Document:

THIS WARRANT HAS NOT BEEN REGISTERED
                        UNDER THE SECURITIES ACT OF 1933
                             AND IS NOT TRANSFERABLE
                            EXCEPT AS PROVIDED HEREIN

                               Vaughan Foods, Inc.

                                PURCHASE WARRANT

                                   Issued to:

                        PAULSON INVESTMENT COMPANY, INC.

                             Exercisable to Purchase

                                  500,000 Units

                                       of

                               VAUGHAN FOODS, INC.

                            Void after ________, 2011

<PAGE>

     This is to certify that, for value received and subject to the terms and
conditions set forth below, the Warrantholder (hereinafter defined) is entitled
to purchase, and the Company promises and agrees to sell and issue to the
Warrantholder, at any time on or after ________, 2007 and on or before ________,
2011, up to 500,000 Units (hereinafter defined) at the Exercise Price
(hereinafter defined).

     This Warrant Certificate is issued subject to the following terms and
conditions:

     1. DEFINITIONS OF CERTAIN TERMS. Except as may be otherwise clearly
required by the context, the following terms have the following meanings:

          (a) "Act" means the Securities Act of 1933, as amended.

          (b) "Cashless Exercise" means an exercise of Warrants in which, in
lieu of payment of the Exercise Price, the Holder elects to receive a lesser
number of Securities such that the value of the Securities that such Holder
would otherwise have been entitled to receive but has agreed not to receive, as
determined by the closing price of such Securities on the date of exercise or,
if such date is not a trading day, on the next prior trading day, is equal to
the Exercise Price with respect to such exercise. A Holder may only elect a
Cashless Exercise if Securities issuable by the Company on such exercise are
publicly traded securities.

          (c) "Class A Warrant" means a warrant defined as a Class A Warrant in
the Warrant Agreement.

          (d) "Class B Warrant" means a warrant defined as a Class B Warrant in
the Warrant Agreement.

          (e) "Closing Date" means the date on which the Offering is closed.

          (f) "Commission" means the Securities and Exchange Commission.

          (g) "Common Stock" means the common stock, par value $0.001, of the
Company.

          (h) "Company" means Vaughan Foods, Inc., an Oklahoma corporation.

          (i) "Company's Expenses" means any and all expenses payable by the
Company or the Warrantholder in connection with an offering described in Section
6 hereof, except Warrantholder's Expenses.

          (j) "Corporate Financing Rule" means Rule 2710 of the rules of the
National Association of Securities Dealers, Inc.

                                       2
<PAGE>

          (k) "Effective Date" means the date on which the Registration
Statement is declared effective by the Commission.

          (l) "Exercise Price" means the price at which the Warrantholder may
purchase one Unit upon exercise of Warrants as determined from time to time
pursuant to the provisions hereof. The initial Exercise Price is $_____ per
Unit.

          (m) "Offering" means the public offering of Units made pursuant to the
Registration Statement.

          (n) "Participating Underwriter" means any underwriter participating in
the sale of the Securities pursuant to a registration under Section 6 of this
Warrant Certificate.

          (o) "Registration Statement" means the Company's registration
statement (File No. 333 -______) as amended on the Closing Date.

     (p) "Rules and Regulations" means the rules and regulations of the
Commission adopted under the Act.

          (q) "Securities" means the securities obtained or obtainable upon
exercise of the Warrant or securities obtained or obtainable upon exercise,
exchange, or conversion of such securities.

          (r) "Unit" means one share of Common Stock, one redeemable Class A
Warrant and one redeemable Class B Warrants.

          (s) "Unit Warrant" means either a Class A Warrant or a Class B
Warrant.

          (t) "Warrant Agreement" means that certain Warrant Agreement, dated as
of _______, 2006, by and between the Company and ___________________ relating to
the issuance of Unit Warrants.

          (u) "Warrant Certificate" means a certificate evidencing the Warrant.

          (v) "Warrantholder" means a record holder of the Warrant or
Securities. The initial Warrantholder is Paulson Investment Company, Inc.

          (w) "Warrantholder's Expenses" means the sum of (i) the aggregate
amount of cash payments made to an underwriter, underwriting syndicate, or agent
in connection with an offering described in Section 6 hereof multiplied by a
fraction the numerator of which is the aggregate sales price of the Securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
the denominator of which is the aggregate sales price of all of the securities
sold by such underwriter, underwriting syndicate, or agent in such offering and
(ii) all out-of-pocket expenses of the Warrantholder, except for the fees and
disbursements of one firm retained as legal counsel for the Warrantholder that
will be paid by the Company.

          (x) "Warrant" means the warrant evidenced by this certificate, any
similar certificate issued in connection with the Offering, or any certificate
obtained upon transfer or partial exercise of the Warrant evidenced by any such
certificate.

     2. EXERCISE OF WARRANT. All or any part of the Warrant represented by this
Warrant Certificate may be exercised commencing 180 days after the Effective
Date and

                                       3
<PAGE>

ending at 5 p.m. Pacific Time on the fifth anniversary of the Effective Date
(the "Expiration Date") by surrendering this Warrant Certificate, together with
appropriate instructions, duly executed by the Warrantholder or by its duly
authorized attorney, at the office of the Company, 216 N.E. 12th Street, Moore,
Oklahoma 73160, Attention: Chief Executive Officer; or at such other office or
agency as the Company may designate. The date on which such instructions are
received by the Company shall be the date of exercise. If the Holder has elected
a Cashless Exercise, such instructions shall so state. Subject to the provisions
below, upon receipt of notice of exercise, the Company shall immediately
instruct its transfer agent to prepare certificates for the Securities to be
received by the Warrantholder upon completion of the Warrant exercise. When such
certificates are prepared, the Company shall notify the Warrantholder and
deliver such certificates to the Warrantholder or as per the Warrantholder's
instructions immediately upon payment in full by the Warrantholder, in lawful
money of the United States, of the Exercise Price payable with respect to the
Securities being purchased, if any. If the Warrantholder shall represent and
warrant that all applicable registration and prospectus delivery requirements
for their sale have been complied with upon sale of the Securities received upon
exercise of the Warrant, such certificates shall not bear a legend with respect
to the Act.

     If fewer than all the Securities purchasable under the Warrant are
purchased, the Company will, upon such partial exercise, execute and deliver to
the Warrantholder a new Warrant Certificate (dated the date hereof), in form and
tenor similar to this Warrant Certificate, evidencing that portion of the
Warrant not exercised. The Securities to be obtained on exercise of the Warrant
will be deemed to have been issued, and any person exercising the Warrant will
be deemed to have become a holder of record of those Securities, as of the date
of the payment of the Exercise Price.

     Notwithstanding the foregoing, in no event shall such Securities be issued,
and the Company is authorized to refuse to honor the exercise of the Warrant, if
such exercise would result in the opinion of the Company's Board of Directors,
upon advice of counsel, in the violation of any law; and provided further that,
if the Warrant is exercisable solely for Securities listed on a securities
exchange or for which there are at least three independent market makers, the
Company may elect to redeem the Warrant submitted for exercise for a price equal
to the difference between the aggregate low asked price, or closing price, as
the case may be, of the Securities for which the Warrant is exercisable on the
date of exercise and the Exercise Price; in the event of such redemption, the
Company will pay to the holder of the Warrant the above-described redemption
price in cash within 10 business days after receipt of notice of exercise.

     3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class, and price of
Securities for which this Warrant Certificate may be exercised are subject to
adjustment from time to time upon the happening of certain events as follows:

          (a) If the outstanding shares of the Company's Common Stock are
divided into a greater number of shares or a dividend in stock is paid on the
Common Stock, the number of shares of Common Stock for which the Warrant is then
exercisable will be proportionately increased and the Exercise Price will be
proportionately reduced; and, conversely, if the outstanding shares of Common
Stock are combined into a smaller number of shares of Common Stock, the number
of shares of Common Stock for which the Warrant is then exercisable will be
proportionately reduced and the Exercise Price will be proportionately
increased. The increases and reductions provided for in this Section 3(a) will
be made with the intent and, as nearly as

                                       4
<PAGE>

practicable, the effect that neither the percentage of the total equity of the
Company obtainable on exercise of the Warrants nor the price payable for such
percentage upon such exercise will be affected by any event described in this
Section 3(a).

          (b) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or other
change in the capital structure of the Company, other than changes in par value,
then, as a condition of such change, lawful and adequate provision will be made
so that the holder of this Warrant Certificate will have the right thereafter to
receive upon the exercise of the Warrant the kind and amount of shares of stock
or other securities or property to which he would have been entitled if,
immediately prior to such event, he had held the number of shares of Common
Stock obtainable upon the exercise of the Warrant. In any such case, appropriate
adjustment will be made in the application of the provisions set forth herein
with respect to the rights and interest thereafter of the Warrantholder, to the
end that the provisions set forth herein will thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the exercise of the Warrant. The Company
will not permit any change in its capital structure to occur unless the issuer
of the shares of stock or other securities to be received by the holder of this
Warrant Certificate, if not the Company, agrees to be bound by and comply with
the provisions of this Warrant Certificate.

          (c) When any adjustment is required to be made in the number of shares
of Common Stock, other securities, or the property purchasable upon exercise of
the Warrant, the Company will promptly determine the new number of such shares
or other securities or property purchasable upon exercise of the Warrant and (i)
prepare and retain on file a statement describing in reasonable detail the
method used in arriving at the new number of such shares or other securities or
property purchasable upon exercise of the Warrant and (ii) cause a copy of such
statement to be mailed to the Warrantholder within thirty (30) days after the
date of the event giving rise to the adjustment.

          (d) No fractional shares of Common Stock or other securities will be
issued in connection with the exercise of the Warrant, but the Company will pay,
in lieu of fractional shares, a cash payment therefor on the basis of the mean
between the bid and asked prices of the Common Stock in the over-the-counter
market or the last sale price of the Common Stock on the principal exchange or
other trading facility on which the Common Stock is traded on the day
immediately prior to exercise.

          (e) If securities of the Company or securities of any subsidiary of
the Company are distributed pro rata to holders of Common Stock, such number of
securities will be distributed to the Warrantholder or its assignee upon
exercise of its rights hereunder as such Warrantholder or assignee would have
been entitled to if this Warrant Certificate had been exercised prior to the
record date for such distribution. The provisions with respect to adjustment of
the Common Stock provided in this Section 3 will also apply to the securities to
which the Warrantholder or its assignee is entitled under this Section 3(e).

          (f) Notwithstanding anything herein to the contrary, there will be no
adjustment made hereunder on account of the sale by the Company of the Common
Stock or other Securities purchasable upon exercise of the Warrant.

                                       5
<PAGE>

          (g) If, immediately prior to any exercise of Warrants, there shall be
outstanding no securities of a class or series that, but for the provisions of
this Section 3, would be issuable upon such exercise (the "FORMERLY ISSUABLE
SECURITIES"), then, upon such exercise, and in lieu of the Formerly Issuable
Securities, the Company shall issue that number and kind of other securities or
property for which the Formerly Issuable Securities were most recently
exercisable or into which the Formerly Issuable Securities were most recently
convertible, as the case may be.

     4. RESERVATION OF SECURITIES. The Company agrees that the number of shares
of Common Stock or other Securities sufficient to provide for the exercise of
the Warrant upon the basis set forth above will at all times during the term of
the Warrant be reserved for exercise.

     5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise of
the Warrant will be duly and validly issued in accordance with their terms, and
the Company will pay all documentary and transfer taxes, if any, in respect of
the original issuance thereof upon exercise of the Warrant.

     6. REGISTRATION OF SECURITIES ISSUABLE ON EXERCISE OF WARRANT CERTIFICATE.

          (a) The Company will register the Securities with the Commission
pursuant to the Act so as to allow the unrestricted sale of the Securities to
the public from time to time commencing on the first anniversary of the
Effective Date and ending at 5:00 p.m. Pacific Time on the fifth anniversary of
the Effective Date (the "REGISTRATION PERIOD"). The Company will also file such
applications and other documents necessary to permit the sale of the Securities
to the public during the Registration Period in those states in which the Units
were qualified for sale in the Offering or such other states as to which the
Company and the Warrantholder agree. In order to comply with the provisions of
this Section 6(a), the Company is not required to file more than one
registration statement. No registration right of any kind, "piggyback" or
otherwise, will last longer than five years from the Effective Date.

          (b) The Company will pay all of the Company's Expenses and each
Warrantholder will pay its pro rata share of the Warrantholder's Expenses
relating to the registration, offer, and sale of the Securities.

          (c) Except as specifically provided herein, the manner and conduct of
the registration, including the contents of the registration statement, will be
entirely in the control and at the discretion of the Company. The Company will
file such post-effective amendments and supplements as may be necessary to
maintain the currency of the registration statement during the period of its
use. In addition, if the Warrantholder participating in the registration is
advised by counsel that the registration statement, in their opinion, is
deficient in any material respect, the Company will use its best efforts to
cause the registration statement to be amended to eliminate the concerns raised.

          (d) The Company will furnish to the Warrantholder the number of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as it may reasonably request
in order to facilitate the disposition of Securities owned by it.

                                       6
<PAGE>

          (e) The Company will, at the request of Warrantholders holding at
least 50 percent of the then outstanding Warrants, (i) furnish an opinion of the
counsel representing the Company for the purposes of the registration pursuant
to this Section 6, addressed to the Warrantholders and any Participating
Underwriter, (ii) furnish an appropriate letter from the independent public
accountants of the Company, addressed to the Warrantholders and any
Participating Underwriter, and (iii) make such representations and warranties to
the Warrantholders and any Participating Underwriter as are customarily given to
underwriters of public offerings of equity securities in connection with such
offerings. A request pursuant to this subsection (e) may be made on three
occasions. The documents required to be delivered pursuant to this subsection
(e) will be dated within ten days of the request and will be, in form and
substance, equivalent to similar documents furnished to the underwriters in
connection with the Offering, with such changes as may be appropriate in light
of changed circumstances.

     7. INDEMNIFICATION IN CONNECTION WITH REGISTRATION.

          (a) If any of the Securities are registered, the Company will
indemnify and hold harmless each selling Warrantholder, any person who controls
any selling Warrantholder within the meaning of the Act, and any Participating
Underwriter against any losses, claims, damages, or liabilities, joint or
several, to which any Warrantholder, controlling person, or Participating
Underwriter may be subject under the Act or otherwise; and it will reimburse
each Warrantholder, each controlling person, and each Participating Underwriter
for any legal or other expenses reasonably incurred by the Warrantholder,
controlling person, or Participating Underwriter in connection with
investigating or defending any such loss, claim, damage, liability, or action,
insofar as such losses, claims, damages, or liabilities, joint or several (or
actions in respect thereof), arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained, on the effective
date thereof, in any such registration statement or any preliminary prospectus
or final prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any case
to the extent that any loss, claim, damage, or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any registration statement, preliminary prospectus,
final prospectus, or any amendment or supplement thereto, in reliance upon and
in conformity with written information furnished by a Warrantholder for use in
the preparation thereof. The indemnity agreement contained in this subparagraph
(a) will not apply to amounts paid to any claimant in settlement of any suit or
claim unless such payment is first approved by the Company, such approval not to
be unreasonably withheld.

          (b) Each selling Warrantholder, as a condition of the Company's
registration obligation, will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed any registration statement
or other filing or any amendment or supplement thereto, and any person who
controls the Company within the meaning of the Act, against any losses, claims,
damages, or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, or controlling person in connection with investigating
or defending any such loss, claim, damage, liability, or action, insofar as such
losses, claims, damages, or liabilities (or actions in respect

                                       7
<PAGE>

thereof) arise out of or are based upon any untrue or alleged untrue statement
of any material fact contained in said registration statement, any preliminary
or final prospectus, or other filing, or any amendment or supplement thereto, or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, preliminary or final prospectus, or other
filing, or amendment or supplement, in reliance upon and in conformity with
written information furnished by such Warrantholder for use in the preparation
thereof; provided, however, that the indemnity agreement contained in this
subparagraph (b) will not apply to amounts paid to any claimant in settlement of
any suit or claim unless such payment is first approved by the Warrantholder,
such approval not to be unreasonably withheld.

          (c) Promptly after receipt by an indemnified party under subparagraphs
(a) or (b) above of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, notify the indemnifying party of the commencement thereof; but the
omission to notify the indemnifying party will not relieve it from any liability
that it may have to any indemnified party otherwise than under subparagraphs (a)
and (b).

          (d) If any such action is brought against any indemnified party and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party; and after
notice from the indemnifying party to such indemnified party of its election to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.

     8. RESTRICTIONS ON TRANSFER. This Warrant Certificate and the Warrant may
not be sold, transferred, assigned, pledged, or hypothecated, or be the subject
of any hedging, short sale, derivative, put, or call transaction that would
result in the effective economic disposition of the securities by any person for
a period of 180 days immediately following the Effective Date, except as
permitted in subparagraph (g)(2) of the Corporate Financing Rule. The Warrant
may be divided or combined, upon request to the Company by the Warrantholder,
into a certificate or certificates evidencing the same aggregate number of
Warrants.

     9. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein, the
Warrantholder will not, by virtue of ownership of the Warrant, be entitled to
any rights of a shareholder of the Company but will, upon written request to the
Company, be entitled to receive such quarterly or annual reports as the Company
distributes to its shareholders.

     10. NOTICE. Any notices required or permitted to be given hereunder will be
in writing and may be served personally or by mail; and if served will be
addressed as follows:

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<PAGE>

         If to the Company:

                  Vaughan Foods, Inc.
                  216 N.E. 12th Street
                  Moore, Oklahoma 73160
                  Attention:  Chief Executive Officer

         If to the Warrantholder:

                  at the address furnished
                  by the Warrantholder to the
                  Company for the purpose of
                  notice.

     Any notice so given by mail will be deemed effectively given 48 hours after
mailing when deposited in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed as specified above. Any
party may by written notice to the other specify a different address for notice
purposes.

     11. APPLICABLE LAW. This Warrant Certificate will be governed by and
construed in accordance with the laws of the State of Oregon, without reference
to conflict of laws principles thereunder. All disputes relating to this Warrant
Certificate shall be tried before the courts of Oregon located in Multnomah
County, Oregon to the exclusion of all other courts that might have
jurisdiction.

         Dated as of _______, 2006

                                            VAUGHAN FOODS, INC.

                                            By: ________________________________
                                                Name: Mark E. Vaughan
                                                Title:   Chief Executive Officer

         Agreed and Accepted as of _______, 2006

                                            PAULSON INVESTMENT COMPANY, INC.

                                            By: ________________________________
                                                Name:
                                                Title:

                                        9When Recorded Please Return to:   Floyd Law Firm, P.C.
                                  P.O. Box 396
                                  Norman, Oklahoma 73070

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

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

                           MORTGAGE AND LOAN AGREEMENT

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

                                     Between

             VAUGHAN FOODS, INC., an Oklahoma Corporation, MORTGAGOR

                                       and

        CLEVELAND COUNTY INDUSTRIAL AUTHORITY, a public trust, MORTGAGEE

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

                          Dated as of December 1, 2004

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

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

<PAGE>

                                TABLE OF CONTENTS
                                -----------------

<TABLE>
<S>                                                                                                      <C>
ARTICLE I     DEFINITIONS.................................................................................2
ARTICLE II    REPRESENTATIONS, WARRANTIES AND COVENANTS...................................................3
              Representations, Warranties and Covenants by the Issuer.....................................3
              Representations, Warranties and Covenants by the Company....................................4
              Environmental Representations and Covenants.................................................5
ARTICLE III   SECURITY PROVISIONS: TERM OF THE LOAN AGREEMENT.............................................6
              Security Provisions.........................................................................6
              Term .......................................................................................7
ARTICLE IV    FINANCING THE COST OF THE PROJECT: ISSUANCE OF THE SERIES 2004 BONDS .......................8
              Agreement to Complete the Facilities........................................................8
              Agreement to Issue the Series 2004 Bonds; Application of Bond Proceeds......................8
              Disbursements From the Project Fund.........................................................8
              Obligation of the Parties to Cooperate in Furnishing Documents to Trustee...................8
              Investment of Moneys........................................................................8
              Arbitrage and Tax Matters...................................................................9
              Establishment of Completion Date............................................................9
              Completion of the Facilities if Project Fund Insufficient...................................9
              Plans and Specifications....................................................................9
              Surety Bonds; Company to Pursue Remedies Against Contractors and
              Subcontractors and Their Sureties .........................................................10
ARTICLE V     OBLIGATIONS; PROVISIONS FOR PAYMENT........................................................11
              Loan Payments and Other Amounts Payable....................................................11
              Payees of Payments.........................................................................12
              Obligations of Company Hereunder Unconditional.............................................13
ARTICLE VI    MAINTENANCE AND INSURANCE..................................................................14
              Maintenance and Modifications of Facilities by Company.....................................14
              Insurance .................................................................................14
ARTICLE VII   CASUALTY LOSS AND CONDEMNATION.............................................................18
              Insurance and Condemnation Proceeds........................................................18
SPECIAL COVENANTS .......................................................................................19
              No Warranty of Condition or Suitability by the Issuer......................................19
              Further Assurances.........................................................................19
              Annual Audit ..............................................................................19
              Financial Statements; Annual Budgets; Financial Covenants..................................19
              Release and Indemnification Covenants......................................................19
              Company Representative.....................................................................20
              Leases and Operating Contracts.............................................................21
              No Default Certificate.....................................................................21
              Limitations on Creation of Liens...........................................................21
              Limitations on Indebtedness................................................................22
              Parity Indebtedness........................................................................25
              Transfer of Assets.........................................................................26
              Consolidation, Merger, Sale or Conveyance..................................................26
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                                     <C>
              Financial Statements; Annual Budgets; Financial Covenants..................................26
ARTICLE IX    ASSIGNMENT AND PLEDGING OF LOAN AGREEMENT, REDEMPTION OF BONDS.............................28
              Assignment by Company......................................................................28
              Assignment and Pledge by Issuer............................................................28
              Redemption of Bonds........................................................................28
ARTICLE X     EVENTS OF DEFAULT AND REMEDIES.............................................................29
              Events of Default Defined..................................................................29
              Remedies on Default........................................................................30
              No Remedy Exclusive........................................................................32
              Agreement to Pay Attorneys' Fees and Expenses..............................................32
              Waiver ....................................................................................32
              Appointment of Receiver....................................................................33
              Remedies Subject to Provisions of Law......................................................33
              Waiver of Appraisement, Valuation, Stay, and Execution Laws................................33
              Purchase of Property by Bondholder or Holder of Parity Indebtedness........................33
ARTICLE XI    PREPAYMENT OF THE LOAN.....................................................................35
              General Option to Prepay the Loan..........................................................35
              Prepayment Credits.........................................................................35
              Notice of Prepayment.......................................................................35
              Use of Prepayment Moneys...................................................................35
ARTICLE XII   MISCELLANEOUS..............................................................................36
              Notices ...................................................................................36
              Binding Effect ............................................................................36
              Severability ..............................................................................36
              Amounts Remaining in Funds.................................................................36
              Amendments, Changes and Modifications......................................................37
              Execution in-Counterparts..................................................................37
              Governing Law .............................................................................37
              Cancellation at Expiration of Term of Agreement............................................37
              Recording .................................................................................37
              No Pecuniary Liability of Issuer...........................................................37
              Partial Release ...........................................................................37
              General Release ...........................................................................38
              Captions ..................................................................................38
              Payments Due on Non-Business Day...........................................................38
              Provision of General Application...........................................................38
EXHIBIT A SITE ...........................................................................................1
EXHIBIT B COSTS OF THE PROJECT............................................................................1
------------------------------
EXHIBIT C PERMITTED LIENS...............................................................................C-1
</TABLE>

                                       ii
<PAGE>

                           MORTGAGE AND LOAN AGREEMENT

         This MORTGAGE AND LOAN AGREEMENT (this "Loan  Agreement"),  dated as of
December 1, 2004,  between  the  CLEVELAND  COUNTY  INDUSTRIAL  AUTHORITY,  (the
"Issuer"), a public trust, as Mortgagee and VAUGHAN FOODS, INC. (the "Company"),
a  corporation  duly  organized  and  existing  under  the laws of the  State of
Oklahoma, as Mortgagor.

                                   WITNESSETH:

         WHEREAS, the Company has requested that the Issuer finance the costs of
acquisition,  construction and equipping of certain manufacturing facilities and
certain solid waste disposal facilities located within Moore,  Cleveland County,
Oklahoma,  in accordance  with this Loan Agreement  which matures on December 1,
2024, and

         WHEREAS,  Title 60  Oklahoma  Statutes  2001  Section  176 et seq.,  as
amended, (the "Act"), authorizes the Issuer to finance such costs; and

         WHEREAS,  in order to  finance  such  costs,  the Issuer has issued its
Cleveland  County  Industrial  Authority  Industrial  Development  Revenue Bonds
(Vaughan Foods,  Inc. Project) Series 2004 (the "Bonds") pursuant to and secured
by an  Indenture  of Trust,  dated as of  December 1, 2004,  (the  "Indenture"),
between the Issuer and J.P. Morgan Trust Company, National Association, Oklahoma
City, Oklahoma, as trustee, (the "Trustee"); and

         WHEREAS,  the  rights of the Issuer in this Loan  Agreement  are hereby
assigned by the Issuer to the Trustee  pursuant to an  Assignment  of  Mortgage,
dated as of December 1, 2004; and

         WHEREAS,  the Issuer  proposes  to loan to the  Company and the Company
desires to borrow  from the Issuer the  proceeds of the Bonds upon the terms and
conditions hereinafter in this Loan Agreement set forth; and

         WHEREAS, the Company has determined that it is in the best interests of
the Company to grant and create the mortgage and security interests with respect
to the real property described in Exhibit A hereto (the "Site"), for the benefit
of the holder of the Bonds, all as defined and more fully set forth herein.

         NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto formally covenant, agree and
bind themselves as follows:

                                       1
<PAGE>

                                    ARTICLE I
                                   DEFINITIONS

         All terms not defined  herein shall have the meanings  assigned to such
terms in Article I of the Indenture.

                                       2
<PAGE>

                                   ARTICLE II
                    REPRESENTATIONS, WARRANTIES AND COVENANTS

         Section 2.1  REPRESENTATIONS,  WARRANTIES  AND COVENANTS BY THE ISSUER.
The Issuer  represents,  covenants  and warrants for the benefit of the Company,
the Trustee and the Bondholders that:

                  (1) the Issuer is an Oklahoma public trust, duly organized and
existing under the laws of the State of Oklahoma,  is authorized pursuant to the
Act to enter into the  transactions  contemplated by this Loan Agreement and the
Indenture and to carry out its  obligations  hereunder and  thereunder,  and has
duly  authorized  the  execution  and  delivery of this Loan  Agreement  and the
Indenture;

                  (2) consistent with the  understanding  between the Issuer and
the  Company,  the Issuer  will loan the  Company  the  proceeds of the Bonds to
provide for the financing of the Project;

                  (3) the Issuer  hereby finds that the financing of the Project
is in the public interest;

                  (4) to finance the Project, the Issuer will issue the Bonds in
the aggregate  principal  amount of  $5,000,000.  The Bonds shall  mature,  bear
interest,  be subject to redemption prior to maturity,  be secured and have such
other terms and conditions as are set forth in the Indenture;

                  (5) neither the execution and delivery of this Loan  Agreement
or the Indenture,  the consummation of the transactions  contemplated  hereby or
thereby nor the  fulfillment  of or compliance  with the terms and conditions of
this Loan  Agreement or the Indenture  conflicts  with or results in a breach of
any of the terms,  conditions or provisions of any  restriction or any agreement
or  instrument  to which  the  Issuer  is now a party or by which it is bound or
constitutes  a default  under any of the foregoing or results in the creation or
imposition  of  any  prohibited  lien,  charge  or  encumbrance  of  any  nature
whatsoever  upon any of the  property or assets of the Issuer under the terms of
any instrument or agreement;

                  (6) the Issuer hereby  acknowledges the Company's  estimate of
the total Cost of the Project set forth in Exhibit B hereto;

                  (7) the  Bonds  are to be  issued  under  and  secured  by the
Indenture  pursuant  to which  certain  of the  Issuer's  interest  in this Loan
Agreement will be pledged and assigned to the Trustee as security for payment of
the principal of, premium, if any, and interest on the Bonds; and

                  (8) the  issuance of the Bonds was  approved by the  Cleveland
County  Board of County  Commissioners  on behalf of which the Bonds were issued
after a public hearing following reasonable public notice.

                                       3
<PAGE>

         Section 2.2  REPRESENTATIONS,  WARRANTIES AND COVENANTS BY THE COMPANY.
The Company  represents,  warrants and  covenants for the benefit of the Issuer,
the Trustee and the Bondholders, that:

                  (1) the Company is a  corporation  duly  organized and in good
standing  under the laws of the State of Oklahoma,  is authorized by the laws of
the State  applicable  as of the date  hereof to provide and operate the Project
has power to enter into and to perform and observe the covenants and  agreements
on its part  contained in this Loan  Agreement and the Tax  Certificates  and by
proper  action has duly  authorized  the  execution  and  delivery  of this Loan
Agreement and the Tax Certificates;

                  (2) neither the execution and delivery of this Loan  Agreement
and the Tax  Certificates,  the  consummation of the  transactions  contemplated
hereby  or  thereby  nor the  fulfillment  of or  compliance  with the terms and
conditions of this Loan Agreement and the Tax  Certificates  violates any law or
conflicts  with or  results  in a  breach  of any of the  terms,  conditions  or
provisions  of any  restriction  or any  agreement  or  instrument  to which the
Company is now a party or by which it is bound or  constitutes  a default  under
any of the  foregoing  or results in the  creation  or  imposition  of any lien,
charge or  encumbrance  of any nature  whatsoever  upon any of the  property  or
assets of the Company under the terms of any instrument or agreement  except for
the Indenture and other Permitted Liens;

                  (3) the total Cost of the Project is hereby  determined  to be
not less than  $5,000,000,  and the  financing  of such cost by the Issuer  will
assist  the  Company  in  providing   manufacturing  and  solid  waste  disposal
facilities;

                  (4) the Company  intends to operate or to cause its Facilities
to be  operated  and to use the  Improvements  in  connection  therewith  to the
expiration of the term of this Loan Agreement pursuant to the Act;

                  (5) as of  the  date  of  this  Loan  Agreement,  there  is no
litigation or legal or governmental action, proceeding, inquiry or investigation
pending or  threatened  by  governmental  authority or to which the Company is a
party or of which any  property  of the  Company is  subject,  which  would,  if
determined   adversely  to  the  Company,   materially   adversely   affect  the
transactions contemplated hereby;

                  (6) the Company has or shall have good and marketable title to
the Site,  free from all  encumbrances  except  Permitted  Liens as set forth in
Exhibit  "C" herein,  and such title shall  remain in the Company so long as the
Bonds remain Outstanding, except as otherwise provided herein;

                  (7) the Company has obtained,  or will obtain on or before the
date required therefor, all licenses, authorizations, permits and approvals from
applicable local, state and federal governmental agencies necessary to construct
the Improvements  and to operate the  Improvements as  manufacturing  facilities
contemplated  by this Loan  Agreement.  The Company knows of no reason that such
licenses, authorizations,  permits and approvals will not be issued or issued in
a timely manner;

                                       4
<PAGE>

                  (8) the Company is in possession of a Phase One  Environmental
Assessment which was performed on the Site, and such assessment has not revealed
any  contamination  of the Site or any violation of any rules or  regulations of
the Environmental  Protection Agency or any other environmental  protection rule
or regulation of any federal, state or local agency;

                  (9) no  improvements  located or to be located in the building
set-back shown on the ALTA/ATSM  Land Title Survey  prepared with respect to the
Site are used or shall be used in the business operations of the Company.

         Section 2.3 ENVIRONMENTAL  REPRESENTATIONS AND COVENANTS. Except as may
be described in the Phase I  Environmental  Site  Assessment  dated December 12,
2004, prepared by Greystone  Environmental  Services,  Inc., with respect to the
Site, neither the Company nor, to the Company's knowledge,  any other Person has
ever caused or permitted any Hazardous  Material to be placed,  held, located or
disposed  of on,  under  or at the  Property,  or any  part  thereof  except  in
compliance with  Environmental  Laws. The Company hereby warrants and represents
that, to the best of its  knowledge,  it has complied  and, in the future,  will
comply in all material respects with all applicable  Environmental Laws. None of
the Property, has previously contained, and none of such properties now contain,
any  underground  storage  tanks (other than in compliance  with all  applicable
Environmental  Laws) and none has ever been used by the  Company or by any other
Person as a temporary or permanent  storage or disposal  site for any  Hazardous
Material.  The Company has delivered to the Trustee all  environmental  reports,
studies,  audits and other data and  information in the possession or control of
the Company relating to the Property.

         If the Issuer or the Trustee reasonably  suspects that any violation of
the  Environmental  Laws is occurring  involving  the Property or if an Event of
Default shall have occurred and be continuing which, with the passage of time or
the giving of notice, or both, would constitute an Event of Default,  the Issuer
and the Trustee shall have the right, but no obligation, to conduct any tests or
inspections  of the  Property,  at the  Company's  expense  (including,  without
limitation,  soil and other tests, borings, sampling and monitoring) in order to
determine  compliance with Environmental Laws or the presence thereon or therein
of Hazardous Material and to have access to the Property for such purposes.

                                       5
<PAGE>

                                   ARTICLE III
                 SECURITY PROVISIONS: TERM OF THE LOAN AGREEMENT

         Section 3.1 SECURITY PROVISIONS.  In order to secure the payment of the
Bonds and  payment of all sums  advanced  under this Loan  Agreement,  including
advances  which may be made in the future and to secure the  performance  by the
Company of all the covenants expressed or implied by this Loan Agreement (a) the
Company does hereby grant,  bargain,  sell,  convey and mortgage unto the Issuer
its interest in the real property described in Exhibit A hereto (the "Site") and
the improvements  located or to be constructed thereon (the  "Improvements," and
together with the Site, the "Property"),  and any fixtures or appurtenances  now
or  hereafter  erected  thereon;  together  with all rents and leases,  profits,
royalties,  minerals,  geothermal  resources,  oil and gas rights  and  profits,
easements  and access  rights,  now owned or hereafter  acquired by the Company,
used, belonging to, or in any way connected with the Property,  all of which are
declared  to be a part  of  said  Property,  and  all  the  rights,  privileges,
benefits,  hereditaments and  appurtenances in any way belonging,  incidental or
appertaining to the Property (other than equipment hereafter acquired),  subject
to Permitted  Liens as  described  in Section  8.10 hereof,  and (b) the Company
hereby pledges to and grants to the Issuer a present security  interest,  within
the meaning of the Oklahoma Uniform  Commercial Code and to the extent permitted
by law, in (i) the Pledged Revenues,  (ii) all of its right, title and interest,
if any, in the Funds  (other  than the Rebate  Fund),  (iii) any trust  accounts
referred  to in this  Loan  Agreement  or in the  Indenture,  (iv) all  tangible
personal property, furniture,  machinery and equipment of the Company, now owned
by the Company and located on the Site (the  "Equipment"),  and (v) inventory of
the Company  located on the Site,  in each case subject to  Permitted  Liens and
subject to liens and  security  interests  of record as of the date of execution
hereof,   excluding  from  such  pledge  and  security   interest  all  patents,
trademarks,  copyrights,  licenses and similar proprietary rights of the Company
now owned or hereafter acquired, to the extent the same constitute  "collateral"
within the meaning of Section 3.3 hereof ."

         This pledge  shall be valid and binding  from and after the date of the
first delivery of any of the Bonds. To the extent any assets pledged pursuant to
this Loan Agreement consist of rights of action or personal property,  this Loan
Agreement  constitutes  a security  agreement  and  financing  statement  and is
intended when recorded to create a perfected security interest in such assets in
favor of the Issuer.  The Company shall file financing  statements  from time to
time relating to this Loan Agreement in such manner and at such places as may be
required by law fully to protect the security of the  Bondholders and the right,
title  and  interest  of the  Trustee  in and to the  Trust  Estate  or any part
thereof.

         Notwithstanding the foregoing,  the Company shall be entitled to pledge
any accounts receivable or inventory,  or both,, on a basis senior to the pledge
herein  provided,  to  secure  the  payment  of  Indebtedness  in the  form of a
revolving credit or similar agreement in a maximum principal amount equal to 80%
of such accounts receivable.

         In addition,  the Company  shall be entitled to pledge  purchase  order
receipts from Approved  Purchasers and to pledge  inventory with respect thereto
on a basis  senior to the  pledge  herein  provided,  to secure  the  payment of
Indebtedness in a maximum  principal amount equal to 95% of the principal amount
of such purchase orders.

                                       6
<PAGE>

         The Trustee, as assignee of the Issuer pursuant to the Assignment, will
execute such subordination or similar agreements as reasonably  requested by the
Company with respect to any such accounts receivable or inventory pledge.

         Section 3.2 TERM.  This Loan  Agreement  shall remain in full force and
effect  from the date of  delivery  hereof  until  such time as all of the Bonds
shall have been fully paid or provision is made for such payment pursuant to the
Indenture  and all  reasonable  and  necessary  fees and expenses of the Trustee
accrued and to accrue through final payment of the Bonds,  all fees and expenses
of the Issuer  accrued and to accrue  through final payment of the Bonds and all
other  liabilities of the Company accrued and to accrue through final payment of
the  Bonds  under  this  Loan  Agreement  and the  Indenture  have  been paid or
provision is made for such payments pursuant to the Indenture.

                                       7
<PAGE>

                                   ARTICLE IV
                      FINANCING THE COST OF THE FACILITIES:
                              ISSUANCE OF THE BONDS

         Section 4.1 AGREEMENT TO COMPLETE THE  FACILITIES.  The Company  agrees
that it will acquire,  construct,  improve and equip the Facilities described in
Exhibit B.

         Section 4.2 AGREEMENT TO ISSUE THE BONDS; APPLICATION OF BOND PROCEEDS.
In order to  provide  funds to make the Loan for  payment  of the  Project,  the
Issuer will sell and cause to be delivered to the initial  purchaser thereof the
Bonds.

         Section 4.3 DISBURSEMENTS FROM THE PROJECT FUND. The Issuer has, in the
Indenture, authorized and directed the Trustee to make payments from the Project
Fund to pay (or to  reimburse  the  Company  for the payment of) the Cost of the
Project,   including  costs  related  to  the  design,  planning,   acquisition,
construction,  improvement, equipment and operation of the Facilities. Each such
payment  of the Cost of the  Project  related  thereto  shall be made  only upon
receipt by the Trustee of a  requisition  signed by the  Company  Representative
showing  the  payment  to be  necessary  and  reasonable  and  stating  (i)  the
requisition number, (ii) the name and address of the person, firm or corporation
to whom  payment  is due or was made,  (iii) the  amount to be paid or for which
reimbursement  is sought,  (iv) that none of the items for which the  payment or
reimbursement  is  proposed  to be made has been the  subject of any  payment or
reimbursement  theretofore  made from the Project  Fund,  (v) the nature of each
item for  which the  payment  or  reimbursement  is  proposed  to be made and in
connection with the Facilities described in Exhibit B, if applicable,  that such
item is or was reasonable and necessary in connection with the design, planning,
acquisition, construction, improvement and equipping of the Facilities described
in  Exhibit  B, and in all cases is a proper  Cost of the  Project  and a proper
charge against the Project Fund, and (vi) that upon payment or  reimbursement of
the amount  requested in such  requisition,  the amount remaining in the Project
Fund,  together  with other  legally  available  moneys of the  Company  will be
sufficient to pay the portion of the Cost of the Project relating to the design,
planning, acquisition,  construction,  improving and equipping of the Facilities
then  unpaid.  No  disbursement  requested in any  requisition  (other than with
respect to equipment  or working  capital)  shall be made by the Trustee  unless
there is attached to the  requisition  (a) lien  waivers  covering all work done
and/or materials  furnished in connection with the Improvements  relating to any
prior  disbursement  from  the  Project  Fund  for  payment  to  contractors  or
materialmen.  The Trustee may, but shall be under no obligation,  to review such
lien waivers.

         Section  4.4  OBLIGATION  OF THE  PARTIES TO  COOPERATE  IN  FURNISHING
DOCUMENTS TO TRUSTEE.  The Company and the Issuer  agree to cooperate  with each
other in furnishing to the Trustee the requisitions  referred to in Sections 4.3
hereof.  Such obligation of the Issuer shall not extend beyond the moneys in the
Project Fund available for payment under the terms of the Indenture.

         Section  4.5  INVESTMENT  OF MONEYS.  Any moneys  held as a part of the
Funds  shall be  invested,  reinvested  and  transferred  to other  Funds by the
Trustee as provided in Article VI of the Indenture.

                                       8
<PAGE>

         Section 4.6 ARBITRAGE AND TAX MATTERS. The Company hereby covenants and
represents  for the  benefit of each  owner of the Bonds and the Issuer  that it
will not make or permit  any use of the  proceeds  of the Bonds or the moneys in
the Funds or take any other action  which will cause the Bonds to be  "arbitrage
bonds" within the meaning of Section 148 of the Code. The Company covenants that
it will comply with the  applicable  requirements  of Section 148 of the Code so
long as any Bonds are  Outstanding.  The  Company  shall  deliver  to the Issuer
certificates  in such reasonable form as the Issuer shall specify upon which the
Issuer may rely in furnishing  the  certificates  required by Section 6.2 of the
Indenture. The Company covenants and agrees to comply with the provisions of the
Tax Certificates.

         Section 4.7 ESTABLISHMENT OF COMPLETION DATE. The Company covenants and
agrees  that,  unless  otherwise  consented  to by the  holders  of  100% of the
principal  amount of the Bonds it shall either (i) commence  construction of the
Improvements not later than July, 1, 2005, or (ii) provide notice to the Trustee
that Bonds shall be redeemed in accordance with Section 5.2(c) of the Indenture.
The  Company  agrees to provide to the  Trustee a  certificate  with  respect to
completion of the Facilities on the Completion Date. The Company  covenants that
the  acquisition,  construction,  improvement  and  equipping of the  Facilities
described in Exhibit B will be completed no later than September 1, 2006.

         Section 4.8 COMPLETION OF THE FACILITIES IF PROJECT FUND  INSUFFICIENT.
The Company  acknowledges  that the moneys in the  Project  Fund  available  for
payment of the Cost of the Project may not be sufficient to pay the cost thereof
in full,  and agrees to complete the  Facilities  and to pay that portion of the
cost of the Facilities in excess of the moneys available therefor in the Project
Fund from any moneys  legally  available for such  purpose.  The Issuer does not
make any warranty, either express or implied, that the moneys which will be paid
into the Project Fund will be sufficient to pay all the cost of the  Facilities.
The Company shall not be entitled as a result of paying a portion of the Cost of
the Project  pursuant to this  Section to any  reimbursement  therefor  from the
Issuer, the Trustee or from the owners of any Bonds, nor shall it be entitled to
any diminution in or postponement of the payments required to be paid under this
Loan Agreement.

         Section 4.9 PLANS AND  SPECIFICATIONS.  Any Improvements which have not
yet been  completed  shall  be  acquired,  constructed,  improved  and  equipped
substantially in accordance with the plans and  specifications  therefor and any
amendments thereto.  The Company may revise the plans and specifications and the
list of  equipment  to be  acquired  at any  time  prior  to  completion  of the
acquisition, construction, improvement and equipping of the Facilities described
in Exhibit B,  provided that (i) a Company  Representative  shall certify to the
Trustee  that the  Facilities  described  in  Exhibit B in  accordance  with the
revised plans and  specifications  or equipment  list will  constitute a project
permitted pursuant to the Act, (ii) such Facilities when completed in accordance
with  the  revised  plans  and  specifications  or  equipment  list  will not be
materially inconsistent with the description attached as Exhibit B hereto, (iii)
the  Company  shall  comply with the  requirements  of  subparagraph  (a) of the
following  paragraph,  and (iv) if  applicable,  evidence  that the  Company has
sufficient funds to construct and equip such Facilities.

                                       9
<PAGE>

         In  addition,   the  Company  may  make  revisions  to  the  plans  and
specifications  or  equipment  list  which  will  cause  the  Facilities  to  be
materially  inconsistent  with the  description  attached hereto as Exhibit B so
long as the Company has obtained the prior written  consent of a majority of the
holders or Beneficial  Owners of the Bonds and has provided the following to the
Trustee and the Issuer:

                  (a) if  applicable,  a  construction  budget and  construction
schedule for the completion of the Improvements;

                  (b) an Opinion of Bond Counsel acceptable to the Issuer to the
effect that such revisions  will not adversely  affect the validity of the Bonds
or the  exclusion of interest on the Bonds from gross income for federal  income
tax purposes;

                  (c) a revised Exhibit B hereto; and

                  (d) if  applicable,  evidence that the Company has  sufficient
funds to complete such Facilities (from any source).

         Section  4.10  SURETY  BONDS;   COMPANY  TO  PURSUE  REMEDIES   AGAINST
CONTRACTORS AND SUBCONTRACTORS AND THEIR SURETIES. The Company shall secure from
each contractor  directly  employed by the Company or from any  subcontractor to
such contractor in connection with the  acquisition,  construction,  improvement
and equipping of the  Improvements  under a contract or contracts  totaling over
$50,000 payment and performance  bonds executed by a responsible  surety company
authorized  to do business in the State of Oklahoma in a sum equal to the entire
amount to become  payable.  Each bond shall be  conditioned on the completion of
the work under the contract with such general  contractor in accordance with the
plans and  specifications  and upon the payment of all claims of  subcontractors
and suppliers. A dual obligee rider in favor of the Issuer and the Trustee shall
be obtained by the  Company for each such bond  obtained  prior to and after the
date of the  delivery  of the Bonds.  Each such bond shall be  delivered  by the
Company to the Trustee  and the Issuer,  promptly  upon  receipt  thereof by the
Company.

         In the event of a material  default of any contractor or  subcontractor
under any contract in connection with the acquisition, construction, improvement
and  equipping  of the  Improvements  or in the  event of a  material  breach of
warranty with respect to any material,  workmanship or performance guaranty, the
Company will promptly proceed to exhaust the remedies of the Company, the Issuer
and the Trustee against the contractor, subcontractor or supplier in default and
against any surety for the  performance  of such  contract.  The  Company  shall
advise the Issuer and the Trustee of the steps it intends to take in  connection
with any  such  default.  Any  amounts  recovered  by way of  damages,  refunds,
adjustments or otherwise in connection with the foregoing shall be paid into the
Project Fund, net of legal fees and other reasonable  collection  costs,  unless
recovered after the Completion Date and full  disposition of the Project Fund in
accordance with the Indenture, in which case such amounts shall first be used to
correct  defects  created by such  default or breach of warranty or to reimburse
the Company for amounts paid by the Company to correct such defects and, second,
any excess shall be deposited in to the Bond Principal Fund.

                                       10
<PAGE>

                                    ARTICLE V
                       OBLIGATIONS; PROVISIONS FOR PAYMENT

         Section 5.1  LOAN PAYMENTS AND OTHER AMOUNTS PAYABLE.

                  (a) As repayment of the Loan,  the Company  shall deposit with
the Trustee, on the date of issuance of the Bonds, and thereafter not later than
the 15th day of each month,  commencing  January 15, 2005,  the Monthly  Payment
with respect to the following  calendar month, in accordance with the Indenture,
which  amounts  shall be applied to the payment of the Bonds at the times and in
the manner  provided in the  Indenture.  The Company shall be entitled to credit
with respect to such Monthly  Payments for any  transfers to the Bond  Principal
Fund and Bond Interest Fund pursuant to Section 3.7(b) of the Indenture.

                  (b)  Upon any  acceleration  of  amounts  due  under  the Loan
Agreement,  the Company  shall  immediately  pay as repayment  of the Loan,  for
deposit in the Bond Principal Fund, the Bond Interest Fund and the Reserve Fund,
an amount which,  together with other moneys available under the Loan Agreement,
is sufficient to pay the entire principal of and interest on the Bonds.

                  (c) On or before any  redemption  date  (other  than a sinking
fund  redemption  date) for which a notice of redemption has been given pursuant
to the Indenture, the Company shall pay as repayment of the Loan, for deposit in
the Bond Principal Fund, an amount which,  together with other moneys  available
therefor  in  the  Bond  Principal  Fund  (and,  if all  Bonds  are  called  for
redemption,  the  Reserve  Fund),  is  sufficient  to pay the  principal  of and
premium,  if any, on the Bonds called for optional or mandatory  redemption  and
for deposit into the Bond Interest Fund an amount of money which,  together with
other moneys available  therefor in the Bond Interest Fund, is sufficient to pay
the interest  accrued to the redemption date on the Bonds called for optional or
mandatory redemption.  If on any principal or interest payment date on the Bonds
or the date any other  amounts  are  payable on the Bonds the amount held by the
Trustee in the Bond Principal Fund and the Bond Interest Fund is insufficient to
make the required payments of principal of, premium, if any, and interest on the
Bonds,  the Company shall forthwith pay such deficiency as repayment of the Loan
for deposit in the Bond  Principal  Fund or the Bond Interest  Fund, as the case
may be.

                  (d) At the option of the Company Representative, so long as no
Event of Default has occurred or is occurring,  to be exercised by delivery of a
written  certificate  to the  Trustee  and the Issuer not less than 45 days next
preceding the applicable sinking fund redemption date, it may (i) deliver to the
Trustee for cancellation  Bonds in an aggregate  principal amount desired by the
Company  Representative  or (ii) specify a principal  amount of such Bonds which
prior to said date have been redeemed  (otherwise  than through the operation of
the  applicable  sinking  fund) and canceled by the Trustee and not  theretofore
applied as a credit against the respective  sinking fund redemption  obligation.
Each such Bond so  delivered  or  previously  redeemed  shall be credited by the
Trustee at 100 percent of the principal amount thereof against the obligation of
the Company on such  respective  sinking fund  redemption date for Bonds and any
excess  over  such  amounts  shall  be  credited  against  future  sinking  fund
redemption obligations for such Bonds as directed by the Company Representative.
In the event the Company  Representative shall avail itself of the

                                       11
<PAGE>

provisions  of  clause  (i)  of  the  first  sentence  of  this  paragraph,  the
certificate   required  by  the  first  sentence  of  this  paragraph  shall  be
accompanied by the Bonds to be canceled.

                  (e) The Company  shall  deposit the  following  amounts to the
Reserve Fund:

                           (i) on the date of  issuance  of the  Bonds  $500,000
from proceeds of the Bonds; and

                           (ii) in the event any moneys in the Reserve  Fund are
transferred to the Bond Principal Fund or the Bond Interest Fund pursuant to the
Indenture,  or to the Rebate Fund pursuant to the Indenture, or in the event the
valuation of the amounts in the Reserve Fund required by the  Indenture  reveals
there is an amount less than the Reserve  Requirement  on deposit in the Reserve
Fund, the Company shall deposit,  on the first day of each month  following such
transfer or valuation,  substantially  equal  monthly  payments into the Reserve
Fund to  cause  the  total  amount  in the  Reserve  Fund to equal  the  Reserve
Requirement not later than the next succeeding Interest Payment Date.

                  (f) The  Company  agrees to pay to the Trustee and the Issuer,
respectively,  as an Operating  Expense,  the  reasonable and necessary fees and
expenses of the Trustee and the Issuer,  respectively,  including the reasonable
fees and other costs incurred for the services of any paying agent or engineers,
architects, attorneys, management consultants, accountants and other consultants
employed by the Trustee or the Issuer to make examinations and reports,  provide
services and render opinions required under the Loan Agreement or the Indenture,
plus the Company agrees to pay to the appropriate party the fees and expenses of
any rebate analyst selected by the Trustee as provided in the Indenture,  as and
when the same become due, upon submission of a statement therefor.

                  (g) The Company  agrees to pay to the Trustee as an  Operating
Expense all amounts to be  deposited  to the Rebate  Fund,  as and when the same
become due as determined  pursuant to the Indenture,  to the extent there are no
other amounts available to make such deposits, and to cause the Trustee to apply
such funds in compliance with the terms of the Indenture.

                  (h) The  Company  agrees to pay as an  Operating  Expense  all
costs and  expenses  which may be  incurred  in  connection  with any removal or
substitution of the Trustee and the appointment of any successor trustee.

                  (i) The Company agrees to pay annual administration fee to the
Issuer in an amount  equal to  one-eighth  of one percent of the amount of Bonds
outstanding  as of December 1 of each year,  commencing  December 1, 2005.  This
administration  fee  shall be  payable  on or  before  December  31 of each year
commencing December 31, 2005, at the mailing address of the Issuer. In addition,
the Company  agrees to pay the Projects'  pro rata share of the Issuer's  annual
audit  expenses,  same to be remitted  to the Issuer upon  receipt of an invoice
from the Issuer.

         Section 5.2 PAYEES OF PAYMENTS.  The  Payments  provided for in Section
5.1(a),  (b) and (c) hereof shall be paid in funds immediately  available in the
city in which the  designated  office of the Trustee is located  directly to the
Trustee  for the  account  of the  Issuer  and  shall be  deposited  as  therein
provided.  The Payments  provided for in Section  5.1(e) hereof shall be paid in
funds

                                       12
<PAGE>

immediately  available in the city in which the designated office of the Trustee
is located  directly to the Trustee for the benefit of the Bondholders and shall
be deposited in the Reserve Fund. The payments to be made under Section  5.1(d),
(g) and (h) hereof shall be paid directly to the payee for its own use.

         Section  5.3  OBLIGATIONS  OF  COMPANY  HEREUNDER  UNCONDITIONAL.   The
obligations  of the Company to make the payments  required in Section 5.1 hereof
and to perform and observe the other  agreements  on its part  contained  herein
shall be  absolute  and  unconditional.  The  Company  (i) will not  suspend  or
discontinue,  or permit  the  suspension  or  discontinuance  of,  any  payments
provided  for in Section  5.1 hereof,  (ii) will  perform and observe all of its
other agreements contained in this Loan Agreement,  and (iii) except as provided
in Article XI  hereof,  will not  terminate  this Loan  Agreement  for any cause
including, without limiting the generality of the foregoing, failure to acquire,
construct,  improve and equip the Improvements,  any acts or circumstances  that
may constitute  failure of  consideration,  eviction or  constructive  eviction,
destruction  of  or  damage  to  its  solid  waste  disposal  or   manufacturing
facilities,  commercial  frustration  of purpose,  or change in the tax or other
laws or administrative rulings of or administrative actions by the United States
of America or the State of Oklahoma or any political  subdivision of either, any
failure of the Issuer to perform and observe any agreement,  whether  express or
implied, or any duty, liability,  or obligation arising out of or connected with
this Loan Agreement,  whether express or implied,  or any failure of the Trustee
to perform and observe any agreement,  whether express or implied,  or any duty,
liability or obligation arising out of or connected with the Indenture,  whether
express or implied.  Nothing  contained  in this  Section  shall be construed to
release the Issuer from the  performance  of any  agreements  on its part herein
contained,  and if the  Issuer  shall fail to perform  any such  agreement,  the
Company may  institute  such  action  against the Issuer as the Company may deem
necessary to compel performance,  provided that no such action shall violate the
agreements  on the  part of the  Company  contained  herein.  The  Company  may,
however,  at its own cost and  expense and in its own name or in the name of the
Issuer,  prosecute or defend any action or  proceeding  or take any other action
involving third persons which the Company deems reasonably necessary in order to
secure or protect its right of possession,  occupancy and use of its solid waste
disposal or manufacturing facilities, and in such event the Issuer hereby agrees
to cooperate fully with the Company (without expense to the Issuer).

                                       13
<PAGE>

                                   ARTICLE VI
                            MAINTENANCE AND INSURANCE

         Section 6.1  MAINTENANCE  AND  MODIFICATIONS  . The Company agrees that
during the term of this Loan Agreement its Property,  Plant and Equipment  shall
be operated and maintained in  substantial  compliance  with all laws,  building
codes,  ordinances and regulations and zoning laws as shall be applicable to the
Property,  Plant and Equipment.  The Company agrees that during the term of this
Loan  Agreement  it will at its own  expense  (i) keep the  Property,  Plant and
Equipment in as reasonably safe condition as its operations permit and (ii) keep
the  Property,  Plant  and  Equipment  in  good  repair  and in  good  operating
condition,  making from time to time all necessary  repairs  thereto  (including
external and  structural  repairs) and renewals and  replacements  thereof.  The
Company  may also at its own  expense,  make  from  time to time any  additions,
modifications  or improvements to the Property,  Plant and Equipment it may deem
desirable for its purposes that do not adversely affect the structural integrity
of any building or substantially reduce its value or impair the character of its
use  permitted   pursuant  to  the  Act,   provided  that  all  such  additions,
modifications,  renovations,  repairs and improvements made by the Company shall
become a part of the Property,  Plant and  Equipment;  provided,  however,  that
nothing in this subsection shall prevent the Company from ceasing to operate any
immaterial  portion of the Property,  Plant and  Equipment.  The Company  hereby
covenants and agrees that it shall not construct any improvements or install any
equipment on any portion of the Property,  located within a federally-designated
flood hazard zone unless and until such property  shall be insured  against loss
or damage by flood in accordance with Section 6.2(a) hereof.

         Section 6.2  INSURANCE.

         (a) Throughout the term of this Loan  Agreement,  the Company will keep
the Property,  (or cause the Property to be kept)  continuously  insured against
such risks as are customarily  insured against with respect to property  similar
to the Property by businesses of like size and type,  paying as the same becomes
due all premiums in respect thereto, including but not necessarily limited to:

                  (i)  Insurance to the full  insurable  value of the  Property,
                  Plant  and  Equipment  of the  Company  as  determined  by the
                  Company  sufficient  to  prevent  the  Company  from  being  a
                  co-issuer  (and in no event less than the principal  amount of
                  the Bonds  Outstanding  from time to  time),  against  loss or
                  damage  by fire,  lightning  and  flood  (if the  Property  is
                  located within a  federally-designated  flood hazard zone) and
                  such other risks and matters,  including  without  limitation,
                  rental  loss,  public  liability  and boiler  insurance,  with
                  uniform standard extended coverage endorsement limited only as
                  may be provided  in the  standard  form of  extended  coverage
                  endorsement at that time  customarily  used in the State where
                  such property is located, provided that the insurance required
                  by this  subsection may contain a deductible  provision and be
                  in amounts which in the opinion of an Insurance  Consultant is
                  normal and reasonable.

         (ii)  General  public  liability  insurance  against  claims for bodily
injury,  death or property damage occurring on, in or about the Property and the
adjoining  streets,   sidewalks  and  passageways,   such  insurance  to  afford
protection  of the type and in an amount  which in the  opinion of an  Insurance
Consultant is normal and  reasonable  with respect to bodily injury and property
damage.

                                       14
<PAGE>

                  (iii)  Rental  or  business  interruption   insurance  against
                  abatement of rent  resulting from fire or other casualty in an
                  amount not less than  $1,000,000,  with the proceeds from such
                  rental or business interruption insurance being payable to the
                  Company and the  Trustee,  as their  respective  interest  may
                  appear.

                  (iv)  Worker's compensation insurance as required by law.

         (b) In addition,  the Company shall  provide to the Trustee,  within 90
days of the date of issuance of the Bonds,  Key-man  insurance  with  respect to
Mark Vaughan, in the amount of $1,000,000.

         (c) All policies of insurance shall be issued by an insurer  authorized
to do business in the State where the  respective  property is located  having a
rating of at least A:6 in Best's Key Rating Guide.  Not later than 30 days prior
to the  expiration  date of each of the  insurance  policies,  the Company  will
deliver  to the  Trustee  satisfactory  evidence  of the  renewal of each of the
policies.  If at any time the Issuer is not in receipt of written  evidence that
all insurance  required  hereunder is in full force and effect,  the Issuer will
have the right  without  notice to the Company to take such action as the Issuer
deems  necessary  to protect its  interest in the  Property,  including  without
limitation the obtaining of such  insurance  coverage as the Trustee in its sole
discretion  deems  appropriate,  and all  expenses  incurred  by the  Trustee in
connection  with such action or in obtaining  such  insurance  and keeping it in
effect  will  be paid by the  Company  to the  Trustee  upon  demand;  provided,
however,  that if that the Trustee takes any such action,  the Issuer shall give
the Company notice of such action within five Business Days thereof.

         (d) All of the insurance policies required pursuant to this Section 6.2
will (i) contain a standard noncontributory form of mortgage clause (in favor of
the Trustee and  entitling  the Trustee to collect any and all proceeds  payable
under such insurance),  as well as a standard waiver of subrogation endorsement,
and in the case of such  liability  policy,  name the  Trustee as an  additional
insured,  all to be in form and  substance  satisfactory  to the  Trustee;  (ii)
provide,  to the extent  obtainable,  that such  policies may not be canceled or
amended  to  diminish  the  coverage  thereunder  without at least 30 days prior
written  notice to the  Trustee;  and (iii)  provide  that no act,  omission  or
negligence  of the  Company,  or its agents,  servants or  employees,  or of any
tenant under any lease,  which might  otherwise  result in a forfeiture  of such
insurance  or any  part  thereof,  shall  in any  way  affect  the  validity  or
enforceability of such insurance insofar as the Issuer is concerned. The Company
will not carry separate insurance, concurrent in kind or form or contributing in
the event of loss, with any insurance required under this Section 6.2.

         The  Company  shall  retain  an  Insurance  Consultant  to  review  the
insurance  requirements  of the Company at the date of issuance of the Bonds and
from time to time  thereafter (but not less frequently than every two years) and
to cause a certificate to be delivered to the Trustee and to the  Bondholders as
to whether the insurance being maintained is in compliance with the requirements
of this  Section.  If the Insurance  Consultant  makes  recommendations  for the
increase of any coverage,  the Company  shall  increase or cause to be increased
such coverage in accordance  with such  recommendations,  to the extent that the
Governing Body of the Company determines in good faith

                                       15
<PAGE>

that such  recommendations  are in the best  interests  of the  Company.  If the
Insurance  Consultant makes  recommendations  for the decrease or elimination of
any coverage,  the Company may decrease or eliminate such coverage in accordance
with such recommendations,  to the extent that the Governing Body of the Company
determines in good faith that such  recommendations  are in the best interest of
the Company.

         Notwithstanding  anything in this Section to the contrary,  the Company
shall have the right,  without giving rise to an Event of Default solely on such
account, (i) to maintain insurance coverage below that most recently recommended
by the Insurance Consultant, if the Company furnishes to the Trustee a report of
the Insurance  Consultant  to the effect that the insurance so provided  affords
either the  greatest  amount of coverage  available  for the risk being  insured
against  at  rates  which  in the  judgment  of  the  Insurance  Consultant  are
reasonable in connection with reasonable and appropriate risk management, or the
greatest amount of coverage  necessary by reason of state or federal laws now or
hereafter in existence;  or (ii) to adopt  alternative risk management  programs
which the Insurance Consultant determines to be reasonable,  including,  without
limitation,  to  self-insure in whole or in part  individually  or in connection
with other  institutions,  to  participate  in  programs  of  captive  insurance
companies,  to  participate  with other solid waste  disposal and  manufacturing
companies  in mutual or other  cooperative  insurance  or other risk  management
programs, to participate in state or federal insurance programs, or to establish
or participate in other  alternative  risk  management  programs;  all as may be
approved  by  the  Insurance  Consultant  as  reasonable  and  appropriate  risk
management  by the  Company.  If the  Company  shall  be  self-insured  for  any
coverage,  the report of the Insurance  Consultant  mentioned  above shall state
whether the anticipated funding of any self-insurance fund is actuarially sound,
and if not, the required  funding to produce such result and such coverage shall
be reviewed by the  Insurance  Consultant  not less  frequently  than  annually.
Notwithstanding  the other  provisions  of this  Section,  the Company shall not
self-insure (other than with respect to reasonable deductibles certified as such
in  an  Officer's  Certificate  of  the  Company  Representative)  or  otherwise
participate  in programs  described in (ii) above with respect to any  insurance
against loss or damage to the Property,  Plant and Equipment by fire, lightning,
vandalism,  malicious  mischief  or other  casualty  or with  respect  to boiler
insurance and provided  further that, the Company shall not  self-insure if such
self-insurance  has a material  adverse effect on  reimbursement  from any third
party  payor  unless its  Governing  Body shall have  determined  in good faith,
evidenced by a resolution of the Governing Body, that such  self-insurance is in
the best interests of the Company and the Company has given prior notice of such
self-insurance to the Trustee and the Bondholders.

         The  Company  Representative  shall  deliver  to the  Trustee  (i) upon
execution and delivery of this Loan Agreement, the originals or certified copies
thereof of all insurance policies (or certificates thereof) which the Company is
required to maintain  pursuant to this Section,  together with a Certificate  of
the Company  Representative  that payment of all  premiums  then due thereon has
been made,  (ii) at least 30 days prior to the  expiration  of any such policies
evidence  as to the renewal  thereof,  if then  required by this  Section or the
terms  of  such   policies,   and  an  Officer's   Certificate  of  the  Company
Representative  that payment of all premiums  then due with respect  thereto has
been made,  and (iii)  promptly  upon  request by the  Trustee,  but in any case
within 90 days after the end of each calendar year, a certificate of the Company
Representative  setting  forth  the  particulars  as to all  insurance  policies
maintained  by the Company  pursuant to this  Section and  certifying  that such

                                       16
<PAGE>

insurance policies are in full force and effect,  that such policies comply with
the  provisions of this Section and that all premiums then due thereon have been
paid.

                                       17
<PAGE>

                                   ARTICLE VII

                         CASUALTY LOSS AND CONDEMNATION

         Section 7.1  INSURANCE  AND  CONDEMNATION  PROCEEDS.  In the event that
damage or  destruction  to the Property or any portion  thereof occurs such that
claims for loss do not exceed $100,000 or in the event title to or the temporary
use of the Property, or any portion thereof, will be taken under the exercise of
the power of eminent domain and the Net Proceeds from any condemnation award are
less than $100,000,  the Net Proceeds of insurance resulting from such claims or
from any such  condemnation  award will be paid to the  Company and will be used
for such purposes as the Company,  in its discretion,  may deem appropriate.  In
the event  that any  damage or  destruction  is such  that  claims  for loss are
between  $100,000 and $1,000,000,  both inclusive,  or the Net Proceeds from any
condemnation award are between $100,000 and $1,000,000,  both inclusive, the Net
Proceeds of insurance  resulting from such claims or from any such  condemnation
award will be paid to the Company and used by the Company  with the consent of a
Significant Bondholder either to redeem Bonds or to repair, rebuild,  restore or
replace the property.  In the event that any damage or  destruction is such that
claims for loss exceed  $1,000,000,  or the Net Proceeds  from any  condemnation
award  exceed  $1,000,000,  the Net Proceeds of  insurance  resulting  from such
claims or from any such condemnation award will be held by the Trustee,  and the
Company  will  elect to have the Net  Proceeds  received  applied  to either the
redemption of the Bonds or to repair, rebuild,  restore or replace the property.
If the Company elects the latter  option,  then the Net Proceeds will be paid by
the Trustee from a separate  account,  from time to time,  upon  evidence of the
expenditures  therefor,   upon  receipt  of  a  certificate  of  an  Independent
Architect.  The  Company  may elect to redeem less than all of the Bonds only if
(a) the  property  damaged,  destroyed  or  condemned  is not  essential  to the
Company's use or occupancy of the  Property;  (b) the Property has been restored
to a condition substantially equivalent to their condition prior to such damage,
destruction  or  condemnation;  or (c)  suitable  replacement  property has been
acquired for the Company's operations.

                                       18
<PAGE>

                                  ARTICLE VIII

                                SPECIAL COVENANTS

         Section 8.1 NO WARRANTY OF CONDITION OR SUITABILITY BY THE ISSUER.  The
Issuer makes no warranty,  either express or implied, as to the condition of the
Facilities,  or that  they will be  suitable  for the  purposes  or needs of the
Company.

         Section 8.2 FURTHER  ASSURANCES.  The Issuer and the Company agree that
they will, from time to time,  execute,  acknowledge and deliver, or cause to be
executed,  acknowledge and delivered,  such supplements  hereto and such further
instruments  as may  reasonably be required for carrying out the intention of or
facilitating the performance of this Loan Agreement.

         Section 8.3 ANNUAL  AUDIT.  The Company will have the books and records
of the Company audited annually, and shall furnish within 120 days after the end
of each Fiscal Year to the Issuer, the Notice Beneficial Owners, the Underwriter
and the  Trustee a copy of the audit  report  certified  by  independent  public
accountants.

         Section 8.4 FINANCIAL  STATEMENTS;  ANNUAL BUDGETS.  The Company agrees
that it will  maintain  proper  books of records and  accounts of its  Property,
Plant and Equipment with full,  true and correct  entries of all of its dealings
in accordance with generally accepted  accounting  principles,  and that it will
furnish to the Trustee,  the Underwriter and Notice  Beneficial Owners quarterly
financial  statements  within 45 days  after  the  close of each  such  quarter,
including a statement of income in comparative form, to the extent  practicable,
with the financial figures from the corresponding period in the preceding Fiscal
Year and a balance  sheet as of the end of each such period and of the preceding
fiscal year.

         Section 8.5 RELEASE AND INDEMNIFICATION  COVENANTS.  The Company agrees
to protect and defend the Issuer,  its former,  present and future  trustees and
each person,  if any, who has the power,  directly or  indirectly,  to direct or
cause the  direction of the  management or policies,  now or  hereafter,  of the
Issuer and to protect and defend the Trustee, its officers, employees and agents
(collectively,  the  "Indemnified  Parties" and  individually,  the "Indemnified
Party")  and further  agrees to  indemnify  and hold  harmless  the  Indemnified
Parties  from and  against  any and all  liabilities,  losses,  damages,  costs,
expenses (including reasonable attorneys' fees and court costs,  including those
for post-judgment and appellate proceedings), judgments, claims, demands, suits,
actions or other  proceedings of whatsoever kind or nature  (including,  without
limitation,  those in any manner  directly or  indirectly  arising or  resulting
from, out of or in connection  with any injury to, or death of any person or and
damage to property but excluding those arising or resulting from any intentional
misrepresentation  or any willful and wanton misconduct of the Indemnified Party
or  Indemnified  Parties)  in any manner  directly or  indirectly  (in any case,
whether or not by the Company,  or its  successors  and assigns,  or directly or
indirectly through the agents, contractors, employees, licensees or otherwise of
the Company,  or its successors and assigns) by any person or entity  whatsoever
except the Issuer or the Trustee,  arising or purportedly arising from this Loan
Agreement,  the Indenture,  the Bonds, the initial and any subsequent offers and
sales of the Bonds, the Tax

                                       19
<PAGE>

Certificates or the transactions  contemplated  hereby and thereby,  the Project
and the  ownership or the  operation by the Company of the  Property,  Plant and
Equipment the breach or violation of its or any material  inaccuracy or material
omission in any agreement,  covenant,  representation or warranty of the Company
set forth herein or in any document  delivered  pursuant hereto, the presence of
any Hazardous  Material or  underground  storage tanks on or under the Property,
Plant and  Equipment  or any  escape,  seepage,  leakage,  spillage,  discharge,
emission  or release of any  Hazardous  Material  from the  Property,  Plant and
Equipment,  any liens  against the  Property  permitted  under or imposed by any
Environmental  Laws,  or any  violation  or  actual  or  asserted  liability  or
obligations of the Company under any Environmental  Laws,  regardless of whether
or not caused by, or within the control of, the Company,  any actual or asserted
liability or obligations of the aforesaid  persons under any  Environmental  Law
relating to the  Property,  Plant and  Equipment,  regardless  of whether or not
caused by, or within the control of, the Company or any action or failure to act
by an  Indemnified  Party or  Indemnified  Parties  with  respect  to any of the
foregoing.

         The  Company  releases  the Issuer and all  former,  present and future
trustees and other agents of the Issuer,  and the Trustee from,  agrees that the
Issuer and the Trustee and all former,  present and future  directors,  members,
servants,  officers,  employees  and other  agents of the Issuer and the Trustee
shall not be liable for,  and agrees to hold the Issuer and all former,  present
and future  trustees  and other  agents of the Issuer and the  Trustee  harmless
against,  any expense or damages incurred because of any lawsuit  commenced as a
result of action taken by the Issuer,  and the Trustee or their former,  present
and   future   trustees   or   other   agents   (except   for  any   intentional
misrepresentation  or  willful  and wanton  misconduct  of the  aforesaid)  with
respect to this Loan Agreement,  the Indenture, the Bonds, the Tax Certificates,
the Project or the Property,  Plant and Equipment and the Issuer and the Trustee
shall  promptly  give written  notice to the Company with respect  thereto.  All
covenants,  stipulations,  promises,  agreements  and  obligations of the Issuer
contained  herein shall be deemed to be the covenants,  stipulations,  promises,
agreements  and  obligations  of the  Issuer and not of any  former,  present or
future trustees or other agent of the Issuer in his or her individual  capacity,
and no recourse  shall be had for the payment of the principal of,  premium,  if
any,  or  interest  on the Bonds or for any claim  based  thereon  or  hereunder
against any former,  present or future  trustees or other agent of the Issuer or
any natural person executing the Bonds.

         The  indemnification  arising under this Section shall continue in full
force and effect  notwithstanding the full payment of all obligations under this
Loan Agreement or the termination of this Loan Agreement for any reason.

         Section 8.6 COMPANY REPRESENTATIVE.  Whenever,  under the provisions of
this Loan  Agreement,  the Tax  Certificates  or the Indenture,  the approval or
direction of the Company is  required,  or the Issuer or the Trustee is required
to take some action at the request of the Company, such approval or such request
shall be made by the Company  Representative  unless otherwise specified in this
Loan Agreement, the Tax Certificates or the Indenture. The Issuer or the Trustee
shall be authorized to act on any such approval or request and the Company shall
have no  complaint  against  the  Issuer or the  Trustee as a result of any such
action taken in accordance  with such approval or request.  The execution of any
document or certificate  required  under the provisions of this Loan  Agreement,
the Tax Certificates or the Indenture by the Company  Representative shall be

                                       20
<PAGE>

on behalf of the Company and shall not result in any personal  liability of such
Company Representative.

         Section 8.7 LEASES AND OPERATING  CONTRACTS.  The Company may lease (as
lessor) any part of the Property from which it derives  revenues or contract for
the performance by others of operations or services on or in connection with the
Property from which it derives  revenues,  or any part  thereof,  for any lawful
purpose,  provided  that (i) the Trustee shall  receive  written  notice of such
lease or contract if such lease or contract has a value in excess of $250,000 or
a duration longer than six months, (ii) each such lease or contract shall not be
inconsistent with the provisions of the Indenture or this Loan Agreement,  (iii)
the  Company  shall  remain  fully  obligated  and  responsible  under this Loan
Agreement to the same extent as if such lease or contract had not been executed,
and (iv) no such lease or operating contract shall adversely affect the validity
of the Bonds or the  exclusion  of interest  on the Bonds from gross  income for
federal and state income tax purposes.  The Trustee shall request the Company to
deliver an Opinion of Bond  Counsel  addressed  to the  Trustee  relating to the
matters  set  forth in (iv) if the  Company  enters  into a lease  or  operating
contract covered by this Section 8.7.

         Section  8.8 NO DEFAULT  CERTIFICATE.  Within 150 days after the end of
each Fiscal Year,  the Company shall furnish to the Trustee a certificate of the
Company  Representative  stating  that no Event of Default  under  Section  10.1
hereof has occurred and is  continuing  and that he has no knowledge of an event
which,  with the  passage  of time or the  giving  of  notice,  or  both,  would
constitute  an Event of Default  under  Section  10.1 hereof,  respectively,  or
describing any such Event of Default or event known to the Company.

         Section 8.9  [INTENTIONALLY OMITTED]

         Section 8.10  LIMITATIONS ON CREATION OF LIENS.

                  (a) The Company agrees that it will not create or suffer to be
created or permit the existence of any Lien on any tangible or intangible assets
of the Company  mortgaged or pledged pursuant hereto other than Permitted Liens,
as described in clause (b) of this Section.

                  (b) Permitted Liens shall consist of the following:

                           (1) Liens  arising by reason of good  faith  deposits
                  with the Company in  connection  with  leases of real  estate,
                  bids or  contracts  (other than  contracts  for the payment of
                  money),  deposits by the Company to secure public or statutory
                  obligations, or to secure or in lieu of surety, stay or appeal
                  bonds.  and  deposits as security  for the payment of taxes or
                  assessments or other similar charges;

                           (2) any Lien arising by reason of deposits  with,  or
                  the giving of any form of security to, any governmental agency
                  or any  body  created  or  approved  by  law  or  governmental
                  regulation  for any  purpose at any time as required by law or
                  governmental  regulation as a condition to the  transaction of
                  any business or the exercise of any  privilege or license,  or
                  to  enable  the  Company  to  maintain  self-insurance  or  to
                  participate  in any funds  established  to cover any insurance
                  losses   or  in   connection   with   workers'   compensation,
                  unemployment  insurance,  pension or

                                       21
<PAGE>

                  profit sharing plans or other social security,  or to share in
                  the   privileges   or   benefits    required   for   companies
                  participating in such arrangements;

                           (3) any judgment  lien against the Company so long as
                  such  judgment is being  contested in good faith and execution
                  thereon is stayed and it will not materially interfere with or
                  materially  impair the  operations  conducted on the Property,
                  Plant and Equipment;

                           (4)  (A)  rights   reserved   to  or  vested  in  any
                  municipality  or public  authority  by the terms of any right,
                  power, franchise,  grant, license, permit or provision of law,
                  affecting its Property,  Plant and Equipment, (B) any liens on
                  the  Property,  Plant and  Equipment  for taxes,  assessments,
                  levies,  fees, water and sewer rents,  and other  governmental
                  and similar  charges and any liens of mechanics,  materialmen,
                  laborers,  suppliers or vendors for work or services performed
                  or materials furnished in connection with the Property,  Plant
                  and  Equipment  which are not due and payable or which are not
                  delinquent or which,  or the amount or validity of which,  are
                  being  contested  and  execution  thereon is stayed  or,  with
                  respect  to  liens  of   mechanics,   materialmen,   laborers,
                  suppliers or vendors, have been due for less than 90 days; (C)
                  easements,  rights-of-way servitude, restrictions, oil, gas or
                  other   mineral   reservations   and  other   minor   defects,
                  encumbrances and  irregularities  in the title to the Property
                  which in the  opinion  of the  Company  Representative  do not
                  materially impair the use of the Property, Plant and Equipment
                  for its intended  purpose or materially  and adversely  affect
                  the value  thereof  provided  that the Company  Representative
                  shall have given the Trustee  written  notice thereof at least
                  120 days before the  imposition  of such Lien;  (D)  statutory
                  landlord's  liens and (E) all exceptions shown on the policies
                  of title insurance delivered pursuant to the Indenture;

                           (5)  any  Lien   securing   Additional   Indebtedness
                  permitted hereby;

                           (6)  any  Lien  permitted  pursuant  to  Section  3.1
                  hereof;

                           (7) any Lien  created by the  Indenture  or this Loan
                  Agreement;

                           (8) any Lien described in Exhibit C hereto; and

                           (9) any Lien in favor of a  creditor  or a trustee on
                  the proceeds of Indebtedness and any earnings thereon prior to
                  the  application of such proceeds and such  earnings,  and any
                  Liens on trust  funds  established  and held by a  trustee  or
                  creditor with respect to Indebtedness properly incurred.

         Section  8.11  LIMITATIONS  ON  INDEBTEDNESS.  The  Company  may  incur
Additional  Indebtedness,  if the Income Available for Debt Service for the four
immediately  preceding  fiscal  quarters of the Company is not less than 150% of
the Long-Term Debt Service Requirements in such period,  taking into account the
Loan and Indebtedness then Outstanding and the Additional  Indebtedness proposed
to be incurred.  Notwithstanding  the foregoing,  Subordinated Debt,

                                       22
<PAGE>

Commitment  Indebtedness  and  Nonrecourse  Indebtedness  may be incurred by the
Company  at any  time,  without  limit.  In  addition,  the  Company  may  incur
Additional  Indebtedness  secured  by  accounts  receivable  and  inventory,  as
provided in Section 3.1 of this Loan Agreement.

         Section 8.12.  SUBORDINATED DEBT.  Subordinated Debt shall include only
Indebtedness  of the  Company  incurred  pursuant  to  loan  agreements,  credit
agreements or similar arrangements  ("Subordinate Loan Documents") which contain
provisions substantially to the following effect:

                  (1)  Subordinated  Debt shall, to the extent and in the manner
         hereinafter   set  forth,   be  fully   subordinated  to  the  Superior
         Indebtedness  as herein  defined.  For all purposes of this Section the
         term "Superior  Indebtedness" shall mean all obligations of the Company
         arising under this Loan Agreement (the "Loan  Documents"),  as each may
         be  supplemented  and modified to the date  hereof,  or as the same may
         hereafter  from time to time be further  supplemented  and modified and
         any other obligations secured by or evidencing, directly or indirectly,
         obligations evidenced by such Loan Documents,  including  post-petition
         interest.

                  (2) No action or proceedings, judicial or otherwise (including
         without  limitation the commencement of or joinder in any bankruptcy or
         liquidation),  shall be  instituted  or  pursued  by the  holder of any
         Subordinated Debt (together,  the "Subordinate  Creditors"),  nor shall
         such  Subordinate  Creditors  take steps to enforce other  judgments or
         encumbrances  on assets of the  Company  pledged to the  payment of the
         obligations of the Company arising under any Subordinate  Loan Document
         (an  "Enforcement  Action"),  other  than an action to compel  specific
         performance,  and  other  than an action  with  respect  to  collateral
         pledged to the payment of such Subordinated Debt and not pledged to the
         payment of the Superior Indebtedness, unless all Bondholders shall have
         consented  thereto,  or the Bondholders shall have been paid in full or
         provision therefor shall have been made in accordance with the terms of
         the Indenture.

                  (3) No  payment  on account  of  principal,  premium,  if any,
         sinking funds or interest on Subordinated Debt shall be made, nor shall
         any property or assets pledged to the payment of the obligations of the
         Company  arising  under  any  Subordinate  Loan  Document,  other  than
         collateral  pledged  to the  payment  thereof  and not  pledged  to the
         payment of the  Superior  Indebtedness,  be  applied to the  payment or
         prepayment of Subordinated Debt, unless payment of all amounts then due
         and payable for principal,  premium, if any, sinking funds and interest
         on  Superior  Indebtedness  has  been  made  or  duly  provided  for in
         accordance  with  the  terms  of the  Loan  Documents.  No  payment  of
         principal  of  and  interest  on  and  other   amounts  due  under  any
         Subordinate Loan Document may be made prior to full payment of Superior
         Indebtedness,  (other than payment  derived with respect to  collateral
         pledged to the  payment  of  Subordinated  Debt and not  pledged to the
         payment of the Superior  Indebtedness)  if, at the time of such payment
         or application or immediately  after giving effect  thereto,  (i) there
         shall exist any default in the payment of principal,  premium,  if any,
         sinking  funds or interest  with  respect to the Bonds or any  Superior
         Indebtedness,  or (ii) there  shall have  occurred  an Event of Default
         (other than a default in the  payment of  principal,  premium,  if any,
         sinking  funds or  interest)  with respect to the Bonds or any Superior
         Indebtedness permitting the Trustee to accelerate the maturity thereof,
         and  written  notice of such  occurrence  shall  have been given to the
         Subordinate  Creditors  and such event of  default  shall not have been
         cured or waived or shall not have ceased to exist.

                                       23
<PAGE>

                  (4) Upon (i) any  acceleration  of maturity  of the  principal
         amount due on any Subordinated Debt or (ii) any payment or distribution
         of any kind or character, whether in cash, property or securities, upon
         any  dissolution  or  winding-up  or  total  or  partial   liquidation,
         reorganization  or  arrangement  of the Company,  whether  voluntary or
         involuntary  or  in  bankruptcy,  insolvency,   receivership  or  other
         proceedings,  all  principal,  premium,  if any, and interest due or to
         become due upon the Bonds and all Superior  Indebtedness shall first be
         paid in full, or payment  thereof  provided for in accordance  with the
         terms of the  Indenture,  before any  payment is made on account of the
         principal, premium, if any, or interest on the Subordinated Debt (other
         than payment derived with respect to collateral  pledged to the payment
         of  Subordinated  Debt and not pledged to the  payment of the  Superior
         Indebtedness),   and  upon  any  such   dissolution  or  winding-up  or
         liquidation, reorganization or arrangement, any payment or distribution
         of any kind or character,  whether in cash, property or securities,  to
         which the holders of the  Subordinated  Debt would be entitled,  except
         for the  provisions  hereof,  shall  be paid  by the  Company,  or by a
         receiver,  trustee in bankruptcy,  liquidating trustee,  agent or other
         person  making  such  payment or  distribution,  to the  Trustee to the
         extent necessary to pay all Superior  Indebtedness in full,  before any
         payment or distribution is made to the holders of the Subordinate Debt.

                  (5) In the event that,  in violation  of any of the  foregoing
         provisions,  any  payment  or  distribution  of any kind or  character,
         whether in cash,  property  or  securities,  shall be  received  by any
         Subordinate Creditor before all Bonds and Superior Indebtedness is paid
         in full or provision for such payment in  accordance  with the terms of
         the Indenture,  such payment or distribution shall be held in trust for
         the benefit of, and shall be paid over or  delivered to the Trustee for
         application to the payment of all Bonds remaining  unpaid to the extent
         necessary to pay all such Bonds in full in accordance with its terms.

                  (6) Neither  the  Trustee nor any present or future  holder of
         any Bonds shall be prejudiced in any right to enforce  subordination of
         the indebtedness evidenced by the Subordinate Loan Documents by any act
         or  failure  to act on the part of the  Company or anyone in custody of
         its assets or property.

                  (7) The foregoing  subordination  provisions  shall be for the
         benefit of the  holders  of Bonds and may be  enforced  by the  Trustee
         against  the  holders  of  Subordinate   Indebtedness  or  any  trustee
         therefor.

The  foregoing  provisions  are solely for the purpose of defining  the relative
rights of the holders of Superior  Indebtedness  on the one hand and the holders
of the Subordinated Debt on the other hand, and nothing therein shall impair, as
between  the  Company  and the  holders  of the  Subordinate  Indebtedness,  the
obligation of the Company,  which is unconditional  and absolute,  to pay to the
holders thereof the principal thereof,  premium, if any, and interest thereon in
accordance with its terms,  nor shall anything herein prevent the holders of the
Subordinated  Debt or any trustee on their behalf from  exercising  all remedies
otherwise  permitted by applicable  law or thereunder  upon default  thereunder,
subject to the rights set forth above of the holders of Superior Indebtedness to
receive cash,  property or securities  otherwise  payable or  deliverable to the
holders of the  Subordinate

                                       24
<PAGE>

Indebtedness.  Upon any payment or  distribution of assets of the Company of the
character  referred to in the fifth paragraph of the foregoing  provisions,  the
holders of Subordinate  Indebtedness shall be entitled to rely upon any order or
decree  of  a  court  of  competent  jurisdiction  in  which  such  dissolution,
winding-up, liquidation,  reorganization or arrangement proceedings are pending,
and upon a  certificate  of the  receiver,  trustee in  bankruptcy,  liquidating
trustee,  agent  or  other  person  making  any such  payment  or  distribution,
delivered  to the  holders  of  Subordinate  Indebtedness  for  the  purpose  of
ascertaining  the persons  entitled to  participate  in such  distribution,  the
holders of  Subordinate  Indebtedness  and other  indebtedness  of Company,  the
amount  thereof or payable  thereon,  the amount or amounts paid or  distributed
thereon and all other facts pertinent thereto or to the foregoing provisions. No
holders of  Subordinate  Indebtedness  shall be charged  with  knowledge  of the
existence of any facts which would  prohibit the making of any payment of moneys
to or by such holders of Subordinate Indebtedness,  unless and until the holders
of  Subordinate  Indebtedness,  as the case may be, have actual  notice or shall
have  received  notice  thereof  from the  Company,  the  Trustee or one or more
holders of Superior  Indebtedness.  The Company  hereby  covenants and agrees in
each case to provide such notice.

         Section 8.13 PARITY INDEBTEDNESS. The Company covenants not to incur or
assume any Parity  Indebtedness  unless the Company has received  consent of the
holders of 100% of the principal amount of the Bonds Outstanding.  Upon issuance
of Parity  Indebtedness,  such debt will be entitled to share on a parity in all
property and rights  securing the Bonds,  except the moneys in the Funds,  which
shall secure only the Bonds.

         Unless  otherwise  consented to by the holders of 100% of the principal
amount of the Bonds  Outstanding,  all  instruments  creating or securing Parity
Indebtedness  shall (i) provide  that the  Trustee  shall have the sole power to
select  remedies to be used to enforce rights  against  common  security for the
Bonds,  subject to the right of the owners of a majority in aggregate  principal
amount of the sum of the Bonds then Outstanding to direct remedies in the manner
provided in the Indenture,  (ii) provide that the holders of Parity Indebtedness
or the trustee  therefor shall undertake such actions as may be requested by the
Trustee that are reasonably  necessary to effectuate the purposes of clause (i),
and  (iii)  contain  cross  default  provisions  with  the Loan  Agreement,  the
Indenture and all other instruments creating Parity Indebtedness.

         All  collateral  given  or to be given to  secure  Parity  Indebtedness
(other than credit enhancement  devices such as letters of credit,  insurance or
surety bonds and other than reserve funds) shall also secure the  obligations of
the Company  under the Loan  Agreement on a parity  basis;  and the  instruments
under which any Parity  Indebtedness  is incurred shall contain  provisions that
all  Parity  Indebtedness  and the  obligations  of the  Company  under the Loan
Agreement shall be secured equally and ratably by all such security provided for
any such Parity Indebtedness.  The Property,  the Pledged Revenues and any other
collateral at any time given to secure the  obligations of the Company under the
Loan Agreement (other than the Funds) shall likewise secure Parity Indebtedness,
and such shall be set forth and so provided in any  instrument  securing  Parity
Indebtedness.  No release by or permission from the Issuer and the Trustee under
the Loan Agreement shall be necessary  (other than the Company's  payment of any
Trustee fees or any fees or expenses of the Trustee) to allow such collateral to
be pledged pursuant to any instrument relating to Parity  Indebtedness,  so long
as the conditions of the Loan Agreement are complied with.

                                       25
<PAGE>

         Section 8.14  TRANSFER OF ASSETS.  The Company  agrees that it will not
Transfer  assets without the consent of 100% of the owners of the Bonds,  except
for Transfers of assets:

         (a) to any  Person  if prior to the  sale,  lease or other  disposition
there is  delivered  to the  Trustee an  Officer's  Certificate  of the  Company
Representative  stating  that such assets have or will within the next 24 months
become inadequate, obsolete, worn out, unsuitable, unprofitable,  undesirable or
unnecessary and the sale, lease,  removal or other disposition  thereof will not
impair the structural soundness,  efficiency, or economic value of the remaining
assets of the Company; or

         (b) with respect to any Transfer of non-inventory assets, to any Person
in the  ordinary  course  of  business  and on terms not less  favorable  to the
Company than arm's length,  but not to exceed $100,000 in aggregate  proceeds in
any Fiscal Year unless otherwise  consented to by a majority of the Bondholders;
or

         (c) with  respect to any  Transfer of  inventory,  to any Person in the
ordinary course of business; or

         (d) to any  Person  if the  aggregate  Net  Book  Value  of the  assets
transferred  pursuant to this clause in any five consecutive  Fiscal Years, does
not exceed 5 percent of the Net Book Value of all assets of the Company as shown
in the Audited Financial Statements for the most recent Fiscal Year; or

         (e) to any  Person,  if the  Company  shall  determine  to sell  all or
substantially  all of its assets,  and (i) the Company  exercises  its option to
prepay the Loan,  or (ii) the holders of 100% of the Bonds shall consent to such
transfer, all as provided in section 8.15 hereof.

         Section 8.15  CONSOLIDATION,  MERGER,  SALE OR CONVEYANCE.  The Company
covenants that it will not merge or  consolidate  with, or sell or convey all or
substantially  all of its  assets  to,  any  Person,  unless  (a)  such  merger,
consolidation or sale shall be consented to by the holders of 100% of the Bonds,
or (ii) the  Company  shall  elect to prepay  the Loan and  redeem  the Bonds in
accordance  with  Section  5.1(b)  of  the  Indenture.   In  case  of  any  such
consolidation,  merger,  sale or conveyance and upon any such  assumption by the
successor   corporation,   such  successor  corporation  shall  succeed  to  its
predecessor,  with  the  same  effect  as if it had been  named  herein  as such
predecessor.

         Section 8.16  FINANCIAL COVENANTS.

         (a) The Company shall  calculate  quarterly  the Debt Service  Coverage
Ratio for the four quarters prior to the date of any such calculation, and shall
provide a copy of such  calculation  for such  period to the  Trustee and Notice
Beneficial Owners at the time of delivery of the quarterly financial  statements
delivered in accordance  with Section 8.4 hereof.  If the Debt Service  Coverage
Ratio  computation  delivered  at the time of  delivery  of any  such  statement
indicates that the Long-Term Debt Service Coverage Ratio of the Company for such
previous  four  fiscal  quarters  shall be less than 1.50 to 1.00,  the  Company
covenants to retain a Consultant at the expense of the Company,  within 30 days,
to make  recommendations  to increase such Long-Term Debt Service Coverage Ratio
in the Fiscal Year following delivery of such  recommendations to such level or,
if  in  the  opinion  of  the   Consultant  the  attainment  of  such  level  is
impracticable,  to the  highest  level  attainable  in  such

                                       26
<PAGE>

Fiscal  Year.  Any  Consultant  so  retained  shall be  required  to submit such
recommendations  to the Trustee and the Notice  Beneficial Owners within 90 days
after  being  so  retained.  The  Company  agrees  that it will,  to the  extent
permitted by law,  follow the  recommendations  of the  Consultant.  The Company
shall not be obligated  to retain such a Consultant  more often than once during
any twenty-four month period.

         (b) The Company  covenants and agrees that it shall  maintain a Current
Ratio,  calculated as of the last day of each calendar  quarter after January 1,
2006,  of not less than 1.10 to 1.00.  The Company  shall provide a copy of such
calculation to the Trustee and Notice  Beneficial Owners at the time of delivery
of the quarterly financial  statements  delivered in accordance with Section 8.4
hereof.

         (c) The Company  covenants  and agrees  that as of January 1, 2006,  it
shall  maintain a Debt to Equity  Ratio,  calculated  as of the last day of each
quarter, of not more than 4.00 to 1.00. The Company shall provide a copy of such
calculation to the Trustee and Notice  Beneficial Owners at the time of delivery
of the quarterly financial  statements  delivered in accordance with Section 8.4
hereof.

         (d)......The Company covenants and agrees that not more than 10% of its
accounts payable (for the deferred  purchase price of property or services) from
time to time incurred in the ordinary course of operations and activities  shall
be in excess of 75 day past the invoice or billing date,  or, if greater than 75
days, are being contested in good faith by the Company.

         (e) The  Company  covenants  and  agrees  that not more than 20% of its
accounts  receivable  (for the deferred  purchase price of property or services)
from time to time shall be in excess of 90 day past the invoice or billing date,
excluding from such calculation (i) amounts being contested in good faith by the
obligated  party,  and (ii) amounts  which the Company has  determined,  in good
faith,  are not  likely  to be  collected  and are to be  treated  as  losses in
accordance with generally accepted accounting principles.

         (f) Notwithstanding the provisions of Section 10.1 hereof, in the event
that (i) the Long-Term Debt Service Coverage Ratio of the Company reported under
paragraph  (a) above shall be less than 1.50 to 1.00,  or (ii) the Current Ratio
reported under paragraph (b) above shall be less than less than 1.10 to 1.00, or
(iii) the Debt to Equity Ratio  reported  under  paragraph (c) above shall to be
more than 4.00 to 1.00,  the failure to satisfy any such  requirement  shall not
result in an Event of Default  hereunder.  Unless the Company  shall  notify the
Trustee within thirty days following the date of any such reported  failure that
the Company is then in compliance with each of such ratios, the interest rate on
each of the Bonds shall increase one percent (100 basis points) as of the end of
such thirty-day period,  until the date the Company shall certify to the Trustee
that each of such requirements has been satisfied.

         (g)  Under  certain  circumstances  as  set  forth  in  the  Indenture,
including the definition of "Interest Rate Step-up", the Loan Payments due under
Section 5.1 herein may be increased.

                                       27
<PAGE>

                                   ARTICLE IX

         ASSIGNMENT AND PLEDGING OF LOAN AGREEMENT; REDEMPTION OF BONDS

         Section 9.1 ASSIGNMENT BY COMPANY.  This Loan Agreement may be assigned
by the Company with the prior written consent of the Bondholders subject to each
of the following conditions:

                  (1) no  assignment  shall  relieve  the Company  from  primary
liability  for any of its  obligations  hereunder,  and in the event of any such
assignment, the Company shall continue to remain primarily liable for payment of
the Loan Payments,  payments on Parity  Indebtedness and other payments required
to be made under Section 5.1 hereof and for  performance  and  observance of the
other covenants and agreements on its part herein provided;

                  (2) no  assignment  shall impair the  exclusion of interest on
the Bonds from gross income for federal income tax purposes;

                  (3) the assignee  shall assume in writing the  obligations  of
the Company hereunder to the extent of the interest assigned, and

                  (4) the  Company  shall,  within 30 days  after  the  delivery
thereof,  furnish or cause to be  furnished to the Issuer and the Trustee a true
and complete copy of each such assumption of obligations and assignment.

         Section 9.2  ASSIGNMENT  AND PLEDGE BY ISSUER.  The Issuer shall assign
certain of its interests in and pledge  certain of the moneys  receivable  under
this Loan Agreement to the Trustee  pursuant to the Indenture and the Assignment
as security for payment of the  principal of,  premium,  if any, and interest on
the Bonds. The Company hereby consents to such assignment and pledge.

         Section 9.3  REDEMPTION OF BONDS.  Upon the agreement of the Company to
deposit  moneys  in the Bond  Principal  Fund and the Bond  Interest  Fund in an
amount  sufficient to redeem Bonds  subject to  redemption,  the Issuer,  at the
request of the Company Representative, shall forthwith take all reasonable steps
consistent  with the  Indenture  and this  Loan  Agreement  necessary  under the
applicable redemption provisions of the Indenture to effect redemption of all or
part of the then Outstanding Bonds on the redemption date.

                                       28
<PAGE>

                                    ARTICLE X

                         EVENTS OF DEFAULT AND REMEDIES

         Section 10.1  EVENTS OF DEFAULT DEFINED. The following shall be "events
of default" under this Loan Agreement and the term "event of default" shall mean
any one or more of the following events:

                  (a) failure to pay the Loan Payments required to be paid under
Section  5.1(a) hereof for a period of 15 days after the time such Loan Payments
were required to be paid thereunder;

                  (b)  failure  by  the  Company  to  observe  and  perform  any
covenant,  condition or agreement on its part to be observed or performed, other
than as referred to in subsection  (a) of this Section,  for a period of 30 days
after  written  notice,  specifying  such  failure  and  requesting  that  it be
remedied,  shall  have been given to the  Company by the Issuer or the  Trustee,
provided,  with respect to any such failure  covered by this  subsection  (b) no
event of default  shall be deemed to have occurred so long as a course of action
adequate to remedy such  failure  shall have been  commenced  within such 30-day
period and shall  thereafter  be diligently  prosecuted  to  completion  and the
failure shall be remedied thereby;  provided,  however,  that failure to correct
such default  within 90 days after  receipt of such notice shall  constitute  an
Event of Default;

                  (c)  any  representation  or  warranty  made  by  the  Company
hereunder  or otherwise  in  connection  with the sale and delivery of the Bonds
shall prove to have been incorrect in any material  respect on or as of the date
of issuance of the Bonds or the date of making such  representation  or warranty
and  cannot be cured  within 30 days after  written  notice by the Issuer or the
Trustee,  specifying  such incorrect  representation  or warranty and requesting
that it be cured,  provided no event of default shall be deemed to have occurred
under this  subsection (c) so long as a course of action  adequate to cure shall
have been commenced within such 30-day period and shall thereafter be diligently
prosecuted to completion and remedied thereby;  provided,  however, that failure
to correct  such  default  within 90 days after  receipt  of such  notice  shall
constitute an Event of Default;

                  (d)  an  event  of  default  shall  have  occurred  under  the
Indenture or the Tax Certificates;

                  (e) if the Company  shall file a petition in bankruptcy or for
reorganization  or for an arrangement  pursuant to any present or future federal
bankruptcy  act or  under  any  similar  federal  or  state  law,  or  shall  be
adjudicated a bankrupt or insolvent, or shall make an assignment for the benefit
of its  creditors  or shall  admit in  writing  its  inability  to pay its debts
generally  as  they  become  due,  or if a  petition  or  answer  proposing  the
adjudication  of the  Company  as a  bankrupt  or its  reorganization  under any
present or future  federal  bankruptcy  act or any similar  federal or state law
shall be filed in any court and such  petition or answer shall not be discharged
or denied within 90 days after the filing thereof, or if a receiver,  trustee or
liquidator  of the Company or of all or  substantially  all of the assets of the
Company,  or the  Property,  Plant  and  Equipment  shall  be

                                       29
<PAGE>

appointed  in any  proceeding  brought  against  the  Company  and  shall not be
discharged  within 90 day's  after  such  appointment  or if the  Company  shall
consent to or  acquiesce  in such  appointment  if the estate or interest of the
Company in the Property, Plant and Equipment or any part thereof shall be levied
upon or  attached  in any  proceeding  and such  process  shall not be  vacated,
discharged or released  within 60 days after such levy or attachment,  or if the
Property,  Plant and  Equipment  shall have been  abandoned by the Company for a
period  of 30  consecutive  days,  or if  the  Company  shall  be  dissolved  or
liquidated  (other than as a result of a merger or  consolidation of the Company
into or with  another  entity  under  the  conditions  permitting  such  actions
contained in this Loan Agreement); and

                  (f) a final  judgment is entered  against  the Company  which,
together with all unsatisfied final judgments  against the Company,  exceeds the
sum of  $1,000,000  and which is not covered by  insurance  or adequate  Company
reserves and such judgment shall remain  unsatisfied or unstayed for a period of
90 days after the entry thereof.

         The foregoing  provisions of subsection (b) of this Section are subject
to the  following  limitations:  If by reason of force  majeure  the  Company is
unable in whole or in part to carry out its agreements herein  contained,  other
than the  obligations  on the part of the Company  contained in Article V and in
Sections 4.7 and 8.5 hereof,  the Company shall not be deemed in default  during
the  continuance  of such  inability  so long as (i) the  Company  provides  the
Bondholders  written  notice that an Event of Default has  occurred by reason of
force  majeure  within 10 Business Days of the receipt of the notice of an Event
of Default  from the  Trustee  and (ii) a majority  of  Bondholders  consents to
implementation  of  Company's  plan to cure such Event of  Default.  The Company
agrees to  promptly  submit  its plans for  curing  the Event of  Default to the
Bondholders;  provided  that the  settlement  of  strikes,  lockouts  and  other
industrial  disturbances shall be entirely within the discretion of the Company,
and the Company shall not be required to make settlement of strikes, lockouts or
other  industrial  disturbances by acceding to the demands of the opposing party
or  parties  when  such  course is in the  reasonable  judgment  of the  Company
unfavorable to the Company.  The term "force  majeure" as used herein shall mean
the following:  acts of God; strikes, lockouts or other industrial disturbances;
acts of public enemies, insurrections;  riots; epidemics; landslides; lightning;
earthquake;  fire; hurricane;  tornadoes;  storms; floods;  washouts;  droughts;
arrests;   restraint  of  government  and  people;   civil  disturbances;   war,
explosions; or partial or entire failure of utilities.

         Section 10.2   REMEDIES  ON  DEFAULT.  Whenever  any  event of  default
referred to in Section 10.1 hereof shall have  occurred and is  continuing,  the
Issuer,  or the Trustee,  where so provided herein,  may take any one or more of
the following remedial steps:

                  (a) the Trustee (acting as assignee of the Issuer),  as and to
the extent  provided in the Indenture,  or the Issuer (in the event of a failure
of the Trustee to act under this  subsection),  may,  and, at the  direction  of
holders of 25 percent of the aggregate  amount of the Bonds,  the Trustee shall,
declare the Loan  Payments  payable  hereunder  for the remainder of the term of
this Loan Agreement to be immediately due and payable,  whereupon the same shall
become due and payable;

                  (b) the Trustee may, subject to indemnification as provided in
the  Indenture,  and, at the direction of holders of 25 percent of the aggregate
amount of the Bonds,  shall,  take any action permitted under the Indenture with
respect to an Event of Default thereunder;

                                       30
<PAGE>

                  (c)  the  Trustee  (acting  as  assignee  of the  Issuer)  may
foreclose  on all or any portion of the  Property or any interest of the Company
therein as and to the extent  permitted  of a mortgagee by the laws of the State
of Oklahoma and exercise all of the rights and remedies of a secured party under
the Uniform Commercial Code of the State of Oklahoma with respect thereto and to
the  tangible  personal  property,  furniture,  machinery  and  equipment of the
Company described in Section 3.1;

                  (d) (Reserved);

                  (e) (Reserved);

                  (f) the Trustee (acting as assignee of the Issuer) may realize
upon the  security  interest in the Pledged  Revenues  and  exercise  all of the
rights and remedies of a secured party under the Uniform  Commercial Code of the
State of Oklahoma and the State of Texas with respect thereto; or

                  (g) the Trustee (acting as assignee of the Issuer),  as and to
the extent  provided in the Indenture,  or the Issuer (in the event of a failure
of the Trustee to act under this  subsection) may take whatever action at law or
in equity as may appear  necessary  or desirable to collect the amounts then due
and  thereafter  to become due, or to enforce  performance  or observance of any
obligations, agreements or covenants of the Company under this Loan Agreement.

         At any time after such a declaration of acceleration has been made, but
before the entry of a judgment or decree to enforce remedies under the Indenture
or this Loan Agreement, such declaration and its consequences shall be rescinded
and  annulled  (unless  the  Trustee is  otherwise  directed by the holders of a
majority of the principal  amount of the Bonds  Outstanding  (excluding Bonds of
any series which are subordinate to any other Series of Bonds)) if:

                  (A) There has been paid to or deposited  with the Trustee,  or
provision  satisfactory  to the  Trustee  has been made for the payment of a sum
sufficient to pay:

                           (i)  all  sums  reasonably  paid or  advanced  by the
                  Trustee (including  reasonable counsel fees and disbursements)
                  under the Indenture or this Loan  Agreement and the reasonable
                  compensation,  expenses,  disbursements  and  advances  of the
                  Trustee (including reasonable counsel fees and disbursements);

                           (ii) all  overdue  installments  of  interest  on the
                  Bonds  payable by the Company  with  interest on such  overdue
                  interest  at the rate of one (1)  percent  per annum above the
                  interest  borne by the Bonds  during the 365 days prior to the
                  date of such payment;

                           (iii) the  principal  of any Bonds  which have become
                  due otherwise  than by such  declaration of  acceleration  and
                  accrued  interest thereon to the date of payment of such Bonds
                  payable  by the  Company  at the rate or  rates  borne by such
                  Bonds;

                                       31
<PAGE>

                           (iv) the  amounts  required  to be on  deposit in the
                  Reserve Fund in accordance with the Indenture; and

                           (v) all  sums,  including  the  reasonable  fees  and
                  expenses  of  counsel,  reasonably  paid  or  advanced  by any
                  Bondholder because of the Company's default.

                  (B) All  Events of  Default  of the  Company,  other  than the
nonpayment of the  principal of the Bonds,  which have become due solely by such
declaration  of  acceleration,  have been  cured or waived  as  provided  in the
Indenture and this Loan Agreement.

In the event that the Company  fails to make any payment  required  hereby,  the
payment so in default  shall  continue as an obligation of the Company until the
amount in default  shall have been fully  paid.  Any  proceeds  received  by the
Issuer or the  Trustee  from the  exercise of any of the above  remedies,  after
reimbursement  of any costs  incurred by the Issuer or the Trustee in connection
therewith,  shall be applied by the Trustee in accordance with the provisions of
the Indenture.

         Section 10.3 NO REMEDY  EXCLUSIVE.  No remedy herein  conferred upon or
reserved to the Issuer or the Trustee is intended to be  exclusive  of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other remedy  given under this Loan  Agreement
or now or  hereafter  existing  at law or in equity or by  statute.  No delay or
omission to exercise any right or power  accruing  upon any default shall impair
any such right or power or shall be  construed to be a waiver  thereof,  but any
such  right or power may be  exercised  from time to time and as often as may be
deemed expedient. In order to entitle the Issuer to exercise any remedy reserved
to it in this Article, it shall not be necessary to give any notice,  other than
notice  required herein or by applicable law. Such rights and remedies given the
Issuer  hereunder  shall also extend to the Trustee and the owners of the Bonds,
subject to the Indenture.

         Section 10.4  AGREEMENT TO PAY  ATTORNEYS'  FEES AND  EXPENSES.  In the
event  the  Company  should  default  under any of the  provisions  of this Loan
Agreement,  the  Indenture  or  the  Tax  Certificates,   and  the  Issuer,  any
Significant  Bondholder or the Trustee  should  employ  attorneys or incur other
expenses for the  collection of Loan Payments or the  enforcement of performance
or observance of any  obligation or agreement on the part of the Company  herein
or in the Tax  Certificates  or the  Indenture,  the Company agrees that it will
within  30  days  of a  request  therefor  pay to the  Issuer,  any  Significant
Bondholder  or the  Trustee,  as the case may be,  the  reasonable  fees of such
attorneys  and such  other  reasonable  expenses  incurred  by the  Issuer,  any
Significant Bondholder or the Trustee. This Section shall continue in full force
and effect,  notwithstanding the full payment of all obligations under this Loan
Agreement or the termination of this Loan Agreement for any reason.

         Section 10.5 WAIVER. In the event any agreement  contained in this Loan
Agreement  should be  breached by any party and  thereafter  waived by any other
party,  such waiver shall be limited to the  particular  breach waived and shall
not be deemed to waive any other breach hereunder.  In view of the assignment of
the Issuer's  rights in and under this Loan  Agreement to the Trustee  under the
Indenture,  the  Issuer  shall  have no  power  to waive  any  Event of  Default
hereunder  without  the  written  consent of the  Trustee.  Notwithstanding  the
foregoing,  a waiver of an Event of Default  under the Indenture or a rescission
of a declaration of acceleration of the Bonds and a rescission and

                                       32
<PAGE>

annulment of its  consequences  shall  constitute a waiver of the  corresponding
event of default under this Loan Agreement and a rescission and annulment of its
consequences;  provided  that no such waiver or  rescission  shall  extend to or
affect any subsequent or other default  hereunder or impair any right consequent
thereon.

         Section 10.6 APPOINTMENT OF RECEIVER.  Upon the occurrence of any Event
of  Default,  unless  the same shall have been  waived as herein  provided,  the
Trustee,  acting as  assignee  of the  Issuer,  shall be entitled as a matter of
right if it shall  so  elect,  without  notice  or  demand  (such  notice  being
expressly  waived  hereby),  ex parte,  (i) forthwith and without  declaring the
Bonds or Parity  Indebtedness  to be due and payable,  (ii) after  declaring the
same to be due and  payable,  or (iii)  upon the  commencement  of an  action to
enforce  the  specific  performance  hereof  or  in  aid  thereof  or  upon  the
commencement  of any  other  judicial  proceeding  to  enforce  any right of the
Trustee,  the  Bondholders  or  the  holders  of  Parity  Indebtedness,  to  the
appointment  of a receiver or receivers of any or all of the Property  with such
powers as the court making such  appointment  shall confer.  The Company  hereby
consents and agrees,  and will if requested by the Trustee  consent and agree at
the time of  application  by the  Trustee for  appointment  of a receiver of the
Property,  to the  appointment  of such  receiver of the  Property and that such
receiver may be given,  the right,  power and authority,  to the extent the same
may  lawfully  be given to take  possession  of and  operate  and deal  with the
Property and the revenues,  profits and proceeds therefrom,  with like effect as
the Company could do so, and to borrow money and issue evidences of indebtedness
as such receiver.

         Section  10.7  REMEDIES  SUBJECT  TO  PROVISIONS  OF LAW.  All  rights,
remedies and powers provided by this Article may be exercised only to the extent
that the exercise thereof does not violate any applicable  provision of law, and
all the  provisions of this Article are intended to be subject to all applicable
mandatory  provisions of law which may be  controlling  and to be limited to the
extent  necessary so that they will not render this instrument or the provisions
hereof invalid or unenforceable under the provisions of any applicable law.

         Section 10.8 WAIVER OF  APPRAISEMENT,  VALUATION,  STAY,  AND EXECUTION
LAWS. The Company  agrees,  to the extent  permitted by law, that in the case of
the occurrence of an Event of Default,  neither the Company nor anyone  claiming
through or under it shall or will set up, claim or seek to take advantage of any
appraisement,  valuation,  stay or  extension  laws now or hereafter in force in
order to prevent or hinder the  enforcement  or  foreclosure of the lien of this
Loan  Agreement,  or the absolute sale of the  Property,  or any interest of the
Company  therein,  or the final and absolute  putting into  possession  thereof,
immediately  after such sale,  of the  purchasers  thereof,  and the Company for
itself and all who may at any time claim through or under it, hereby waives,  to
the full  extent that it may  lawfully do so, the benefit of all such laws,  and
any and all right to have the estates  comprising  the  security  intended to be
hereby created marshaled upon any foreclosure of the lien hereof and agrees that
the Trustee or any court having jurisdiction to foreclose such lien may sell the
Property, or any interest of the Company therein as an entirety.

         Section  10.9  PURCHASE OF PROPERTY BY  BONDHOLDER  OR HOLDER OF PARITY
INDEBTEDNESS.  Upon  the  occurrence  of an Event of  Default,  the lien  and/or
security  interest on the Property created and vested by this Loan Agreement may
be  foreclosed.  If sold at public sale,  any  Bondholder,  and holder of Parity
Indebtedness  or the  Trustee  may bid  for and  purchase  the  Property  or any
interest of

                                       33
<PAGE>

the Company therein and upon compliance with the terms of sale, may hold, retain
and possess and dispose of such Property or interest therein in his own absolute
right without further accountability; and any purchaser at any such sale may, if
permitted by law,  after allowing for the proportion of the total purchase price
required to be paid in cash for the costs and expenses of the sale, compensation
and  other  charges,  in  paying  purchase  money,  surrender  Bonds  or  Parity
Indebtedness then  Outstanding,  as the case may be, in lieu of cash. Said Bonds
or Parity Indebtedness, in case the amount so payable thereon shall be less than
the amount due  thereon,  shall be returned to the holders  thereof  after being
properly stamped to show partial payment.  If the Trustee shall acquire title to
the  Property or any  interest  of the  Company  therein as a result of any such
foreclosure  sale or any proceedings or transaction in lieu of foreclosure,  the
Trustee may  thereafter  take any lawful  action with respect to the Property or
interest  therein  which it shall deem to be in the best interest of the holders
of the Bonds or Parity  Indebtedness,  including  but not  limited  to:  (i) the
enforcement of all rights and remedies set forth in the Indenture and the taking
of all  other  courses  of  action  permitted  herein,  and (ii) the sale of the
Property or any interest therein, or any portion thereof.

                                       34
<PAGE>

                                   ARTICLE XI

                             PREPAYMENT OF THE LOAN

         Section 11.1 GENERAL OPTION TO PREPAY THE LOAN. Subject to Section 11.3
hereof,  the Company shall have and is hereby granted the option  exercisable at
any time to prepay all or any portion of the Loan by depositing with the Trustee
an amount of money or Government  Obligations  described in Section 1 (a) of the
definition of such term as set forth in Article I of the Indenture to the extent
permitted by Section 7.1 of the Indenture,  the principal and interest on which,
when due,  will be equal  (giving  effect to the  credit,  if any,  provided  by
Section  11.2  hereof)  to an  amount  sufficient  to pay the  principal  of (in
integral  multiples of $100,000  and in multiples of $5,000 in excess  thereof),
premium, if any, and interest on any portion of the Bonds then Outstanding under
the  Indenture.  The exercise of the option granted by this Section shall not be
cause for redemption of Bonds unless such redemption is permitted or required at
that time under the  provisions of Article V of the  Indenture,  and the Company
Representative specifies the date for such redemption.  In the event the Company
prepays all of the Loan  pursuant to this Section (and the Bonds are defeased in
accordance  with the  Indenture)  and pays all reasonable and necessary fees and
expenses  of the  Trustee  accrued  and  to  accrue  through  final  payment  or
redemption  of  the  Bonds  as a  result  of  such  prepayment  and  all  of its
liabilities  accrued and to accrue hereunder to the Issuer through final payment
or redemption of the Bonds as a result of such  prepayment,  this Loan Agreement
shall terminate except for Sections 5.1 (f), 4.6 and 8.5 hereof.  The Issuer and
the Trustee may certify to the Company prior to payment all  expenses,  fees and
liabilities  due for payment  hereunder.  Payment of moneys or securities to the
Trustee  under  this  Section  11.1 shall be  accompanied  by an Opinion of Bond
Counsel to the effect that the  application  of such payment will not  adversely
affect the tax-exempt status of the Bonds Outstanding.

         Section 11.2  PREPAYMENT  CREDITS.  In the event of  prepayment  by the
Company of the Loan in whole the amounts then  contained in the Funds related to
the Bonds shall be  credited  first to the Rebate Fund so that it shall be fully
funded for any required payment to the federal  government  therefrom,  and then
against the Company's prepayment obligation.

         Section  11.3 NOTICE OF  PREPAYMENT.  In order to  exercise  the option
granted by this Article, the Company shall give written notice to the Issuer and
the Trustee which shall specify therein the date of making the prepayment, which
date  shall be not less  than 60 days  nor more  than 90 days  from the date the
notice is mailed.  In the case of any prepayment  pursuant to this Article,  the
Company  Representative  shall make arrangements with the Trustee for giving the
required notice of redemption of any Bonds to be redeemed.

         Section 11.4 USE OF PREPAYMENT  MONEYS.  By virtue of the assignment of
the rights of the Issuer under this Loan  Agreement to the Trustee,  the Company
agrees to and shall pay any amount  required to be paid by it under this Article
directly to the Trustee (other than amounts to be paid to the Issuer for its own
account or as otherwise  provided in Section 5.3 hereof).  The Trustee shall use
the moneys so paid to it by the Company to pay the  principal of and interest on
the Bonds on regularly scheduled payment or redemption dates.

                                       35
<PAGE>

                                   ARTICLE XII

                                  MISCELLANEOUS

         Section 12.1 NOTICES. All notices, certificates or other communications
hereunder shall be  sufficiently  given and shall be deemed given when mailed by
certified mail,  return-receipt  requested,  postage  prepaid,  or dispatched by
telegram or telecopy (if confirmed promptly telephonically and in writing by the
sender of such  telecopy and if receipt of such telecopy is confirmed in writing
by the intended recipient), addressed as follows:

         Issuer:        Cleveland County Industrial Authority
                        c/o Board of Cleveland County Commissioners
                        605 E. Robinson
                        Norman, Oklahoma 73071
                        Attn: Secretary

         With copy to:  R. Lindsay Bailey, Esq.
                        Issuer's Counsel
                        303 E. Eufaula
                        Norman, Oklahoma 73102

         Trustee:       J. P. Morgan Trust Company, National Associaiton
                        1200 N.W. 63rd
                        Oklahoma City, Oklahoma 73116
                        Attn: Brenda Batchelor

         Company:       Vaughan Foods, Inc.
                        216 NE 12th Street
                        Moore, Oklahoma 73160
                        Attn: Stan Gustas, Chief Financial Officer

The Issuer, the Company, and the Trustee may, by notice hereunder, designate any
further or different  addresses to which  subsequent  notices,  certificates  or
other communications shall be sent.

         Section 12.2 BINDING  EFFECT.  This Loan  Agreement  shall inure to the
benefit  of and shall be  binding  upon the  Issuer  and the  Company  and their
respective  successors  and  assigns,   subject,  however,  to  the  limitations
contained in Sections 8.14, 9.1, 9.2 and 12. 10 hereof.

         Section  12.3  SEVERABILITY.  In the event any  provision  of this Loan
Agreement  shall be held  invalid  or  unenforceable  by any court of  competent
jurisdiction,  such holding  shall not  invalidate or render  unenforceable  any
other provision hereof.

         Section  12.4 AMOUNTS  REMAINING IN FUNDS.  It is agreed by the parties
hereto that any amounts  remaining in the Funds upon  expiration  of the term of
this Loan  Agreement  shall be paid by the Trustee as directed in writing by the
Company Representative as provided in the Indenture.

                                       36
<PAGE>

         Section 12.5 AMENDMENTS, CHANGES AND MODIFICATIONS. Except as otherwise
provided in this Loan Agreement or in the Indenture, this Loan Agreement may not
be amended, changed, modified, altered or terminated.

         Section 12.6  EXECUTION IN  COUNTERPARTS.  This Loan  Agreement  may be
executed in several counterparts,  each of which shall be an original and all of
which shall constitute but one and the same instrument.

         Section 12.7 GOVERNING  LAW. This Loan Agreement  shall be governed and
construed in accordance with the laws of the State of Oklahoma.

         Section 12.8 CANCELLATION AT EXPIRATION OF TERM OF AGREEMENT.  Upon the
expiration of the term of this Loan  Agreement,  the Issuer shall deliver to the
Company any  documents and take or cause the Trustee to take such actions as may
be  necessary  to  evidence  the  termination  of this  Loan  Agreement  and the
discharge of the lien hereof.

         Section 12.9  RECORDING.  The Company shall cause this Loan  Agreement,
the Assignment and every  assignment and  modification  hereof to be recorded in
the real  estate  records  of the  County  in which  the  Site is  located  (the
"County").  In  accordance  with the  Indenture,  the  Company  shall  cause the
security  interest in the  Pledged  Revenues,  Funds,  the  Equipment  and trust
accounts referred to in Section 3.1 hereof granted to the Issuer, the assignment
of such security  interest to the Trustee and the security interest in this Loan
Agreement  granted to the Trustee to be perfected to the extent permitted by law
by the filing of  financing  statements  which fully  comply  with the  Oklahoma
Uniform Commercial Code in the office of the Secretary of State of Oklahoma, the
office of the County and in such other office as is at the time  provided by law
as the proper place for the filing  thereof.  The parties further agree that all
necessary continuation  statements shall be filed by the Company within the time
prescribed  by the Oklahoma  Uniform  Commercial  Code in order to continue such
security interests.

         Section 12.10 NO PECUNIARY LIABILITY OF ISSUER. No provision,  covenant
or agreement contained in this Loan Agreement, or any obligations herein imposed
upon the Issuer,  or the breach  thereof,  shall  constitute an  indebtedness or
liability  of the Issuer  within  the  meaning  of any  Oklahoma  constitutional
provision  or  statutory  limitation  or  shall  constitute  or  give  rise to a
pecuniary liability of the Issuer or any member,  officer or agent of the Issuer
or a charge against the Issuer's general credit. In making the Loan , the Issuer
has not obligated itself except with respect to the Trust Estate.

         Section  12.11  PARTIAL  RELEASE.  So long as no Event of Default shall
have occurred and be continuing  under this Loan  Agreement,  whenever under the
terms of this Loan  Agreement  any  portion  of the  Property  or  Equipment  is
permitted to be sold,  transferred,  disposed of or released from the provisions
of this Loan Agreement,  including  releases in the event of condemnation of the
Property or  Equipment  in  accordance  with  Article VII hereof,  or  Transfers
permitted  under  Section  8.14  hereof,  the  Trustee  shall  take all  actions
reasonably  necessary  to release  that  portion of the Property or Equipment so
sold,  leased  or  disposed  of from the lien of this Loan  Agreement.  Any such
release   shall  be   requested   of  the  Issuer  in  writing  by  the  Company
Representative  and shall be

                                       37
<PAGE>

accompanied  by a  description  of the Property or Equipment to be released,  an
amendment or  supplement  to the  exhibits of this Loan  Agreement to the extent
necessary to provide for such release, a plat or improvement  location survey of
the  Property  after the  release by a  registered  civil  engineer  or surveyor
licensed  in the  state of  Oklahoma  in  accordance  with the  standard  detail
requirements  for land title surveys  adopted by ALTA, and an Opinion of Counsel
to the effect that such  release is  permitted  by the  provisions  of this Loan
Agreement.

         Section 12.12 GENERAL RELEASE. Upon payment of all sums secured by this
Loan Agreement and upon full performance hereof by the Company,  the Trustee, as
assignee of the Issuer,  shall  promptly,  after written notice from the Company
Representative, execute and deliver to the Company a release of the Lien of this
Loan Agreement in form reasonably  acceptable to the Trustee. The Company shall,
however, pay all costs and expenses in connection with the preparation,  review,
recordation and execution of said release.

         Section  12.13  CAPTIONS.  The  captions  and  headings  in  this  Loan
Agreement are for convenience  only and in no way define,  limit or describe the
scope or intent of any provisions or sections of this Loan Agreement.

         Section 12.14 PAYMENTS DUE ON NON-BUSINESS  DAY. If the date for making
any payment or the last date for  performance  of any act or the exercise of any
right,  as provided in this Loan  Agreement  shall not be a Business  Day,  such
payment may be made or act performed or right  exercised on the next  succeeding
business  day with the same  force  and  effect as if done on the  nominal  date
provided in this Loan Agreement, except as otherwise expressly provided herein.

         Section 12.15 PROVISION OF GENERAL APPLICATION. Any consent or approval
of the Issuer  required  pursuant to this Loan Agreement shall be in writing and
shall not be unreasonably withheld.

                                       38
<PAGE>

IN WITNESS  WHEREOF,  the Issuer and the Company have caused this Loan Agreement
to be executed in their  respective  corporate  names and attested by their duly
authorized  officers and the Company has caused its corporate seal to be affixed
hereto, all as of the date first above written.

                                    CLEVELAND          COUNTY         INDUSTRIAL
                                    AUTHORITY

                                    By:  /s/ Charles Thompson
                                         --------------------
                                         Charles Thompson
                                         Chairman

ATTEST:

/s/ Donna Roberts
-----------------
Donna Roberts, Secretary
(SEAL)

                                    VAUGHAN FOODS, INC.

                                    By:  /s/ Mark E. Vaughan
                                         -------------------
                                         Mark Vaughan
                                         President

                                       39
<PAGE>

STATE OF OKLAHOMA                   )
                                    ) ss
COUNTY OF OKLAHOMA                  )

         The foregoing  instrument was  acknowledged  before me this 16TH day of
December,  2004, by Charles  Thompson,  Chairman and Donna  Roberts,  Secretary,
Cleveland County Industrial Authority, a public trust, on behalf of the trust.

         WITNESS my hand and official seal.

                                             -----------------------------------
                                             Notary Public

         Commission Expires:
                             ----------------

                                       40
<PAGE>

STATE OF OKLAHOMA                   )
                                    ) ss
COUNTY OF OKLAHOMA                  )

         The foregoing  instrument was  acknowledged  before me this 16TH day of
December,  2004, by Mark Vaughan,  President,  Vaughan Foods,  Inc., an Oklahoma
corporation.

         WITNESS my hand and official seal.

                                             -----------------------------------
                                             Notary Public

         Commission Expires:
                             ----------------

                                       41
<PAGE>

                                    EXHIBIT A

                            LEGAL DESCRIPTION OF SITE

A tract of land in the  Northeast  Quarter  (NE/4)  of  Section  Fourteen  (14),
Township Ten (10) North, Range Three (3) West of the Indian Meridian.  Cleveland
County,  Oklahoma,  which  tract  is more  particularly  described  as  follows:
Beginning at a point 1628.55 feet West of the Northeast corner of said Northeast
Quarter;  thence West along the North line of said Northeast  Quarter a distance
of 650.09 feet to the centerline of the right-ofway line of the AT & SF Railroad
Company;  thence South along the center line of said  right-of-way a distance of
984.26  feet;  thence East and  parallel  with the North line of said  Northeast
Quarter a distance of 652.83 feet; thence North a distance of 934.26 feet to the
point or place of beginning.

Physical Address: 216 N.E. 12th, Moore, Oklahoma

                                      A-1
<PAGE>

                                    EXHIBIT B

                              COSTS OF THE PROJECT

         SOURCES:

                  Series 2004 Bond Proceeds                           $5,000,000
                                                                      ----------

                  Total Estimated Sources                             $5,000,000

         USES:

                  Building Expansion                                  $1,175,000
                  Reimbursements                                         925,000
                  Debt Service Reserve Fund                              500,000
                  Water Treatment Facilities                             900,000
                  Cost of Issuance                                       100,000
                  Production Line                                      1,300,000
                  Tomato Production Line                                 100,000
                                                                      ----------

Total Estimated Uses                                                  $5,000,000

                                      B-1
<PAGE>

                                    EXHIBIT C

                                 PERMITTED LIENS

         First Mortgage dated _____________ _____ ______, between Vaughan Foods,
Inc.,  Mortgagor,  and CNL Commercial Finance,  Inc.,  Mortgagee recorded in the
records of the Cleveland County Clerk at Book ______, Pages ______.

                                      B-2

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