE OF VERMONT
OR OF THE ISSUER EXCEPT TO THE EXTENT PERMITTED BY SUBCHAPTER 4 OF CHAPTER 12 OF
TITLE 10 OF THE VERMONT  STATUTES  ANNOTATED.  ALL AMOUNTS  OWNED  HEREUNDER ARE
PAYABLE ONLY FROM THE SOURCES  PROVIDED IN THE TRUST INDENTURE  DESCRIBED BELOW,
AND NO  PUBLIC  FUNDS MAY BE USED FOR THAT  PURPOSE.

          THIS BOND IS SUBJECT TO MANDATORY  TENDER FOR PURCHASE AT THE TIME AND
IN THE MANNER HEREINAFTER  DESCRIBED,  AND MUST BE SO TENDERED OR WILL BE DEEMED
TO HAVE BEEN SO TENDERED UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN.

          KNOW ALL MEN BY THESE PRESENTS that the VERMONT  ECONOMIC  DEVELOPMENT
AUTHORITY (the "Authority"), for value received, promises to pay from the source
and as hereinafter  provided, to CEDE & CO. or registered assigns, on January 1,
2020, upon surrender hereof, the principal sum of ______________________ Dollars
($____________),  unless this Bond (as hereinafter defined) duly shall have been

                                      A-1

<PAGE>

called for earlier  redemption  and payment of the  redemption  price shall have
been made or provided for, and in like manner to pay interest on said sum at the
rate described below on the first day of each calendar month, or if such date is
not a Business Day, the next succeeding  Business Day and on the Conversion Date
(as defined in the Indenture, as hereinafter defined),  commencing March 1, 2000
(each an "Interest Payment Date"), from the Interest Payment Date next preceding
the date of  authentication  hereof  to  which  interest  has been  paid or duly
provided for,  unless the date of  authentication  hereof is after a Record Date
(hereinafter  defined) and on or before the succeeding Interest Payment Date, in
which case from such succeeding Interest Payment Date, or unless no interest has
been paid or duly provided for on the Bonds (as hereinafter  defined),  in which
case from  January  28,  2000 (the  "Date of  Issuance"),  until  payment of the
principal hereof has been made or duly provided for; provided,  however, that if
the  Authority  shall  default in the payment of interest  due on such  Interest
Payment  Date,  then this  Bond  shall  bear  interest  from the next  preceding
Interest  Payment Date to which interest has been paid or duly provided for, or,
if no interest has been paid or duly provided for on the Bonds, from the Date of
Issuance.  The  principal  of this Bond is payable in lawful money of the United
States of America at the  designated  office of First Union  National  Bank,  as
trustee  (together with its  successors in trust,  the "Trustee") or at the duly
designated office of any successor Trustee under the Trust Indenture dated as of
December 1, 1999,  between the Authority and the Trustee (which trust indenture,
as from time to time amended and supplemented, is hereinafter referred to as the
"Indenture").  Payment of interest  on this Bond shall be made on each  Interest
Payment  Date  to the  registered  Owner  hereof  as of the  Business  Day  next
preceding  such Interest  Payment Date (the "Record  Date") and shall be paid by
check  mailed by the Trustee on the  applicable  Interest  Payment  Date to such
registered Owner at his address as it appears on the  registration  books of the
Authority or at such other  address as is furnished to the Trustee in writing by
such  registered  Owner,  or in such  other  manner as may be  permitted  by the
Indenture.  The  Purchase  Price  (hereinafter  defined)  of this Bond  shall be
payable by First Union National Bank (together with any successor  Tender Agent,
the "Tender Agent") to the registered Owner hereof, upon presentation hereof, at
the Delivery Office of the Tender Agent. As used herein, the term "Business Day"
means any day other than (i) a Saturday or Sunday, (ii) a legal holiday on which
banking institutions in the State of New York, the State of Vermont, the City of
New York, or the city in which the corporate trust office of the Trustee and the
Tender Agent having  responsibility  for the  administration of the Indenture or
the principal  office of the Bank are  authorized or required by law to close or
(iii) a day on which the New York Stock  Exchange  is closed.

          This  Bond  and the  Bonds  of the  Series  of  which  it is a part is
comprised of a duly  authorized  issue of bonds  designated  as  "Variable  Rate
Demand/Fixed Rate Revenue Bonds (Vermont Pure Springs, Inc. Project) 1999 Series
A" (the "Bonds") issued in the aggregate  principal  amount of $3,195,000  under
and by virtue of Chapter 12 of Title 10 of the Vermont  Statutes  Annotated,  as
amended (the "Act"), and by virtue of a resolution duly adopted by the Authority
on November  5, 1999 (the "Bond  Resolution"),  and equally and ratably  secured
under the  Indenture,  for the purpose of raising  funds to finance a portion of
the costs of a project  (hereinafter  called the  "Project")  for the benefit of
Vermont Pure Holdings,  Ltd., a Delaware corporation,  and Vermont Pure Springs,
Inc., a Delaware corporation (collectively, the "Company").

          Pursuant  to a Loan  Agreement  dated  as of  December  1,  1999  (the
"Agreement")  by and between the  Authority  and the Company,  the  Authority is

                                      A-2

<PAGE>

lending  the  proceeds of the Bonds to the Company and the Company has agreed to
make loan repayments sufficient for the prompt payment when due of the principal
and Purchase Price of, premium, if any, and interest on the Bonds to the Trustee
for the account of the Authority.

          The Bonds are all issued  under and are secured by and entitled to the
protection of the Indenture, pursuant to which all payments due from the Company
to the  Authority  under  the  Agreement  (other  than  certain  indemnification
payments and the payment of certain  expenses of the  Authority) are assigned to
the Trustee to secure the payment of the  principal  and Purchase  Price of, and
premium,  if any, and interest on the Bonds and certain costs, fees and expenses
of the  Trustee.  The  Company  has  caused to be  delivered  to the  Trustee an
irrevocable  direct pay letter of credit (together with any Substitute Letter of
Credit,  the "Letter of Credit")  issued by First Union  National  Bank (in such
capacity,  the "Bank")  and dated the Date of Issuance of the Bonds,  which will
expire,  unless earlier terminated or extended,  on January 28, 2005. Subject to
certain conditions,  the Letter of Credit may be replaced by a Substitute Letter
of Credit of another  commercial  bank,  savings and loan association or savings
bank. Under the Letter of Credit,  the Trustee will be entitled to draw up to an
amount  sufficient  to pay (a) the  principal of the Bonds or the portion of the
Purchase  Price  corresponding  to the  principal  of the Bonds and (b)  accrued
interest (at the maximum rate of 15% per annum based on 365/366 day year and the
actual number of days elapsed) on the Bonds or the portion of the Purchase Price
of the Bonds corresponding to accrued interest thereon.

          Reference  is hereby  made to the  Indenture,  the  Agreement  and the
Letter of Credit for a description  of the property  pledged and  assigned,  the
provisions, among others, with respect to the nature and extent of the security,
the rights, duties and obligations of the Authority,  the Trustee and the Owners
of the Bonds and the terms upon which the Bonds are issued and secured;  and the
Owner of this Bond,  by  acceptance  hereof,  hereby  consents  to the terms and
provisions  of all of the foregoing as a material  portion of the  consideration
for the issuance of this Bond.

          This Bond shall bear interest as follows:

          (A) From the Date of  Issuance  of this Bond to the  Conversion  Date,
this Bond shall bear interest at the "Floating  Rate." The "Floating Rate" shall
be a variable rate of interest equal to the minimum rate of interest  necessary,
in the sole judgment of the Remarketing Agent (hereinafter defined), to sell the
Bonds on any  Business  Day at a price equal to the  principal  amount  thereof,
exclusive of accrued  interest,  if any,  thereon.  The  Floating  Rate shall be
determined weekly by First Union  Securities,  Inc.,  Charlotte,  North Carolina
(the  "Remarketing  Agent") by 9:30 a.m. on each Wednesday (or if such Wednesday
is not a  Business  Day,  on the next  succeeding  Business  Day)  and  shall be
effective on such  Wednesday  for the  immediately  following  Weekly Period (as
hereinafter  defined),  all as  more  fully  set  forth  in the  Indenture.  The
determination  of the  Floating  Rate shall be  conclusive  and binding upon the
Authority, the Trustee, the Bank, the Company, the Remarketing Agent, the Tender
Agent  and  the  Owners  of  this  Bond.

          Anything  herein to the contrary  notwithstanding,  the Floating  Rate
shall in no event exceed 15% per annum.

                                      A-3

<PAGE>

          (B) The Bonds shall bear  interest at the "Fixed  Rate" from and after
the Conversion Date. In such event, the Fixed Rate shall be applicable until the
maturity of the Bonds. The "Fixed Rate" shall be a fixed annual interest rate on
the Bonds established by the Remarketing Agent as the rate of interest for which
the Remarketing  Agent has received  commitments on or prior to the 5th Business
Day  preceding  the  Conversion  Date,  at a price of par  without  discount  or
premium.

          Prior to the Conversion Date,  interest on the Bonds shall be computed
on the basis of a 365/366-day year, actual number of days elapsed.  On and after
the Conversion  Date,  interest on the Bonds shall be computed on the basis of a
360-day year of twelve 30-day months.

          As  used  herein,  the  term  "Conversion  Date"  means  the  Optional
Conversion Date; the term "Letter of Credit Termination Date" means the later of
(i) that date upon which the Letter of Credit shall expire or terminate pursuant
to its terms,  or (ii) that date to which the  expiration or  termination of the
Letter of Credit may be  extended,  from time to time,  either by  extension  or
renewal of the existing Letter of Credit or the issuance of a Substitute  Letter
of Credit (as defined in the  Indenture);  the term "Optional  Conversion  Date"
means  each  January 1 or July 1 (or the next  succeeding  Business  Day to such
January 1 or July 1) while  any Bond is  outstanding,  from and after  which the
interest rate on the Bonds is converted from the Floating Rate to the Fixed Rate
as a result of the exercise by the Company of the  Conversion  Option;  the term
"Conversion  Option"  means the option  granted to the Company in the  Indenture
pursuant to which the interest rate on the Bonds is converted  from the Floating
Rate to the Fixed Rate as of the Optional  Conversion  Date;  the term "Purchase
Price"  means  an  amount  equal  to 100% of the  principal  amount  of any Bond
tendered or deemed  tendered  for  purchase  pursuant to the  Indenture  or with
respect to which the Demand Purchase Option has been exercised, plus accrued and
unpaid interest thereon to the date of purchase.  Any capitalized  terms used in
this Bond and not defined herein shall have the meanings  ascribed to such terms
in the  Indenture.

          The interest rate on the Bonds may be converted from the Floating Rate
to the Fixed Rate upon  satisfaction  of certain  conditions and notice given by
the Trustee at the  direction of the Company to the Owners of the Bonds at least
twenty  days but not more  than  thirty  days  prior to the  Conversion  Date in
accordance  with the  requirements  of the  Indenture,  and the  Bonds  shall be
subject to mandatory tender by the Owners thereof on the Conversion Date. On and
after the Conversion  Date, the Demand  Purchase Option will not be available to
the Owners of the Bonds.  On or prior to the  Conversion  Date,  Owners of Bonds
shall be required to deliver their Bonds to the Tender Agent for purchase at the
Purchase Price.  Accrued interest on the Bonds will be payable on the Conversion
Date to the Owners of Bonds as of the  Conversion  Date. Any Bonds not delivered
to the Tender Agent on or prior to the Conversion  Date  ("Undelivered  Bonds"),
for which there has been irrevocably  deposited in trust with the Trustee or the
Tender Agent an amount of Available  Money  sufficient to pay the Purchase Price
of the Undelivered Bonds, shall be deemed to have been purchased at the Purchase
Price and are  deemed to be no longer  outstanding  with  respect  to such prior
Owners.  IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER  ITS BONDS ON
OR PRIOR TO THE CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT
(INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE CONVERSION DATE) OTHER
THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED  BONDS,  AND ANY UNDELIVERED  BONDS
SHALL NO LONGER BE ENTITLED TO THE  BENEFITS  OF THE  INDENTURE,  EXCEPT FOR THE
PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR.

                                      A-4

<PAGE>

         Notwithstanding  the foregoing  provisions,  to the extent that at the
close of the fifth Business Day prior to the proposed Optional  Conversion Date,
the Remarketing  Agent has not presented to the Company firm commitments for the
purchase  of all of the  Bonds,  the  Company,  at its  option,  may  rescind an
optional  conversion of the Bonds.  Any such election to rescind must be made by
the close of the fourth  Business Day prior to the proposed  Conversion Date and
the Company shall give written  notice to the Trustee,  the Tender Agent and the
Bank of its  decision  to rescind  the  optional  conversion  by such time.  The
Company  shall  cause the  Trustee  to  immediately  notify  the  Owners of such
rescission  and thereafter the Bonds shall bear interest at the Floating Rate in
effect for the then current  Weekly Period and  thereafter  the Bonds shall bear
interest at the Floating Rate until any subsequent  Conversion  Date effected in
accordance with the Indenture. As used herein, "Weekly Period" means, while this
Bond bears  interest at the Floating  Rate, the weekly period that begins on and
includes  Wednesday of each  calendar  week and ends at the close of business on
Tuesday  of the next  succeeding  week.

          At any time  prior to the Record  Date  preceding  the first  Interest
Payment Date following the Conversion  Date, the Trustee or the Tender Agent, as
the case may be, shall  deliver,  at the expense of the Company,  a  replacement
Bond  evidencing  interest  payable at the Fixed Rate.

          Prior to the  Conversion  Date,  this Bond shall be purchased,  at the
option of the Owner hereof  ("Demand  Purchase  Option") at the Purchase  Price,
upon:

          (a) delivery by such Owner to the Trustee at its Principal  Office and
the Tender  Agent at its  principal  office  and  Delivery  Office  (hereinafter
defined) respectively; and to the Remarketing Agent at its principal office of a
notice (a "Demand Purchase Notice") (said notice to be irrevocable and effective
upon  receipt)  which  states (i) the  aggregate  principal  amount and the bond
numbers of Bonds to be  purchased;  and (ii) the date on which such Bonds are to
be purchased,  which date shall be a Business Day not prior to the seventh (7th)
day next  succeeding the date of delivery of such notice and which date shall be
prior to the  Conversion  Date;  and

          (b) delivery to the Tender Agent at its Delivery  Office  (hereinafter
defined) at or prior to 10:00 a.m.,  New York City time, on the date  designated
for  purchase  in the  applicable  Demand  Purchase  Notice of such  Bonds to be
purchased with an appropriate  endorsement for transfer or accompanied by a bond
power endorsed in blank.

          Any Bond as to  which a  Demand  Purchase  Notice  has been  delivered
pursuant to (a) above,  must be delivered to the Tender Agent as provided in (b)
above,  and any such Bonds not so  delivered  ("Undelivered  Bonds"),  for which
there has been  irrevocably  deposited  in trust with the  Trustee or the Tender
Agent an amount of Available Money sufficient to pay the Purchase Price thereof,
shall be deemed to have been  purchased at the Purchase  Price and are deemed to
be no longer outstanding with respect to such tendering Owner. IN THE EVENT OF A
FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS AS SPECIFIED ABOVE, SAID OWNER
SHALL NOT BE  ENTITLED TO ANY PAYMENT  (INCLUDING  ANY  INTEREST TO ACCRUE ON OR

                                      A-5

<PAGE>

SUBSEQUENT TO THE DATE DESIGNATED FOR PURCHASE IN THE APPLICABLE DEMAND PURCHASE
NOTICE)  OTHER  THAN THE  PURCHASE  PRICE FOR SUCH  UNDELIVERED  BONDS,  AND ANY
UNDELIVERED  BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THE INDENTURE,
EXCEPT FOR THE  PAYMENT OF THE  PURCHASE  PRICE  THEREFOR.

          Notwithstanding the foregoing provisions,  in the event any Bond as to
which the Owner thereof has exercised the Demand  Purchase  Option is remarketed
to such Owner pursuant to the Remarketing Agreement, such Owner need not deliver
such Bond to the Tender Agent as provided in (b) above, although such Bond shall
be deemed to have been delivered to the Tender Agent, redelivered to such Owner,
and remarketed for purposes of the  Indenture.

          The Agreement provides that the Company,  upon satisfaction of certain
conditions precedent,  may, at any time, at its option, provide for the delivery
to the Trustee of  Substitute  Letters of Credit.  The Bonds shall be subject to
mandatory tender by the Owners thereof on the date of delivery of the Substitute
Letters of Credit (the  "Substitution  Date").  On or prior to the  Substitution
Date,  Owners of Bonds shall be  required  to deliver  their Bonds to the Tender
Agent for purchase at the Purchase Price.  Accrued interest on the Bonds will be
payable on the  Substitution  Date to the Owners of Bonds as of the Substitution
Date.  Any  Bonds  not  delivered  to  the  Tender  Agent  on or  prior  to  the
Substitution Date  ("Undelivered  Bonds"),  for which there has been irrevocably
deposited  in trust with the Trustee or the Tender  Agent an amount of Available
Money  sufficient to pay the Purchase Price of the Undelivered  Bonds,  shall be
deemed to have been  purchased  at the  Purchase  Price and are  deemed to be no
longer  outstanding with respect to such Owners. IN THE EVENT OF A FAILURE BY AN
OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE  SUBSTITUTION  DATE, SAID
OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT  (INCLUDING ANY INTEREST TO ACCRUE ON
OR SUBSEQUENT TO THE  SUBSTITUTION  DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH
UNDELIVERED  BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE
BENEFITS OF THE  INDENTURE,  EXCEPT FOR THE  PURPOSE OF PAYMENT OF THE  PURCHASE
PRICE  THEREFOR.

          Any  delivery  of a notice  required  to be made to the Trustee at its
Principal  Office pursuant to (a) above shall be delivered to the Trustee at 213
Market  Street,  Harrisburg,  Pennsylvania  17101,  Attention:  Corporate  Trust
Services, or to the office designated for such purpose by any successor Trustee;
any  delivery of a notice  required to be made to the  Remarketing  Agent at its
principal  office  pursuant to (a) above shall be delivered  to the  Remarketing
Agent at 301 South College Street,  DC8, Charlotte,  North Carolina  28288-0600,
Attention:  William Bingham, Vice President,  Telecopier No.: (709) 383-5079, or
to the office  designated for such purpose by any successor  Remarketing  Agent;
and any  delivery  of a notice  required  to be made to the Tender  Agent at its
Principal  Office  shall be  delivered to the Tender Agent at 3C3 1525 West W.T.
Harris Boulevard,  Charlotte,  North Carolina 28288, Attention:  Corporate Trust
Services,  and any  delivery of Bonds  required  to be made to the Tender  Agent
pursuant  to (b) abov shall be  delivered  to the Tender  Agent at 3C3 1525 West
W.T. Harris Boulevard,  Charlotte,  North Carolina 28288,  Attention:  Corporate
Trust  Services or to the office  designated  for such purpose by any  successor
Tender  Agent  (the  "Delivery  Office").

                                      A-6

<PAGE>

         This Bond is transferable by the registered  Owner hereof in person or
by its attorney duly  authorized  in writing,  at the  designated  office of the
Trustee, but only in the manner,  subject to the limitations and upon payment of
the charges  provided in the Indenture,  and upon surrender and  cancellation of
this Bond.  Upon such  transfer  a new  registered  Bond or Bonds of  authorized
denomination or  denominations  for the same aggregate  principal amount will be
issued to the transferee in exchange  herefor.  The Authority,  the Tender Agent
and the Trustee may deem and treat the  registered  Owner hereof as the absolute
Owner hereof  (whether or not this Bond shall be overdue) for all purposes,  and
neither the  Authority,  the Tender Agent nor the Trustee  shall be bound by any
notice or knowledge to the contrary.

          Prior to the  Conversion  Date,  (i) the Bonds are  issuable  as fully
registered  bonds  without  coupons  in the  denominations  of  $100,000  or any
integral  multiple  of $5,000 in excess  thereof;  and (ii) the Bonds may not be
issued,  exchanged or transferred except in authorized denominations of $100,000
or any  integral  multiple  of  $5,000  in  excess  thereof.  From and after the
Conversion  Date, the Bonds shall be issuable as fully  registered bonds without
coupons  in the  denominations  of  $5,000  or any  integral  multiple  thereof.

                            Extraordinary Redemption

          The Bonds are callable for  extraordinary  redemption in the event (1)
the Project  Facilities or any portion  thereof is damaged or destroyed or taken
in a condemnation  proceeding as provided in Section 6.04 of the  Agreement,  or
(2) the Company  shall  exercise its option to cause the Bonds to be redeemed as
provided in Section 9.02 of the Agreement.  If called for redemption at any time
pursuant to (1) or (2) above,  the Bonds shall be subject to  redemption  by the
Authority on any Interest  Payment  Date,  in whole or in part,  at a redemption
price of one hundred percent (100%) of the principal amount thereof plus accrued
interest to the redemption date.

                              Mandatory Redemption

          The Bonds are subject to mandatory redemption,  five (5) Business Days
prior to the Letter of Credit  Termination Date, in whole, at a redemption price
equal to one  hundred  percent  (100%) of the  principal  amount  thereof  being
redeemed  plus  accrued  interest to the  redemption  date if, on the  thirtieth
(30th) Business Day prior to the Letter of Credit  Termination Date, the Trustee
shall not have received a Substitute Letter of Credit which will be effective on
or before the Letter of Credit Termination Date.

          The Bonds are also subject to mandatory  redemption,  in whole, at any
time,   within  one  hundred  eighty  (180)  days  after  the  occurrence  of  a
"Determination  of Taxability" (as hereinafter  defined),  at a redemption price
equal to one hundred percent (100%) of the aggregate  principal  amount of Bonds
Outstanding plus accrued interest to the redemption date.

          "Event of  Taxability"  with respect to any Bond means a change of law
or regulations,  or the interpretation  thereof,  or the occurrence of any other
event or the existence of any other  circumstance  (including without limitation
the fact that any  representations or warranties of the Company or the Authority
made in  connection  with the  issuance  of any Bond is or was  untrue or that a
covenant  of the  Company  has been  breached)  that has the  effect of  causing

                                      A-7

<PAGE>

interest payable on any Bond to be includible in gross income for federal income
tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended,
and the applicable regulations thereunder (the "Code") other than by reason that
such  interest (i) is includible in the gross income of an Owner or former Owner
of any Bond while such Owner or former Owner is or was a "substantial user" or a
"related person" to a "substantial  user" of the Project (as such terms are used
in Section  147(a)(1)  of the Code) or (ii) is deemed an item of tax  preference
including, without limitation, an item subject to any alternative minimum tax.

          "Determination of Taxability" with respect to any Bond shall be deemed
to have been made upon the first to occur of the following events:

               (i) the date on which  the  Company  determines  that an Event of
               Taxability has occurred by filing with the Trustee a statement to
               that effect  supported by one or more tax  schedules,  returns or
               documents  which  disclose that such an Event of  Taxability  has
               occurred;

               (ii) the date on which the  Company or the  Trustee is advised by
               private   ruling,   technical   advice  or  any   other   written
               communication  from  any  authorized  official  of  the  Internal
               Revenue  Service  that,  based upon any filings of the Company or
               any other  person or  entity,  or upon any review or audit of the
               Company or any other person or entity,  or upon any other grounds
               whatsoever, an Event of Taxability has occurred;

               (iii) the date on which the  Trustee or the Company is advised in
               writing  that a court of  competent  jurisdiction  has  issued an
               order,  declaration,  ruling or  judgment  to the effect  that an
               Event of Taxability has occurred;

               (iv) the date the Trustee shall have received written notice from
               any Owner of the Bonds  that such  Owner has  received  a written
               assertion  or claim by any  authorized  official of the  Internal
               Revenue Service that an Event of Taxability has occurred; or

               (v) the date the Trustee is notified in writing that the Internal
               Revenue Service has issued any private ruling,  technical  advice
               or any other written communication, with or to the effect that an
               Event of Taxability has occurred;

provided,  however, that (x) no Determination of Taxability described in clauses
(i) or (v) above shall be deemed to have occurred  unless the Trustee shall have
received a written  opinion  addressed  to the  Trustee of Palmer & Dodge LLP or
other nationally  recognized bond counsel  satisfactory to the Trustee,  in form
and substance satisfactory to the Bank and the Company and not unsatisfactory to
the Trustee, to the effect that an Event of Taxability has occurred;  and (y) no
Determination  of  Taxability  described  above shall be deemed to have occurred
until 180 days shall have elapsed from the dates described in clauses (i), (ii),
(iii),  (iv) or (v) above without such  Determination of Taxability  having been
rescinded or cancelled.

                                      A-8

<PAGE>

                        Mandatory Sinking Fund Redemption

          The Bonds are subject to mandatory  redemption on the Interest Payment
Date  occurring  in the month of  January  in each of the years set forth  below
commencing on the Interest  Payment Date  occurring in January of 2001 (each,  a
"Mandatory  Sinking Account Payment Date"),  at a redemption price equal to 100%
of the principal amount thereof plus accrued interest as follows:

                                      Mandatory Sinking
                         Year         Account Payments

                         2001             $215,000
                         2002              215,000
                         2003              215,000
                         2004              215,000
                         2005              215,000
                         2006              215,000
                         2007              215,000
                         2008              215,000
                         2009              215,000
                         2010              215,000
                         2011               55,000
                         2012              110,000
                         2013              110,000
                         2014              110,000
                         2015              110,000
                         2016              110,000
                         2017              110,000
                         2018              110,000
                         2019              110,000
                         2020*             110,000

--------------------
*Final  maturity

                               Optional Redemption

          On or  prior  to  the  Conversion  Date,  the  Bonds  are  subject  to
redemption by the Authority,  at the option of the Company, at any time, subject
to the notice provisions described below, in whole or in part, at the redemption
price of 100% of the  principal  amount  thereof  being  redeemed  plus  accrued
interest to the redemption date.

          No  such  optional  redemption  shall  occur  unless  there  shall  be
available in the Bond Fund established under the Indenture  sufficient Available
Moneys (as defined in the Indenture) to pay all amounts due with respect to such
a  redemption.

                                      A-9

<PAGE>

          If less than all the Bonds are to be redeemed, the particular Bonds or
portions  thereof to be redeemed shall be selected by the Trustee by lot.

          In the event any of the  Bonds or  portions  thereof  are  called  for
redemption  as aforesaid,  notice of the call for  redemption,  identifying  the
Bonds or portions thereof to be redeemed and the redemption price (including the
premium,  if  any),  shall  be given by the  Trustee  by  mailing  a copy of the
redemption  notice by  first-class  mail at least  thirty (30) days but not more
than sixty (60) days prior to the date fixed for redemption to the Owner of each
Bond to be redeemed in whole or in part at the address shown on the registration
books.  Any notice mailed as provided  above shall be  conclusively  presumed to
have been duly given,  whether or not the Owner receives the notice.  No further
interest shall accrue on the principal of any Bond called for  redemption  after
the redemption date if Available Moneys (as defined in the Indenture) sufficient
for such  redemption have been deposited with the Trustee.  Notwithstanding  the
foregoing,  the notice  requirements  contained  in the first  sentence  of this
paragraph may be deemed  satisfied  with respect to a transferee of a Bond which
has  been  purchased  pursuant  to the  Demand  Purchase  Option  under  certain
circumstances  provided in Section  4.06 of the  Indenture,  after such Bond has
previously  been called for redemption,  notwithstanding  the failure to satisfy
the notice  requirements of the first sentence of this paragraph with respect to
such  transferee.

          The Bonds  are  issued  pursuant  to and in full  compliance  with the
Constitution  and laws of the State of  Vermont,  particularly  the Act,  and by
appropriate  action duly taken by the Authority  which  authorizes the execution
and  delivery of the  Agreement  and the  Indenture.  The Bonds have been issued
under  the  provisions  of the Act.

          Notwithstanding  anything to the contrary  contained  herein or in the
Indenture,  the Agreement, or in any other instrument or document executed by or
on behalf of the Authority in connection  herewith,  no  stipulation,  covenant,
agreement or obligation contained herein or therein shall be deemed or construed
to be a  stipulation,  covenant,  agreement  or  obligation  of  counsel  to the
Authority  or any present or future  member,  commissioner,  director,  trustee,
officer,  employee  or  agent  of  the  Authority,  or of any  successor  to the
Authority,  in any such person's individual capacity, and no such person, in his
individual capacity,  shall be liable personally for any breach or nonobservance
of or for any failure to perform,  fulfill or comply with any such stipulations,
covenants, agreements or the principal of or premium, if any, or interest on any
of the  Bonds  or for  any  claim  based  thereon  or on any  such  stipulation,
covenant,  agreement or obligation,  against any such person,  in his individual
capacity,  either  directl or through  the  Authority  or any  successor  to the
Authority,  under any rule of law or equity,  statute or  constitution or by the
enforcement of any assessment or penalty or otherwise, and all such liability of
any such person, in his or her individual  capacity,  is hereby expressly waived
and  released.

          The Owner of this Bond shall have no right to enforce  the  provisions
of the Indenture or to institute action to enforce the covenants therein,  or to
take  any  action  with  respect  to any  default  under  the  Indenture,  or to
institute,  appear  in or  defend  any suit or other  proceedings  with  respect
thereto,  unless  certain  circumstances  described in the Indenture  shall have
occurred.  In  certain  events,  on the  conditions,  in the manner and with the
effect set forth in the  Indenture,  the principal of all the Bonds issued under
the Indenture and then outstanding may become or may be declared due and payable
before the stated maturity thereof,  together with interest accrued thereon.

                                      A-10

<PAGE>

          The Indenture  permits,  with certain  exceptions as therein provided,
the amendment  thereof and the modification of the rights and obligations of the
Authority and the rights of the Owners of the Bonds at any time by the Authority
with  the  consent  of the  Bank  and  the  holders  of all  Bonds  at the  time
outstanding.  Any such  consent or any waiver by the Bank and the holders of all
Bonds at the time outstanding shall be conclusive and binding upon the Owner and
upon all future Owners of this Bond and of any Bond issued in replacement hereof
whether or not  notation of such  consent or waiver is made upon this Bond.  The
Indenture also contains provisions which, subject to certain conditions,  permit
or require the Trustee to waive  certain past  defaults  under the Indenture and
their consequences.

          No  director,  officer,  employee  or agent of the  Authority  nor any
person  executing  this bond (by  facsimile  signature  or  otherwise)  shall be
personally  liable,  either  jointly or  severally,  hereon or be subject to any
personal liability or accountability by reason of the issuance hereof.

          This Bond shall not be valid or become  obligatory  for any purpose or
be entitled to any security or benefit under the Indenture until the certificate
of  authentication  hereon  shall have been  signed by the Trustee or the Tender
Agent, as authenticating agent.

                                            VERMONT ECONOMIC DEVELOPMENT
                                            AUTHORITY

                                            By:________________________________
                                                        Manager

                                            VERMONT ECONOMIC DEVELOPMENT
                                            AUTHORITY

                                            By:________________________________
                                                        Vice Chairman

 (SEAL)

                                      A-11

<PAGE>

                     (Form of Certificate of Authentication)

                          CERTIFICATE OF AUTHENTICATION

          This  Bond  is  one  of  the  Bonds  of  the  issue  described  in the
within-mentioned Trust Indenture.

                                           FIRST UNION NATIONAL BANK, as Trustee
                                           and Tender Agent

                                           By:________________________________
                                              Authorized Signature

Date of  Authentication:  ___________

                              (Form for Transfer)

          FOR VALUE  RECEIVED,  ____________,  the  undersigned,  hereby  sells,
assigns and transfers unto  ___________________  (Tax  Identification  or Social
Security  No.________________)  the within Bond and all rights  thereunder,  and
hereby  irrevocably  constitutes  and  appoints  __________________  attorney to
transfer the within Bond on the books kept for registration  thereof,  with full
power of substitution in the premises.

Dated _________
NOTICE:  Signature(s)  must be  guaranteed
by an  approved  eligible  guarantor
institution,  an  institution  which is a
participant  in a Securities  Transfer
Association recognized signature guarantee
program.
------------------------------

NOTICE:  The signature to this assignment
must correspond with the name as it appears
upon the face of the within Bond in every
particular, without alteration or enlargement
or any change whatever.
                                      A-12

<PAGE>

                                  EXHIBIT "B"

                       (FIXED RATE FORM OF SERIES A BOND)

          Unless this  certificate is presented by an authorized  representative
of The Depository Trust Company, a New York corporation ("DTC") to the Authority
or its  agent  for  registration  of  transfer,  exchange  or  payment,  and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized  representative of DTC (and any payment is made
to  Cede  & Co.  or to  such  other  entity  as is  requested  by an  authorized
representative  of DTC),  ANY TRANSFER,  PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE  BY OR TO ANY PERSON IS  WRONGFUL  inasmuch  as the  registered  owner
hereof,  Cede & Co., has an interest  herein.

                            UNITED STATES OF AMERICA

                                STATE OF VERMONT

                     VERMONT ECONOMIC DEVELOPMENT AUTHORITY

                        VARIABLE RATE DEMAND/FIXED RATE
                                  REVENUE BOND

                      (VERMONT PURE SPRINGS, INC. PROJECT)
                                 1999 SERIES A

No. FR-                                                      CUSIP ___________

          THIS BOND DOES NOT CONSTITUTE AN  INDEBTEDNESS OF THE STATE OF VERMONT
OR OF THE ISSUER EXCEPT TO THE EXTENT PERMITTED BY SUBCHAPTER 4 OF CHAPTER 12 OF
TITLE 10 OF THE VERMONT  STATUTES  ANNOTATED.  ALL AMOUNTS  OWNED  HEREUNDER ARE
PAYABLE ONLY FROM THE SOURCES  PROVIDED IN THE TRUST INDENTURE  DESCRIBED BELOW,
AND NO PUBLIC FUNDS MAY BE USED FOR THAT PURPOSE.

KNOW ALL MEN BY THESE PRESENTS that the VERMONT ECONOMIC  DEVELOPMENT  AUTHORITY
(the  "Authority"),  for value received,  promises to pay from the source and as
hereinafter  provided,  to CEDE & CO. or registered assigns, on January 1, 2020,
upon surrender hereof, the principal sum of __________________________  Dollars,
and in like manner to pay interest (calculated on the basis of a 360-day year of
twelve  30-day  months) on said sum at the rate of __% per annum on January 1 or
July 1 of each year, commencing  ___________,  ______ (each an "Interest Payment
Date") from the Interest Payment Date next preceding the date of  authentication
hereof to which interest has been paid or duly provided for,  unless the date of
authentication  hereof is after a Record Date  (hereinafter  defined)  and on or
before the succeeding  Interest Payment Date, in which case from such succeeding
Interest  Payment Date or unless no interest has been paid or duly  provided for
on the Bonds (as hereinafter defined), in which case from the Conversio Date (as
defined  in  the  Indenture,  as  hereinafter  defined),  until  payment  of the
principal hereof has been made or duly provided for; provided,  however, that if

                                      B-1

<PAGE>

the  Authority  shall  default in the payment of interest  due on such  Interest
Payment  Date,  then this  Bond  shall  bear  interest  from the next  preceding
interest  payment date to which interest has been paid or duly provided for, or,
if no  interest  has  been  paid or duly  provided  for on the  Bonds,  from the
Conversion  Date.  The  principal of this Bond is payable in lawful money of the
United States of America at the designated  office of First Union National Bank,
as trustee (together with its successors in trust, the "Trustee") or at the duly
designated office of any successor Trustee under the Trust Indenture dated as of
December 1, 1999 between the Authority and the Trustee  (which trust  indenture,
as from time to time amended and supplemented, is hereinafter referred to as the
"Indenture").  Payment of interest  on this Bond shall be made on each  Interest
Payment  Date to the  registered  Owner  hereof  as of the  fifteenth  day  next
preceding  any Interest  Payment  Date (the "Record  Date") and shall be paid by
check  mailed by the Trustee on the  applicable  Interest  Payment  Date to such
registered Owner at his address as it appears on the  registration  books of the
Authority or at such other  address as is furnished to the Trustee in writing by
such  registered  Owner,  or in such  other  manner as may be  permitted  by the
Indenture. As used herein the term "Business Day" means any day other than (i) a
Saturday or Sunday,  (ii) a legal holiday on which banking  institutions  in the
State of New York,  the State of Vermont,  the City of New York,  or the city in
which the  corporate  trust  office of the Trustee and the Tender  Agent  having
responsibility  for the  administration of the Indenture or the principal office
of the Bank are authorized or required by law to close,  or (iii) a day on which
the New York Stock Exchange is closed.

          This  Bond  and the  Bonds  of the  Series  of  which  it is a part is
comprised of a duly  authorized  issue of bonds (the  "Bonds") of the  Authority
designated  as "Variable  Rate  Demand/Fixed  Rate Revenue  Bonds  (Vermont Pure
Springs,  Inc.  Project) 1999 Series A" (the "Bonds")  originally  issued in the
aggregate  principal  amount of $3,195,000  under and by virtue of Chapter 12 of
Title 10 of the Vermont  Statutes  Annotated,  as amended  (the  "Act"),  and by
virtue of a resolution  duly  adopted by the  Authority on November 5, 1999 (the
"Bond Resolution"), and equally and ratably secured under the Indenture, for the
purpose of raising  funds to finance a portion of the costs of a project for the
benefit of Vermont Pure Holdings, Ltd., a Delaware corporation, and Vermont Pure
Springs, Inc., a Delaware corporation (collectively, the "Company").

          Pursuant  to a Loan  Agreement  dated  as of  December  1,  1999  (the
"Agreement")  by and between the  Authority  and the Company,  the  Authority is
lending  the  proceeds of the Bonds to the Company and the Company has agreed to
make loan repayments sufficient for the prompt payment when due of the principal
and Purchase Price of, premium, if any, and interest on the Bonds to the Trustee
for the account of the Authority.

          The  Bonds  are all  issued  under,  secured  by and  entitled  to the
protection of the Indenture, pursuant to which all payments due from the Company
to the  Authority  under  the  Agreement  (other  than  certain  indemnification
payments and the payment of certain  expenses of the  Authority) are assigned to
the Trustee to secure the payment of the  principal of and premium,  if any, and
interest on the Bonds.

          Reference  is hereby made to the  Indenture  and the  Agreement  for a
description of the property pledged and assigned, the provisions,  among others,
with respect to the nature and extent of the  security,  the rights,  duties and
obligations of the Authority,  the Trustee and the Owners of the Bonds,  and the

                                      B-2

<PAGE>

terms upon which the Bonds are issued and  secured;  and the Owner of this Bond,
by acceptance hereof,  hereby consents to the terms and provisions of all of the
foregoing as a material  portion of the  consideration  for the issuance of this
Bond. Any capitalized  terms used in this Bond and not defined herein shall have
the meanings ascribed to such terms in the Indenture.

          This Bond is transferable by the registered  Owner hereof in person or
by his attorney duly  authorized  in writing,  at the  designated  office of the
Trustee but only in the manner,  subject to the  limitations and upon payment of
the charges  provided in the Indenture,  and upon surrender and  cancellation of
this Bond.  Upon such  transfer  a new  registered  Bond or Bonds of  authorized
denomination or  denominations  for the same aggregate  principal amount will be
issued to the transferee in exchange herefor.  The Authority and the Trustee may
deem and treat the registered Owner hereof as the absolute Owner hereof (whether
or not this Bond shall be overdue) for all  purposes,  and neither the Authority
nor the Trustee shall be bound by any notice or knowledge to the  contrary.

          The Bonds shall be issuable as fully  registered Bonds without coupons
in the denomination of $5,000 or any integral  multiple  thereof.

                            Extraordinary Redemption

          The Bonds are callable for  extraordinary  redemption in the event (1)
the Project  Facilities or any portion  thereof is damaged or destroyed or taken
in a condemnation  proceeding as provided in Section 6.04 of the  Agreement,  or
(2) the Company  shall  exercise its option to cause the Bonds to be redeemed as
provided in Section 9.02 of the Agreement.  If called for redemption at any time
pursuant to (1) or (2) above,  the Bonds shall be subject to  redemption  by the
Authority  on any  Interest  Payment  Date,  in whole or in part at a redemption
price of one hundred percent (100%) of the principal amount thereof plus accrued
interest to the redemption date.

                              Mandatory Redemption

          The Bonds are subject to mandatory  redemption  five (5) Business Days
prior to the Letter of Credit  Termination Date, in whole, at a redemption price
equal to one  hundred  percent  (100%) of the  principal  amount  thereof  being
redeemed  plus  accrued  interest to the  redemption  date if, on the  thirtieth
(30th) Business Day prior to the Letter of Credit  Termination Date, the Trustee
shall not have received a Substitute Letter of Credit which will be effective on
or before the Letter of Credit  Termination  Date.

          The Bonds are also subject to mandatory  redemption,  in whole, at any
time,   within  one  hundred  eighty  (180)  days  after  the  occurrence  of  a
"Determination  of Taxability" (as hereinafter  defined),  at a redemption price
equal to one hundred percent (100%) of the aggregate  principal  amount of Bonds
Outstanding plus accrued interest to the redemption date.

          "Event of  Taxability"  with respect to any Bond means a change of law
or regulations,  or the interpretation  thereof,  or the occurrence of any other
event or the existence of any other  circumstance  (including without limitation
the fact that any  representations or warranties of the Company or the Authority
made in  connection  with the  issuance  of any Bond is or was  untrue or that a

                                      B-3

<PAGE>

covenant  of the  Company  has been  breached)  that has the  effect of  causing
interest payable on any Bond to be includible in gross income for federal income
tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended,
and the applicable regulations thereunder (the "Code") other than by reason that
such  interest (i) is includible in the gross income of an Owner or former Owner
of any Bond while such Owner or former Owner is or was a "substantial user" or a
"related person" to a "substantial  user" of the Project (as such terms are used
in Section  147(a)(1)  of the Code) or (ii) is deemed an item of tax  preference
including, without limitation, an item subject to any alternative minimum tax.

          "Determination of Taxability" with respect to any Bond shall be deemed
to have been made upon the first to occur of the following events:

               (i) the date on which  the  Company  determines  that an Event of
               Taxability has occurred by filing with the Trustee a statement to
               that effect  supported by one or more tax  schedules,  returns or
               documents  which  disclose that such an Event of  Taxability  has
               occurred;

               (ii) the date on which the  Company or the  Trustee is advised by
               private   ruling,   technical   advice  or  any   other   written
               communication  from  any  authorized  official  of  the  Internal
               Revenue  Service  that,  based upon any filings of the Company or
               any other  person or  entity,  or upon any review or audit of the
               Company or any other person or entity,  or upon any other grounds
               whatsoever, an Event of Taxability has occurred;

               (iii) the date on which the  Trustee or the Company is advised in
               writing  that a court of  competent  jurisdiction  has  issued an
               order,  declaration,  ruling or  judgment  to the effect  that an
               Event of Taxability has occurred;

               (iv) the date the Trustee shall have received written notice from
               any owner of the Bonds  that such  owner has  received  a written
               assertion  or claim by any  authorized  official of the  Internal
               Revenue Service that an Event of Taxability has occurred;  or

               (v) the date the Trustee is notified in writing that the Internal
               Revenue Service has issued any private ruling,  technical  advice
               or any other written communication, with or to the effect that an
               Event of Taxability has occurred;

provided,  however, that (x) no Determination of Taxability described in clauses
(i) or (v) above shall be deemed to have occurred  unless the Trustee shall have
received a written  opinion  addressed  to the  Trustee of Palmer & Dodge LLP or
other nationally  recognized bond counsel  satisfactory to the Trustee,  in form
and substance satisfactory to the Bank and the Company and not unsatisfactory to
the Trustee, to the effect that an Event of Taxability has occurred;  and (y) no
Determination  of  Taxability  described  above shall be deemed to have occurred
until 180 days shall have elapsed from the dates described in clauses (i), (ii),
(iii),  (iv) or (v) above without such  Determination of Taxability  having been
rescinded or cancelled.

                                      B-4

<PAGE>

                        Mandatory Sinking Fund Redemption

          The Bonds are subject to mandatory  redemption on the Interest Payment
Date  occurring  in the month of  January  in each of the years set forth  below
commencing on the Interest  Payment Date  occurring in January of _____ (each, a
"Mandatory  Sinking Account Payment Date"),  at a redemption price equal to 100%
of the  principal  amount  thereof plus accrued  interest as follows:

                                             Mandatory Sinking
                   Year                       Account Payments

--------------------
*Final maturity

                              Optional Redemption

          If the length of time from the  Conversion  Date to the final maturity
date of the  Bonds is  seven  (7)  years  or more,  the  Bonds  are  subject  to
redemption by the Authority, at the option of the Company, on or after the fifth
anniversary  of the  Conversion  Date,  in  whole  at any time or in part on any
Interest  Payment Date, at the redemption  price of 100% of the principal amount
thereof being  redeemed plus accrued  interest to the  redemption  date.

          No such option  redemption shall occur unless there shall be available
in the Bond Fund established under the Indenture sufficient Available Moneys (as
defined  in the  Indenture)  to  pay  all  amounts  due  with  respect  to  such
redemption.

          If less than all of the Bonds are to be redeemed, the particular Bonds
or portions thereof to be redeemed shall be selected by the Trustee by lot.

          In the event any of the  Bonds or  portions  thereof  are  called  for
redemption  as aforesaid,  notice of the call for  redemption,  identifying  the
Bonds or portions thereof to be redeemed and the redemption price (including the
premium,  if  any),  shall  be given by the  Trustee  by  mailing  a copy of the
redemption  notice by  first-class  mail at least  thirty (30) days but not more
than sixty (60) days prior to the date fixed for redemption to the Owner of each
Bond to be redeemed in whole or in part at the address shown on the registration
books.  Any notice mailed as provided  above shall be  conclusively  presumed to
have been duly given,  whether or not the Owner receives the notice.  No further
interest shall accrue on the principal of any Bond called for  redemption  after
the redemption date if Available Moneys (as defined in the Indenture) sufficient
for such redemption  have been deposited with the Trustee.

                                      B-5

<PAGE>

         The Bonds  are  issued  pursuant  to and in full  compliance  with the
Constitution  and laws of the State of  Vermont,  particularly  the Act,  and by
appropriate  action duly taken by the Authority  which  authorizes the execution
and  delivery of the  Agreement  and the  Indenture.  The Bonds have been issued
under  the  provisions  of the Act.

          Notwithstanding  anything to the contrary  contained  herein or in the
Indenture,  the Agreement, or in any other instrument or document executed by or
on behalf of the Authority in connection  herewith,  no  stipulation,  covenant,
agreement or obligation contained herein or therein shall be deemed or construed
to be a  stipulation,  covenant,  agreement  or  obligation  of  counsel  to the
Authority or of any present or future member,  commissioner,  director, trustee,
officer,  employee  or  agent  of  the  Authority,  or of any  successor  to the
Authority,  in any such person's individual capacity, and no such person, in his
or her  individual  capacity,  shall be  liable  personally  for any  breach  or
nonobservance of or for any failure to perform,  fulfill or comply with any such
stipulations,  covenants,  agreements or obligations,  nor shall any recourse be
had for the payment of the  principal of or premium,  if any, or interest on any
of the  Bonds  or for  any  claim  based  thereon  or on any  such  stipulation,
covenant,  agreement or obligation,  against any such person,  in his individual
capacity,  either  directly or through the  Authority  or any  successor  to the
Authority,  under any rule of law or equity,  statute or  constitution or by the
enforcement of any assessment or penalty or otherwise, and all such liability of
any such person, in his or her individual  capacity,  is hereby expressly waived
and  released.

          The Owner of this Bond shall have no right to enforce  the  provisions
of the Indenture or to institute action to enforce the covenants therein,  or to
take  any  action  with  respect  to any  default  under  the  Indenture,  or to
institute,  appear  in or  defend  any suit or other  proceedings  with  respect
thereto,  unless  certain  circumstances  described in the Indenture  shall have
occurred.  In  certain  events,  on the  conditions,  in the manner and with the
effect set forth in the  Indenture,  the principal of all the Bonds issued under
the Indenture and then outstanding may become or may be declared due and payable
before the stated maturity thereof,  together with interest accrued thereon.

          The Indenture  permits,  with certain  exceptions as therein provided,
the amendment  thereof and the modification of the rights and obligations of the
Authority and the rights of the Owners of the Bonds at any time by the Authority
with  the  consent  of the  Bank  and  the  holders  of all  Bonds  at the  time
outstanding.  Any such  consent or any waiver by the Bank and the holders of all
Bonds shall be conclusive  and binding upon the Owner and upon all future Owners
of this  Bond  and of any Bond  issued  in  replacement  hereof  whether  or not
notation of such consent or waiver is made upon this Bond.  The  Indenture  also
contains provisions which, subject to certain conditions,  permit or require the
Trustee  to  waive  certain  past   defaults   under  the  Indenture  and  their
consequences.

          No  director,  officer,  employee  or agent of the  Authority  nor any
person  executing  this bond (by  facsimile  signature  or  otherwise)  shall be
personally  liable,  either  jointly or  severally,  hereon or be subject to any
personal liability or accountability by reason of the issuance hereof.

          This Bond shall not be valid or become  obligatory  for any purpose or
be entitled to any security or benefit under the Indenture until the certificate

                                      B-6

<PAGE>

of  authentication  hereon  shall  have  been  signed by the  Trustee  or a duly
appointed  authenticating  agent  pursuant to the  Indenture.

                                            VERMONT ECONOMIC DEVELOPMENT
                                            AUTHORITY

                                            By:________________________________
                                                        Manager

                                            VERMONT ECONOMIC DEVELOPMENT
                                            AUTHORITY

                                            By:________________________________
                                                        Vice Chairman

 (SEAL)

                    (Form of Certificate of Authentication)

                          CERTIFICATE OF AUTHENTICATION

          This  Bond  is  one  of  the  Bonds  of  the  issue  described  in the
within-mentioned Trust Indenture.

                                           FIRST UNION NATIONAL BANK, as Trustee
                                           and Tender Agent

                                           By:________________________________
                                              Authorized Signature

Date of  Authentication:  ___________

                              (Form for Transfer)

          FOR VALUE  RECEIVED,  ____________,  the  undersigned,  hereby  sells,
assigns and transfers unto  ___________________  (Tax  Identification  or Social
Security  No.________________)  the within Bond and all rights  thereunder,  and
hereby  irrevocably  constitutes  and  appoints  __________________  attorney to
transfer the within Bond on the books kept for registration  thereof,  with full
power of substitution in the premises.

                                      B-7

<PAGE>

Dated _________

NOTICE:  Signature(s)  must be  guaranteed
by an  approved  eligible  guarantor
institution,  an  institution  which is a
participant  in a Securities  Transfer
Association recognized signature guarantee
program.
------------------------------

NOTICE:  The signature to this assignment
must correspond with the name as it appears
upon the face of the within Bond in every
particular, without alteration or enlargement
or any change whatever.

Dated _________

                                      B-8

<PAGE>

                                  EXHIBIT "C"

                    (FLOATING RATE FORM OF SERIES A-T BOND)

No. VR-                                                       ***$_________***

          Unless this  certificate is presented by an authorized  representative
of The Depository Trust Company, a New York corporation ("DTC") to the Authority
or its  agent  for  registration  of  transfer,  exchange  or  payment,  and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized  representative of DTC (and any payment is made
to  Cede  & Co.  or to  such  other  entity  as is  requested  by an  authorized
representative  of DTC),  ANY TRANSFER,  PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE  BY OR TO ANY PERSON IS  WRONGFUL  inasmuch  as the  registered  owner
hereof, Cede & Co., has an interest herein.

                            UNITED STATES OF AMERICA

                                STATE OF VERMONT

                     VERMONT ECONOMIC DEVELOPMENT AUTHORITY
                        VARIABLE RATE DEMAND/FIXED RATE

                                  REVENUE BOND

                      (VERMONT PURE SPRINGS, INC. PROJECT)
                           1999 SERIES A-T (TAXABLE)

DATED DATE                          MATURITY DATE                      CUSIP
January 28, 2000                   JANUARY 1, 2011

          THIS BOND DOES NOT CONSTITUTE AN  INDEBTEDNESS OF THE STATE OF VERMONT
OR OF THE ISSUER EXCEPT TO THE EXTENT PERMITTED BY SUBCHAPTER 4 OF CHAPTER 12 OF
TITLE 10 OF THE VERMONT  STATUTES  ANNOTATED.  ALL AMOUNTS  OWNED  HEREUNDER ARE
PAYABLE ONLY FROM THE SOURCES  PROVIDED IN THE TRUST INDENTURE  DESCRIBED BELOW,
AND NO  PUBLIC  FUNDS MAY BE USED FOR THAT  PURPOSE.

          THIS BOND IS SUBJECT TO MANDATORY  TENDER FOR PURCHASE AT THE TIME AND
IN THE MANNER HEREINAFTER  DESCRIBED,  AND MUST BE SO TENDERED OR WILL BE DEEMED
TO HAVE BEEN SO TENDERED UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN.

          KNOW ALL MEN BY THESE PRESENTS that the VERMONT  ECONOMIC  DEVELOPMENT
AUTHORITY (the "Authority"), for value received, promises to pay from the source
and as hereinafter  provided, to CEDE & CO. or registered assigns, on January 1,
2011, upon surrender hereof, the principal sum of ______________________ Dollars
($____________),  unless this Bond (as hereinafter defined) duly shall have been

                                      C-1

<PAGE>

called for earlier  redemption  and payment of the  redemption  price shall have
been made or provided for, and in like manner to pay interest on said sum at the
rate described below on the first day of each calendar month, or if such date is
not a Business Day, the next succeeding  Business Day and on the Conversion Date
(as defined in the Indenture, as hereinafter defined),  commencing March 1, 2000
(each an "Interest Payment Date"), from the Interest Payment Date next preceding
the date of  authentication  hereof  to  which  interest  has been  paid or duly
provided for,  unless the date of  authentication  hereof is after a Record Date
(hereinafter  defined) and on or before the succeeding Interest Payment Date, in
which case from such succeeding Interest Payment Date, or unless no interest has
been paid or duly provided for on the Bonds (as hereinafter  defined),  in which
case from  January  28,  2000 (the  "Date of  Issuance"),  until  payment of the
principal hereof has been made or duly provided for; provided,  however, that if
the  Authority  shall  default in the payment of interest  due on such  Interest
Payment  Date,  then this  Bond  shall  bear  interest  from the next  preceding
Interest  Payment Date to which interest has been paid or duly provided for, or,
if no interest has been paid or duly provided for on the Bonds, from the Date of
Issuance.  The  principal  of this Bond is payable in lawful money of the United
States of America at the  designated  office of First Union  National  Bank,  as
trustee  (together with its  successors in trust,  the "Trustee") or at the duly
designated office of any successor Trustee under the Trust Indenture dated as of
December 1, 1999,  between the Authority and the Trustee (which trust indenture,
as from time to time amended and supplemented, is hereinafter referred to as the
"Indenture").  Payment of interest  on this Bond shall be made on each  Interest
Payment  Date  to the  registered  Owner  hereof  as of the  Business  Day  next
preceding  such Interest  Payment Date (the "Record  Date") and shall be paid by
check  mailed by the Trustee on the  applicable  Interest  Payment  Date to such
registered Owner at his address as it appears on the  registration  books of the
Authority or at such other  address as is furnished to the Trustee in writing by
such  registered  Owner,  or in such  other  manner as may be  permitted  by the
Indenture.  The  Purchase  Price  (hereinafter  defined)  of this Bond  shall be
payable by First Union National Bank (together with any successor  Tender Agent,
the "Tender Agent") to the registered Owner hereof, upon presentation hereof, at
the Delivery Office of the Tender Agent. As used herein, the term "Business Day"
means any day other than (i) a Saturday or Sunday, (ii) a legal holiday on which
banking institutions in the State of New York, the State of Vermont, the City of
New York, or the city in which the corporate trust office of the Trustee and the
Tender Agent having  responsibility  for the  administration of the Indenture or
the principal  office of the Bank are  authorized or required by law to close or
(iii) a day on which the New York Stock  Exchange  is closed.

          This  Bond  and the  Bonds  of the  Series  of  which  it is a part is
comprised of a duly  authorized  issue of bonds  designated  as  "Variable  Rate
Demand/Fixed Rate Revenue Bonds (Vermont Pure Springs, Inc. Project) 1999 Series
A-T  (Taxable)"  (the  "Bonds")  issued  in the  aggregate  principal  amount of
$1,105,000 under and by virtue of Chapter 12 of Title 10 of the Vermont Statutes
Annotated, as amended (the "Act"), and by virtue of a resolution duly adopted by
the  Authority  on  November  5, 1999 (the "Bond  Resolution"),  and equally and
ratably secured under the Indenture, for the purpose of raising funds to finance
a portion of the costs of a project  (hereinafter  called the "Project") for the
benefit of Vermont Pure Holdings, Ltd., a Delaware corporation, and Vermont Pure
Springs, Inc., a Delaware corporation (collectively, the "Company").

          Pursuant  to a Loan  Agreement  dated  as of  December  1,  1999  (the
"Agreement")  by and between the  Authority  and the Company,  the  Authority is

                                      C-2

<PAGE>

lending  the  proceeds of the Bonds to the Company and the Company has agreed to
make loan repayments sufficient for the prompt payment when due of the principal
and Purchase Price of, premium, if any, and interest on the Bonds to the Trustee
for the account of the Authority.

          The Bonds are all issued  under and are secured by and entitled to the
protection of the Indenture, pursuant to which all payments due from the Company
to the  Authority  under  the  Agreement  (other  than  certain  indemnification
payments and the payment of certain  expenses of the  Authority) are assigned to
the Trustee to secure the payment of the  principal  and Purchase  Price of, and
premium,  if any, and interest on the Bonds and certain costs, fees and expenses
of the  Trustee.  The  Company  has  caused to be  delivered  to the  Trustee an
irrevocable  direct pay letter of credit (together with any Substitute Letter of
Credit,  the "Letter of Credit")  issued by First Union  National  Bank (in such
capacity,  the "Bank")  and dated the Date of Issuance of the Bonds,  which will
expire,  unless earlier terminated or extended,  on January 28, 2005. Subject to
certain conditions,  the Letter of Credit may be replaced by a Substitute Letter
of Credit of another  commercial  bank,  savings and loan association or savings
bank. Under the Letter of Credit,  the Trustee will be entitled to draw up to an
amount  sufficient  to pay (a) the  principal of the Bonds or the portion of the
Purchase  Price  corresponding  to the  principal  of the Bonds and (b)  accrued
interest (at the maximum rate of 15% per annum based on 365/366 day year and the
actual number of days elapsed) on the Bonds or the portion of the Purchase Price
of the Bonds corresponding to accrued interest thereon.

          Reference  is hereby  made to the  Indenture,  the  Agreement  and the
Letter of Credit for a description  of the property  pledged and  assigned,  the
provisions, among others, with respect to the nature and extent of the security,
the rights, duties and obligations of the Authority,  the Trustee and the Owners
of the Bonds and the terms upon which the Bonds are issued and secured;  and the
Owner of this Bond,  by  acceptance  hereof,  hereby  consents  to the terms and
provisions  of all of the foregoing as a material  portion of the  consideration
for the issuance of this Bond.

          This Bond shall bear interest as follows:

          (A) From the Date of  Issuance  of this Bond to the  Conversion  Date,
this Bond shall bear interest at the "Floating  Rate." The "Floating Rate" shall
be a variable rate of interest equal to the minimum rate of interest  necessary,
in the sole judgment of the Remarketing Agent (hereinafter defined), to sell the
Bonds on any  Business  Day at a price equal to the  principal  amount  thereof,
exclusive of accrued  interest,  if any,  thereon.  The  Floating  Rate shall be
determined weekly by First Union  Securities,  Inc.,  Charlotte,  North Carolina
(the  "Remarketing  Agent") by 9:30 a.m. on each Wednesday (or if such Wednesday
is not a  Business  Day,  on the next  succeeding  Business  Day)  and  shall be
effective on such  Wednesday  for the  immediately  following  Weekly Period (as
hereinafter  defined),  all as  more  fully  set  forth  in the  Indenture.  The
determination  of the  Floating  Rate shall be  conclusive  and binding upon the
Authority, the Trustee, the Bank, the Company, the Remarketing Agent, the Tender
Agent  and  the  Owners  of  this  Bond.

          Anything  herein to the contrary  notwithstanding,  the Floating  Rate
shall in no event exceed 17% per annum.

                                      C-3

<PAGE>

         (B) The Bonds shall bear  interest at the "Fixed  Rate" from and after
the Conversion Date. In such event, the Fixed Rate shall be applicable until the
maturity of the Bonds. The "Fixed Rate" shall be a fixed annual interest rate on
the Bonds established by the Remarketing Agent as the rate of interest for which
the Remarketing  Agent has received  commitments on or prior to the 5th Business
Day  preceding  the  Conversion  Date,  at a price of par  without  discount  or
premium.

          Prior to the Conversion Date,  interest on the Bonds shall be computed
on the basis of a 365/366-day year, actual number of days elapsed.  On and after
the Conversion  Date,  interest on the Bonds shall be computed on the basis of a
360-day year of twelve 30-day months.

          As  used  herein,  the  term  "Conversion  Date"  means  the  Optional
Conversion Date; the term "Letter of Credit Termination Date" means the later of
(i) that date upon which the Letter of Credit shall expire or terminate pursuant
to its terms,  or (ii) that date to which the  expiration or  termination of the
Letter of Credit may be  extended,  from time to time,  either by  extension  or
renewal of the existing Letter of Credit or the issuance of a Substitute  Letter
of Credit (as defined in the  Indenture);  the term "Optional  Conversion  Date"
means each  January 1 or July 1 (or the next  succeeding  Business  Date to such
January 1 or July 1) while  any Bond is  outstanding,  from and after  which the
interest rate on the Bonds is converted from the Floating Rate to the Fixed Rate
as a result of the exercise by the Company of the  Conversion  Option;  the term
"Conversion  Option"  means the option  granted to the Company in the  Indenture
pursuant to which the interest rate on the Bonds is converted  from the Floating
Rate to the Fixed Rate as of the Optional  Conversion  Date;  the term "Purchase
Price"  means  an  amount  equal  to 100% of the  principal  amount  of any Bond
tendered or deemed  tendered  for  purchase  pursuant to the  Indenture  or with
respect to which the Demand Purchase Option has been exercised, plus accrued and
unpaid interest thereon to the date of purchase.  Any capitalized  terms used in
this Bond and not defined herein shall have the meanings  ascribed to such terms
in the  Indenture.

          The interest rate on the Bonds may be converted from the Floating Rate
to the Fixed Rate upon  satisfaction  of certain  conditions and notice given by
the Trustee at the  direction of the Company to the Owners of the Bonds at least
twenty  days but not more  than  thirty  days  prior to the  Conversion  Date in
accordance  with the  requirements  of the  Indenture,  and the  Bonds  shall be
subject to mandatory tender by the Owners thereof on the Conversion Date. On and
after the Conversion  Date, the Demand  Purchase Option will not be available to
the Owners of the Bonds.  On or prior to the  Conversion  Date,  Owners of Bonds
shall be required to deliver their Bonds to the Tender Agent for purchase at the
Purchase Price.  Accrued interest on the Bonds will be payable on the Conversion
Date to the Owners of Bonds as of the  Conversion  Date. Any Bonds not delivered
to the Tender Agent on or prior to the Conversion  Date  ("Undelivered  Bonds"),
for which there has been irrevocably  deposited in trust with the Trustee or the
Tender Agent an amount of Available  Money  sufficient to pay the Purchase Price
of the Undelivered Bonds, shall be deemed to have been purchased at the Purchase
Price and are  deemed to be no longer  outstanding  with  respect  to such prior
Owners.  IN THE EVENT OF A FAILURE BY AN OWNER OF BONDS TO DELIVER  ITS BONDS ON
OR PRIOR TO THE CONVERSION DATE, SAID OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT
(INCLUDING ANY INTEREST TO ACCRUE ON OR SUBSEQUENT TO THE CONVERSION DATE) OTHER
THAN THE PURCHASE PRICE FOR SUCH UNDELIVERED  BONDS,  AND ANY UNDELIVERED  BONDS
SHALL NO LONGER BE ENTITLED TO THE  BENEFITS  OF THE  INDENTURE,  EXCEPT FOR THE
PURPOSE OF PAYMENT OF THE PURCHASE PRICE THEREFOR.

                                      C-4

<PAGE>

          Notwithstanding  the foregoing  provisions,  to the extent that at the
close of the fifth Business Day prior to the proposed Optional  Conversion Date,
the Remarketing  Agent has not presented to the Company firm commitments for the
purchase  of all of the  Bonds,  the  Company,  at its  option,  may  rescind an
optional  conversion of the Bonds.  Any such election to rescind must be made by
the close of the fourth  Business Day prior to the proposed  Conversion Date and
the Company shall give written  notice to the Trustee,  the Tender Agent and the
Bank of its  decision  to rescind  the  optional  conversion  by such time.  The
Company  shall  cause the  Trustee  to  immediately  notify  the  Owners of such
rescission  and thereafter the Bonds shall bear interest at the Floating Rate in
effect for the then current  Weekly Period and  thereafter  the Bonds shall bear
interest at the Floating Rate until any subsequent  Conversion  Date effected in
accordance with the Indenture. As used herein, "Weekly Period" means, while this
Bond bears  interest at the Floating  Rate, the weekly period that begins on and
includes  Wednesday of each  calendar  week and ends at the close of business on
Tuesday  of the next  succeeding  week.

          At any time  prior to the Record  Date  preceding  the first  Interest
Payment Date following the Conversion  Date, the Trustee or the Tender Agent, as
the case may be, shall  deliver,  at the expense of the Company,  a  replacement
Bond  evidencing  interest  payable at the Fixed Rate.  Prior to the  Conversion
Date,  this Bond shall be purchased,  at the option of the Owner hereof ("Demand
Purchase Option") at the Purchase Price, upon:

          (a) delivery by such Owner to the Trustee at its Principal  Office and
the Tender  Agent at its  principal  office  and  Delivery  Office  (hereinafter
defined) respectively; and to the Remarketing Agent at its principal office of a
notice (a "Demand Purchase Notice") (said notice to be irrevocable and effective
upon  receipt)  which  states (i) the  aggregate  principal  amount and the bond
numbers of Bonds to be  purchased;  and (ii) the date on which such Bonds are to
be purchased,  which date shall be a Business Day not prior to the seventh (7th)
day next  succeeding the date of delivery of such notice and which date shall be
prior to the  Conversion  Date;  and

          (b) delivery to the Tender Agent at its Delivery  Office  (hereinafter
defined) at or prior to 10:00 a.m.,  New York City time, on the date  designated
for  purchase  in the  applicable  Demand  Purchase  Notice of such  Bonds to be
purchased with an appropriate  endorsement for transfer or accompanied by a bond
power endorsed in blank.

          Any Bond as to  which a  Demand  Purchase  Notice  has been  delivered
pursuant to (a) above,  must be delivered to the Tender Agent as provided in (b)
above,  and any such Bonds not so  delivered  ("Undelivered  Bonds"),  for which
there has been  irrevocably  deposited  in trust with the  Trustee or the Tender
Agent an amount of Available Money sufficient to pay the Purchase Price thereof,
shall be deemed to have been  purchased at the Purchase  Price and are deemed to
be no longer outstanding with respect to such tendering Owner. IN THE EVENT OF A
FAILURE BY AN OWNER OF BONDS TO DELIVER ITS BONDS AS SPECIFIED ABOVE, SAID OWNER
SHALL NOT BE  ENTITLED TO ANY PAYMENT  (INCLUDING  ANY  INTEREST TO ACCRUE ON OR

                                      C-5

<PAGE>

SUBSEQUENT TO THE DATE DESIGNATED FOR PURCHASE IN THE APPLICABLE DEMAND PURCHASE
NOTICE)  OTHER  THAN THE  PURCHASE  PRICE FOR SUCH  UNDELIVERED  BONDS,  AND ANY
UNDELIVERED  BONDS SHALL NO LONGER BE ENTITLED TO THE BENEFITS OF THE INDENTURE,
EXCEPT FOR THE  PAYMENT OF THE  PURCHASE  PRICE  THEREFOR.

          Notwithstanding the foregoing provisions,  in the event any Bond as to
which the Owner thereof has exercised the Demand  Purchase  Option is remarketed
to such Owner pursuant to the Remarketing Agreement, such Owner need not deliver
such Bond to the Tender Agent as provided in (b) above, although such Bond shall
be deemed to have been delivered to the Tender Agent, redelivered to such Owner,
and remarketed for purposes of the  Indenture.

          The Agreement provides that the Company,  upon satisfaction of certain
conditions precedent,  may, at any time, at its option, provide for the delivery
to the Trustee of  Substitute  Letters of Credit.  The Bonds shall be subject to
mandatory tender by the Owners thereof on the date of delivery of the Substitute
Letters of Credit (the  "Substitution  Date").  On or prior to the  Substitution
Date,  Owners of Bonds shall be  required  to deliver  their Bonds to the Tender
Agent for purchase at the Purchase Price.  Accrued interest on the Bonds will be
payable on the  Substitution  Date to the Owners of Bonds as of the Substitution
Date.  Any  Bonds  not  delivered  to  the  Tender  Agent  on or  prior  to  the
Substitution Date  ("Undelivered  Bonds"),  for which there has been irrevocably
deposited  in trust with the Trustee or the Tender  Agent an amount of Available
Money  sufficient to pay the Purchase Price of the Undelivered  Bonds,  shall be
deemed to have been  purchased  at the  Purchase  Price and are  deemed to be no
longer  outstanding with respect to such Owners. IN THE EVENT OF A FAILURE BY AN
OWNER OF BONDS TO DELIVER ITS BONDS ON OR PRIOR TO THE  SUBSTITUTION  DATE, SAID
OWNER SHALL NOT BE ENTITLED TO ANY PAYMENT  (INCLUDING ANY INTEREST TO ACCRUE ON
OR SUBSEQUENT TO THE  SUBSTITUTION  DATE) OTHER THAN THE PURCHASE PRICE FOR SUCH
UNDELIVERED  BONDS, AND ANY UNDELIVERED BONDS SHALL NO LONGER BE ENTITLED TO THE
BENEFITS OF THE  INDENTURE,  EXCEPT FOR THE  PURPOSE OF PAYMENT OF THE  PURCHASE
PRICE  THEREFOR.

          Any  delivery  of a notice  required  to be made to the Trustee at its
Principal  Office pursuant to (a) above shall be delivered to the Trustee at 213
Market  Street,  Harrisburg,  Pennsylvania  17101,  Attention:  Corporate  Trust
Services, or to the office designated for such purpose by any successor Trustee;
any  delivery of a notice  required to be made to the  Remarketing  Agent at its
principal  office  pursuant to (a) above shall be delivered  to the  Remarketing
Agent at 301 South College Street,  DC8, Charlotte,  North Carolina  28288-0600,
Attention:  William Bingham, Vice President,  Telecopier No.: (709) 383-5079, or
to the office  designated for such purpose by any successor  Remarketing  Agent;
and any  delivery  of a notice  required  to be made to the Tender  Agent at its
Principal  Office  shall be  delivered to the Tender Agent at 3C3 1525 West W.T.
Harris Boulevard,  Charlotte,  North Carolina 28288, Attention:  Corporate Trust
Services,  and any  delivery of Bonds  required  to be made to the Tender  Agent
pursuant  to (b) abov shall be  delivered  to the Tender  Agent at 3C3 1525 West
W.T. Harris Boulevard,  Charlotte,  North Carolina 28288,  Attention:  Corporate
Trust  Services or to the office  designated  for such purpose by any  successor
Tender  Agent  (the  "Delivery  Office").

                                      C-6

<PAGE>

         This Bond is transferable by the registered  Owner hereof in person or
by its attorney duly  authorized  in writing,  at the  designated  office of the
Trustee, but only in the manner,  subject to the limitations and upon payment of
the charges  provided in the Indenture,  and upon surrender and  cancellation of
this Bond.  Upon such  transfer  a new  registered  Bond or Bonds of  authorized
denomination or  denominations  for the same aggregate  principal amount will be
issued to the transferee in exchange  herefor.  The Authority,  the Tender Agent
and the Trustee may deem and treat the  registered  Owner hereof as the absolute
Owner hereof  (whether or not this Bond shall be overdue) for all purposes,  and
neither the  Authority,  the Tender Agent nor the Trustee  shall be bound by any
notice or knowledge to the contrary.

          Prior to the  Conversion  Date,  (i) the Bonds are  issuable  as fully
registered  bonds  without  coupons  in the  denominations  of  $100,000  or any
integral  multiple  of $5,000 in excess  thereof;  and (ii) the Bonds may not be
issued,  exchanged or transferred except in authorized denominations of $100,000
or any  integral  multiple  of  $5,000  in  excess  thereof.  From and after the
Conversion  Date, the Bonds shall be issuable as fully  registered bonds without
coupons in the denominations of $5,000 or any integral multiple thereof.

                            Extraordinary Redemption

          The Bonds are callable for  extraordinary  redemption in the event (1)
the Project  Facilities or any portion  thereof is damaged or destroyed or taken
in a condemnation  proceeding as provided in Section 6.04 of the  Agreement,  or
(2) the Company  shall  exercise its option to cause the Bonds to be redeemed as
provided in Section 9.02 of the Agreement.  If called for redemption at any time
pursuant to (1) or (2) above,  the Bonds shall be subject to  redemption  by the
Authority on any Interest  Payment  Date,  in whole or in part,  at a redemption
price of one hundred percent (100%) of the principal amount thereof plus accrued
interest to the redemption date.

                              Mandatory Redemption

          The Bonds are subject to mandatory redemption,  five (5) Business Days
prior to the Letter of Credit  Termination Date, in whole, at a redemption price
equal to one  hundred  percent  (100%) of the  principal  amount  thereof  being
redeemed  plus  accrued  interest to the  redemption  date if, on the  thirtieth
(30th) Business Day prior to the Letter of Credit  Termination Date, the Trustee
shall not have received a Substitute Letter of Credit which will be effective on
or before the Letter of Credit Termination Date.

                        Mandatory Sinking Fund Redemption

          The Bonds are subject to mandatory  redemption on the Interest Payment
Date  occurring  in the month of  January  in each of the years set forth  below
commencing on the Interest  Payment Date  occurring in January of 2001 (each,  a
"Mandatory  Sinking Account Payment Date"),  at a redemption price equal to 100%
of the principal amount thereof plus accrued interest as follows:

                                      C-7

<PAGE>

                                   Mandatory Sinking
         Year                       Account Payments

         2001                           $105,000
         2002                            105,000
         2003                            105,000
         2004                            105,000
         2005                            105,000
         2006                            105,000
         2007                            105,000
         2008                            105,000
         2009                            105,000
         2010                            105,000
         2011*                            55,000

--------------------

                              Optional Redemption

          On or  prior  to  the  Conversion  Date,  the  Bonds  are  subject  to
redemption by the Authority,  at the option of the Company, at any time, subject
to the notice provisions described below, in whole or in part, at the redemption
price of 100% of the  principal  amount  thereof  being  redeemed  plus  accrued
interest to the redemption date.

          No  such  optional  redemption  shall  occur  unless  there  shall  be
available in the Bond Fund established under the Indenture  sufficient Available
Moneys (as defined in the Indenture) to pay all amounts due with respect to such
a  redemption.

          If less than all the Bonds are to be redeemed, the particular Bonds or
portions  thereof to be redeemed shall be selected by the Trustee by lot.

          In the event any of the  Bonds or  portions  thereof  are  called  for
redemption  as aforesaid,  notice of the call for  redemption,  identifying  the
Bonds or portions thereof to be redeemed and the redemption price (including the
premium,  if  any),  shall  be given by the  Trustee  by  mailing  a copy of the
redemption  notice by  first-class  mail at least  thirty (30) days but not more
than sixty (60) days prior to the date fixed for redemption to the Owner of each
Bond to be redeemed in whole or in part at the address shown on the registration
books.  Any notice mailed as provided  above shall be  conclusively  presumed to
have been duly given,  whether or not the Owner receives the notice.  No further
interest shall accrue on the principal of any Bond called for  redemption  after
the redemption date if Available Moneys (as defined in the Indenture) sufficient
for such  redemption have been deposited with the Trustee.  Notwithstanding  the
foregoing,  the notice  requirements  contained  in the first  sentence  of this
paragraph may be deemed  satisfied  with respect to a transferee of a Bond which
has  been  purchased  pursuant  to the  Demand  Purchase  Option  under  certain
circumstances  provided in Section  4.06 of the  Indenture,  after such Bond has
previously  been called for redemption,  notwithstanding  the failure to satisfy
the notice  requirements of the first sentence of this paragraph with respect to
such  transferee.

                                      C-8

<PAGE>

         The Bonds  are  issued  pursuant  to and in full  compliance  with the
Constitution  and laws of the State of  Vermont,  particularly  the Act,  and by
appropriate  action duly taken by the Authority  which  authorizes the execution
and  delivery of the  Agreement  and the  Indenture.  The Bonds have been issued
under  the  provisions  of the Act.

          Notwithstanding  anything to the contrary  contained  herein or in the
Indenture,  the Agreement, or in any other instrument or document executed by or
on behalf of the Authority in connection  herewith,  no  stipulation,  covenant,
agreement or obligation contained herein or therein shall be deemed or construed
to be a  stipulation,  covenant,  agreement  or  obligation  of  counsel  to the
Authority  or any present or future  member,  commissioner,  director,  trustee,
officer,  employee  or  agent  of  the  Authority,  or of any  successor  to the
Authority,  in any such person's individual capacity, and no such person, in his
individual capacity,  shall be liable personally for any breach or nonobservance
of or for any failure to perform,  fulfill or comply with any such stipulations,
covenants, agreements or the principal of or premium, if any, or interest on any
of the  Bonds  or for  any  claim  based  thereon  or on any  such  stipulation,
covenant,  agreement or obligation,  against any such person,  in his individual
capacity,  either  directl or through  the  Authority  or any  successor  to the
Authority,  under any rule of law or equity,  statute or  constitution or by the
enforcement of any assessment or penalty or otherwise, and all such liability of
any such person, in his or her individual  capacity,  is hereby expressly waived
and  released.

          The Owner of this Bond shall have no right to enforce  the  provisions
of the Indenture or to institute action to enforce the covenants therein,  or to
take  any  action  with  respect  to any  default  under  the  Indenture,  or to
institute,  appear  in or  defend  any suit or other  proceedings  with  respect
thereto,  unless  certain  circumstances  described in the Indenture  shall have
occurred.  In  certain  events,  on the  conditions,  in the manner and with the
effect set forth in the  Indenture,  the principal of all the Bonds issued under
the Indenture and then outstanding may become or may be declared due and payable
before the stated maturity thereof,  together with interest accrued thereon.

          The Indenture  permits,  with certain  exceptions as therein provided,
the amendment  thereof and the modification of the rights and obligations of the
Authority and the rights of the Owners of the Bonds at any time by the Authority
with  the  consent  of the  Bank  and  the  holders  of all  Bonds  at the  time
outstanding.  Any such  consent or any waiver by the Bank and the holders of all
Bonds at the time outstanding shall be conclusive and binding upon the Owner and
upon all future Owners of this Bond and of any Bond issued in replacement hereof
whether or not  notation of such  consent or waiver is made upon this Bond.  The
Indenture also contains provisions which, subject to certain conditions,  permit
or require the Trustee to waive  certain past  defaults  under the Indenture and
their consequences.

          No  director,  officer,  employee  or agent of the  Authority  nor any
person  executing  this bond (by  facsimile  signature  or  otherwise)  shall be
personally  liable,  either  jointly or  severally,  hereon or be subject to any
personal liability or accountability by reason of the issuance hereof.

                                      C-9

<PAGE>

          This Bond shall not be valid or become  obligatory  for any purpose or
be entitled to any security or benefit under the Indenture until the certificate
of  authentication  hereon  shall have been  signed by the Trustee or the Tender
Agent, as authenticating agent.

                                            VERMONT ECONOMIC DEVELOPMENT
                                            AUTHORITY

                                            By:________________________________
                                                        Manager

                                            VERMONT ECONOMIC DEVELOPMENT
                                            AUTHORITY

                                            By:________________________________

 (SEAL)

                    (Form of Certificate of Authentication)

                          CERTIFICATE OF AUTHENTICATION

          This  Bond  is  one  of  the  Bonds  of  the  issue  described  in the
within-mentioned Trust Indenture.

                                           FIRST UNION NATIONAL BANK, as Trustee
                                           and Tender Agent

                                           By:________________________________
                                              Authorized Signature

Date of  Authentication:  ___________

                              (Form for Transfer)

          FOR VALUE  RECEIVED,  ____________,  the  undersigned,  hereby  sells,
assigns and transfers unto  ___________________  (Tax  Identification  or Social
Security  No.________________)  the within Bond and all rights  thereunder,  and
hereby  irrevocably  constitutes  and  appoints  __________________  attorney to
transfer the within Bond on the books kept for registration  thereof,  with full
power of substitution in the premises.

                                      C-10

<PAGE>

Dated _________

NOTICE:  Signature(s)  must be  guaranteed
by an  approved  eligible  guarantor
institution,  an  institution  which is a
participant  in a Securities  Transfer
Association recognized signature guarantee
program.
------------------------------

NOTICE:  The signature to this assignment
must correspond with the name as it appears
upon the face of the within Bond in every
particular, without alteration or enlargement
or any change whatever.

                                      C-11

<PAGE>

                                  EXHIBIT "D"

                      (FIXED RATE FORM OF SERIES A-T BOND)

          Unless this  certificate is presented by an authorized  representative
of The Depository Trust Company, a New York corporation ("DTC") to the Authority
or its  agent  for  registration  of  transfer,  exchange  or  payment,  and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized  representative of DTC (and any payment is made
to  Cede  & Co.  or to  such  other  entity  as is  requested  by an  authorized
representative  of DTC),  ANY TRANSFER,  PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE  BY OR TO ANY PERSON IS  WRONGFUL  inasmuch  as the  registered  owner
hereof,  Cede & Co., has an interest  herein.

                            UNITED STATES OF AMERICA

                                STATE OF VERMONT

                     VERMONT ECONOMIC DEVELOPMENT AUTHORITY

                         VARIABLE RATE DEMAND/FIXED RATE
                                  REVENUE BOND

                      (VERMONT PURE SPRINGS, INC. PROJECT)
                                 1999 SERIES A-T

 No. FR-                                                     CUSIP ___________

          THIS BOND DOES NOT CONSTITUTE AN  INDEBTEDNESS OF THE STATE OF VERMONT
OR OF THE ISSUER EXCEPT TO THE EXTENT PERMITTED BY SUBCHAPTER 4 OF CHAPTER 12 OF
TITLE 10 OF THE VERMONT  STATUTES  ANNOTATED.  ALL AMOUNTS  OWNED  HEREUNDER ARE
PAYABLE ONLY FROM THE SOURCES  PROVIDED IN THE TRUST INDENTURE  DESCRIBED BELOW,
AND NO PUBLIC FUNDS MAY BE USED FOR THAT PURPOSE.

KNOW ALL MEN BY THESE PRESENTS that the VERMONT ECONOMIC  DEVELOPMENT  AUTHORITY
(the  "Authority"),  for value received,  promises to pay from the source and as
hereinafter  provided,  to CEDE & CO. or registered assigns, on January 1, 2011,
upon surrender hereof, the principal sum of __________________________  Dollars,
and in like manner to pay interest (calculated on the basis of a 360-day year of
twelve  30-day  months) on said sum at the rate of __% per annum on January 1 or
July 1 of each year, commencing  ___________,  ______ (each an "Interest Payment
Date") from the Interest Payment Date next preceding the date of  authentication
hereof to which interest has been paid or duly provided for,  unless the date of
authentication  hereof is after a Record Date  (hereinafter  defined)  and on or
before the succeeding  Interest Payment Date, in which case from such succeeding
Interest  Payment Date or unless no interest has been paid or duly  provided for
on the Bonds (as hereinafter defined), in which case from the Conversio Date (as
defined  in  the  Indenture,  as  hereinafter  defined),  until  payment  of the
principal hereof has been made or duly provided for; provided,  however, that if

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the  Authority  shall  default in the payment of interest  due on such  Interest
Payment  Date,  then this  Bond  shall  bear  interest  from the next  preceding
interest  payment date to which interest has been paid or duly provided for, or,
if no  interest  has  been  paid or duly  provided  for on the  Bonds,  from the
Conversion  Date.  The  principal of this Bond is payable in lawful money of the
United States of America at the designated  office of First Union National Bank,
as trustee (together with its successors in trust, the "Trustee") or at the duly
designated office of any successor Trustee under the Trust Indenture dated as of
December 1, 1999 between the Authority and the Trustee  (which trust  indenture,
as from time to time amended and supplemented, is hereinafter referred to as the
"Indenture").  Payment of interest  on this Bond shall be made on each  Interest
Payment  Date to the  registered  Owner  hereof  as of the  fifteenth  day  next
preceding  any Interest  Payment  Date (the "Record  Date") and shall be paid by
check  mailed by the Trustee on the  applicable  Interest  Payment  Date to such
registered Owner at his address as it appears on the  registration  books of the
Authority or at such other  address as is furnished to the Trustee in writing by
such  registered  Owner,  or in such  other  manner as may be  permitted  by the
Indenture. As used herein the term "Business Day" means any day other than (i) a
Saturday or Sunday,  (ii) a legal holiday on which banking  institutions  in the
State of New York,  the State of Vermont,  the City of New York,  or the city in
which the  corporate  trust  office of the Trustee and the Tender  Agent  having
responsibility  for the  administration of the Indenture or the principal office
of the Bank are authorized or required by law to close,  or (iii) a day on which
the New York Stock Exchange is closed.

          This  Bond  and the  Bonds  of the  Series  of  which  it is a part is
comprised of a duly  authorized  issue of bonds (the  "Bonds") of the  Authority
designated  as "Variable  Rate  Demand/Fixed  Rate Revenue  Bonds  (Vermont Pure
Springs,  Inc.  Project) 1999 Series A-T  (Taxable)"  (the  "Bonds")  originally
issued in the aggregate  principal  amount of $1,105,000  under and by virtue of
Chapter  12 of Title 10 of the  Vermont  Statutes  Annotated,  as  amended  (the
"Act"),  and by virtue of a resolution duly adopted by the Authority on November
5, 1999 (the "Bond  Resolution"),  and  equally and  ratably  secured  under the
Indenture, for the purpose of raising funds to finance a portion of the costs of
a  project  for  the  benefit  of  Vermont  Pure  Holdings,   Ltd.,  a  Delaware
corporation,   and  Vermont  Pure   Springs,   Inc.,   a  Delaware   corporation
(collectively, the "Company").

          Pursuant  to a Loan  Agreement  dated  as of  December  1,  1999  (the
"Agreement")  by and between the  Authority  and the Company,  the  Authority is
lending  the  proceeds of the Bonds to the Company and the Company has agreed to
make loan repayments sufficient for the prompt payment when due of the principal
and Purchase Price of, premium, if any, and interest on the Bonds to the Trustee
for the account of the Authority.

          The  Bonds  are all  issued  under,  secured  by and  entitled  to the
protection of the Indenture, pursuant to which all payments due from the Company
to the  Authority  under  the  Agreement  (other  than  certain  indemnification
payments and the payment of certain  expenses of the  Authority) are assigned to
the Trustee to secure the payment of the  principal of and premium,  if any, and
interest on the Bonds.

          Reference  is hereby made to the  Indenture  and the  Agreement  for a
description of the property pledged and assigned, the provisions,  among others,
with respect to the nature and extent of the  security,  the rights,  duties and
obligations of the Authority,  the Trustee and the Owners of the Bonds,  and the

                                      D-2

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terms upon which the Bonds are issued and  secured;  and the Owner of this Bond,
by acceptance hereof,  hereby consents to the terms and provisions of all of the
foregoing as a material  portion of the  consideration  for the issuance of this
Bond. Any capitalized  terms used in this Bond and not defined herein shall have
the meanings ascribed to such terms in the Indenture.

          This Bond is transferable by the registered  Owner hereof in person or
by his attorney duly  authorized  in writing,  at the  designated  office of the
Trustee but only in the manner,  subject to the  limitations and upon payment of
the charges  provided in the Indenture,  and upon surrender and  cancellation of
this Bond.  Upon such  transfer  a new  registered  Bond or Bonds of  authorized
denomination or  denominations  for the same aggregate  principal amount will be
issued to the transferee in exchange herefor.  The Authority and the Trustee may
deem and treat the registered Owner hereof as the absolute Owner hereof (whether
or not this Bond shall be overdue) for all  purposes,  and neither the Authority
nor the Trustee shall be bound by any notice or knowledge to the  contrary.

          The Bonds shall be issuable as fully  registered Bonds without coupons
in the denomination of $5,000 or any integral multiple thereof.

                            Extraordinary Redemption

          The Bonds are callable for  extraordinary  redemption in the event (1)
the Project  Facilities or any portion  thereof is damaged or destroyed or taken
in a condemnation  proceeding as provided in Section 6.04 of the  Agreement,  or
(2) the Company  shall  exercise its option to cause the Bonds to be redeemed as
provided in Section 9.02 of the Agreement.  If called for redemption at any time
pursuant to (1) or (2) above,  the Bonds shall be subject to  redemption  by the
Authority  on any  Interest  Payment  Date,  in whole or in part at a redemption
price of one hundred percent (100%) of the principal amount thereof plus accrued
interest to the redemption date.

                              Mandatory Redemption

          The Bonds are subject to mandatory  redemption  five (5) Business Days
prior to the Letter of Credit  Termination Date, in whole, at a redemption price
equal to one  hundred  percent  (100%) of the  principal  amount  thereof  being
redeemed  plus  accrued  interest to the  redemption  date if, on the  thirtieth
(30th) Business Day prior to the Letter of Credit  Termination Date, the Trustee
shall not have received a Substitute Letter of Credit which will be effective on
or  before  the  Letter of  Credit  Termination  Date.

                        Mandatory Sinking Fund Redemption

          The Bonds are subject to mandatory  redemption on the Interest Payment
Date  occurring  in the month of  January  in each of the years set forth  below
commencing on the Interest  Payment Date  occurring in January of _____ (each, a
"Mandatory  Sinking Account Payment Date"),  at a redemption price equal to 100%
of the principal amount thereof plus accrued interest as follows:

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                                   Mandatory Sinking
         Year                       Account Payments

--------------------
*Final maturity

                              Optional Redemption

          If the length of time from the  Conversion  Date to the final maturity
date of the  Bonds is  seven  (7)  years  or more,  the  Bonds  are  subject  to
redemption by the Authority, at the option of the Company, on or after the fifth
anniversary  of the  Conversion  Date,  in  whole  at any time or in part on any
Interest  Payment Date, at the redemption  price of 100% of the principal amount
thereof being  redeemed plus accrued  interest to the  redemption  date.

          No such option  redemption shall occur unless there shall be available
in the Bond Fund established under the Indenture sufficient Available Moneys (as
defined  in the  Indenture)  to  pay  all  amounts  due  with  respect  to  such
redemption.

          If less than all of the Bonds are to be redeemed, the particular Bonds
or portions thereof to be redeemed shall be selected by the Trustee by lot.

          In the event any of the  Bonds or  portions  thereof  are  called  for
redemption  as aforesaid,  notice of the call for  redemption,  identifying  the
Bonds or portions thereof to be redeemed and the redemption price (including the
premium,  if  any),  shall  be given by the  Trustee  by  mailing  a copy of the
redemption  notice by  first-class  mail at least  thirty (30) days but not more
than sixty (60) days prior to the date fixed for redemption to the Owner of each
Bond to be redeemed in whole or in part at the address shown on the registration
books.  Any notice mailed as provided  above shall be  conclusively  presumed to
have been duly given,  whether or not the Owner receives the notice.  No further
interest shall accrue on the principal of any Bond called for  redemption  after
the redemption date if Available Moneys (as defined in the Indenture) sufficient
for such redemption  have been deposited with the Trustee.

          The Bonds  are  issued  pursuant  to and in full  compliance  with the
Constitution  and laws of the State of  Vermont,  particularly  the Act,  and by
appropriate  action duly taken by the Authority  which  authorizes the execution
and  delivery of the  Agreement  and the  Indenture.  The Bonds have been issued
under  the  provisions  of the Act.

          Notwithstanding  anything to the contrary  contained  herein or in the
Indenture,  the Agreement, or in any other instrument or document executed by or

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on behalf of the Authority in connection  herewith,  no  stipulation,  covenant,
agreement or obligation contained herein or therein shall be deemed or construed
to be a  stipulation,  covenant,  agreement  or  obligation  of  counsel  to the
Authority or of any present or future member,  commissioner,  director, trustee,
officer,  employee  or  agent  of  the  Authority,  or of any  successor  to the
Authority,  in any such person's individual capacity, and no such person, in his
or her  individual  capacity,  shall be  liable  personally  for any  breach  or
nonobservance of or for any failure to perform,  fulfill or comply with any such
stipulations,  covenants,  agreements or obligations,  nor shall any recourse be
had for the payment of the  principal of or premium,  if any, or interest on any
of the  Bonds  or for  any  claim  based  thereon  or on any  such  stipulation,
covenant,  agreement or obligation,  against any such person,  in his individual
capacity,  either  directly or through the  Authority  or any  successor  to the
Authority,  under any rule of law or equity,  statute or  constitution or by the
enforcement of any assessment or penalty or otherwise, and all such liability of
any such person, in his or her individual  capacity,  is hereby expressly waived
and  released.

          The Owner of this Bond shall have no right to enforce  the  provisions
of the Indenture or to institute action to enforce the covenants therein,  or to
take  any  action  with  respect  to any  default  under  the  Indenture,  or to
institute,  appear  in or  defend  any suit or other  proceedings  with  respect
thereto,  unless  certain  circumstances  described in the Indenture  shall have
occurred.  In  certain  events,  on the  conditions,  in the manner and with the
effect set forth in the  Indenture,  the principal of all the Bonds issued under
the Indenture and then outstanding may become or may be declared due and payable
before the stated maturity thereof,  together with interest accrued thereon.

          The Indenture  permits,  with certain  exceptions as therein provided,
the amendment  thereof and the modification of the rights and obligations of the
Authority and the rights of the Owners of the Bonds at any time by the Authority
with  the  consent  of the  Bank  and  the  holders  of all  Bonds  at the  time
outstanding.  Any such  consent or any waiver by the Bank and the holders of all
Bonds shall be conclusive  and binding upon the Owner and upon all future Owners
of this  Bond  and of any Bond  issued  in  replacement  hereof  whether  or not
notation of such consent or waiver is made upon this Bond.  The  Indenture  also
contains provisions which, subject to certain conditions,  permit or require the
Trustee  to  waive  certain  past   defaults   under  the  Indenture  and  their
consequences.

          No  director,  officer,  employee  or agent of the  Authority  nor any
person  executing  this bond (by  facsimile  signature  or  otherwise)  shall be
personally  liable,  either  jointly or  severally,  hereon or be subject to any
personal liability or accountability by reason of the issuance hereof.

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          This Bond shall not be valid or become  obligatory  for any purpose or
be entitled to any security or benefit under the Indenture until the certificate
of  authentication  hereon  shall  have  been  signed by the  Trustee  or a duly
appointed  authenticating  agent  pursuant to the  Indenture.

                                            VERMONT ECONOMIC DEVELOPMENT
                                            AUTHORITY

                                            By:________________________________
                                                        Manager

                                            VERMONT ECONOMIC DEVELOPMENT
                                            AUTHORITY

                                            By:________________________________
                                                        Vice Chairman

 (SEAL)

                    (Form of Certificate of Authentication)

                          CERTIFICATE OF AUTHENTICATION

          This  Bond  is  one  of  the  Bonds  of  the  issue  described  in the
within-mentioned Trust Indenture.

                                           FIRST UNION NATIONAL BANK, as Trustee
                                           and Tender Agent

                                           By:________________________________
                                              Authorized Signature

Date of  Authentication:  ___________

                              (Form for Transfer)

          FOR VALUE  RECEIVED,  ____________,  the  undersigned,  hereby  sells,
assigns and transfers unto  ___________________  (Tax  Identification  or Social
Security  No.________________)  the within Bond and all rights  thereunder,  and
hereby  irrevocably  constitutes  and  appoints  __________________  attorney to
transfer the within Bond on the books kept for registration  thereof,  with full
power of substitution in the premises.

                                      D-6

<PAGE>

Dated _________

NOTICE:  Signature(s)  must be  guaranteed
by an  approved  eligible  guarantor
institution,  an  institution  which is a
participant  in a Securities  Transfer
Association recognized signature guarantee
program.
------------------------------

NOTICE:  The signature to this assignment
must correspond with the name as it appears
upon the face of the within Bond in every
particular, without alteration or enlargement
or any change whatever.

                                      D-7

<PAGE>

                                  EXHIBIT "E"

                         CONSTRUCTION FUND REQUISITION

                                   NO._______

                                                        Date:______________

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

Attention:
Ladies and Gentlemen:

          On  behalf  of  the  Vermont  Economic   Development   Authority  (the
"Authority"),  I hereby  requisition  from the  Construction  Fund  pursuant  to
Section 6.06 of a Trust Indenture dated as of December 1, 1999 (the "Indenture")
between the Authority  and First Union  National  Bank,  as Trustee,  the sum of
$____________ to be paid as follows:

Name and Address of Payee:                Purpose of Obligation:

          I hereby certify that (a) such obligation has been incurred by Vermont
Pure  Holdings,  Ltd.  and Vermont  Pure  Springs,  Inc.,  as  co-borrowers,  in
connection with the  acquisition,  construction  and equipping of the Project as
defined  in the  Indenture,  (b)  each  item  is a  proper  charge  against  the
Construction  Fund,  (c) such  obligation  has not been  the  basis  for a prior
requisition which has been paid (d) no written notice of any lien, right to lien
or attachment  upon, or claim  affecting the right to receive payment of, any of
the  moneys  payable  under the  requisition  above has been  received,  (e) the
payment of such  requisition  will not violate the  prohibitions or requirements
relating to the use of proceeds set forth in the Agreement,  and (f) no Event of
Default,  as defined in the  Indenture and in the Agreement or event which after
notice  or lapse of time or both  would  constitute  an  Event  of  Default  has
occurred and not been waived or cured.

                                      E-1

<PAGE>

          NOTE: THIS REQUISITION IS NOT COMPLETE AND IS NOT TO BE PAID UNTIL THE
APPROVAL OF THE BANK IS  RECEIVED  IN THE FORM OF EXHIBIT "F" TO THE  INDENTURE.
VERMONT PURE HOLDINGS, LTD.

                                          By_________________________________
                                            Authorized Officer

                                          VERMONT PURE SPRINGS, INC.

                                          By_________________________________
                                            Authorized Officer

                                      E-2
<PAGE>

                                  EXHIBIT "F"

                                 BANK APPROVAL

          First Union National Bank, Philadelphia,  Pennsylvania,  issuer of the
Letter of Credit hereby approves Requisition No. ______________.

                                          FIRST UNION NATIONAL BANK

                                          By_________________________________
Dated:  _________________

                                      F-1

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