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                       SUBORDINATION AND PLEDGE AGREEMENT

                                                                 October 5, 2000

Whereas, VERMONT PURE HOLDINGS, LTD., (f/k/a VP Merger Parent, Inc.), a Delaware
corporation  formerly  named "VP  Merger  Parent,  INC.",  and  whose  principal
executive  office is located at Catamount  Industrial  Park, Route 66, Randolph,
Vermont 05060  ("HOLDINGS"),  CRYSTAL ROCK SPRING WATER  COMPANY,  a Connecticut
corporation  with an office at 1050 Buckingham  Street,  Watertown,  Connecticut
06795  ("CRYSTAL  ROCK"),   PLATINUM  ACQUISITION  CORP.,  (f/k/a  Vermont  Pure
Holdings,  Ltd.), a Delaware  corporation with an office at Catamount INDUSTRIAL
PARK, ROUTE 66, RANDOLPH,  VERMONT 05060  ("PLATINUM") and VERMONT PURE SPRINGS,
INC., a Delaware  corporation with an office AT CATAMOUNT INDUSTRIAL PARK, ROUTE
66, RANDOLPH, VERMONT 05060 ("VPS", and collectively with Holdings, Crystal Rock
and  Platinum,  the  "OBLIGORS  ") are now  indebted  to  PETER  K.  BAKER  (the
"SUBORDINATE LENDER") and may from time to time hereafter become indebted to the
Subordinate Lender in further amounts; and

WHEREAS, Ross S. Rapaport, not individually but as Trustee of the Peter K. Baker
Life Insurance Trust, The John B. Baker Insurance TRUST AND U/T/A DATED DECEMBER
16,  1991  F/B/O  JOAN  BAKER  ET.  AL. IS ACTING  AS AGENT  (THE  "AGENT")  for
Subordinate Lender pursuant to certain of the Subordinated Loan Documents; and

WHEREAS,  the  Obligors  have  requested,  and may from  time to time  hereafter
request, WEBSTER BANK (the "BANK") to make or agree to make loans, extensions of
credit or other financial accommodations to the Obligors (the "LOANS"); and

WHEREAS,  the Bank, as a condition to the making or  continuation  of the Loans,
has required the  Subordinate  Lender to execute and deliver this  Subordination
and Pledge  Agreement  (together  with all schedules  and any exhibits  attached
hereto and amendments or  MOdifications  hereto in effect from time to time, the
"AGREEMENT").

NOW,  THEREFORE,  in order to induce the Bank to make,  or  continue to make the
Loans and in consideration thereof, the Subordinate Lender agrees as follows:

A.  DEFINITIONS.    As used herein, the following terms shall have the following
    meanings:

1.   AFFILIATE. The term "AFFILIATE" means Webster Financial Corporation and any
     of its direct and indirect affiliates and subsidiaries.

2.   BANK COLLATERAL.  The term "BANK COLLATERAL" means the personal property of
     the  Obligors  described  in  SCHEDULE  A and any  other  real or  personal

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     property  of any of the  Obligors  in which  the Bank or an  Affiliate  may
     hereafter  be  granted a  security  interest,  mortgage  interest  or other
     similar interest.

3.   COLLECTION  ACTION.  The term "COLLECTION  ACTION" means to (i) exercise or
     enforce  any  rights or  remedies  or assert any  claims  against  the Bank
     Collateral  or  Subordinated  Lenders'  Collateral;  (ii) make any claim or
     commence or initiate any action, lawsuit, case or proceeding against any of
     the  Obligors or join  together or with any creditor  other than,  with its
     consent,  the Bank in any action,  lawsuit,  case or proceeding against the
     Obligors  (including,  but not  being  limited  to,  proceedings  under the
     Bankruptcy  Code);  (iii)  contact  any  account of any of the  Obligors or
     attach or take possession of any Bank  Collateral or Subordinated  Lenders'
     Collateral or exercise any right of foreclosure or any right or remedy with
     respect  to any of the  Obligors  or the Bank  Collateral  or  Subordinated
     Lenders'  Collateral;  or (iv)  take any  other  action  prejudicial  to or
     inconsistent  with the Bank's rights and first  priority  secured  position
     with respect to the  Obligors or the Bank  Collateral,  including,  without
     limitation,  that any action that will impede, interfere with, restrict, or
     restrain the exercise by the Bank of its rights and remedies under the Loan
     Documents or contest in any manner the perfection,  priority or validity of
     any lien held by the Bank in any of the Bank Collateral.

4.   EVENT OF  DEFAULT.  THE TERM  "EVENT  OF  DEFAULT"  shall  mean an Event of
     Default  under the Loan  Agreement  beyond  any  applicable  grace and cure
     period.

5.   FINANCIAL  COVENANT  DEFAULT.  The term "FINANCIAL  COVENANT DEFAULT" shall
     mean an Event of Default which results solely from the violation of any now
     existing or  hereafter  arising  financial  covenant  contained in the Loan
     Agreement,  including,  by way of  illustration,  those specific  financial
     covenants set forth in Sections  6.16,  6.17,  6.18,  6.19, and 6.20 of the
     Loan Agreement and any supplement,  addition,  modification or amendment to
     those specific financial covenants.

6.   LIABILITIES.  The term  "LIABILITIES"  means  any and all  obligations  and
     indebtedness  of every kind and  description,  now or  hereafter  existing,
     whether  such debts or  obligations  are  primary or  secondary,  direct or
     indirect,  absolute  or  contingent,  sole,  joint or  several,  secured or
     unsecured,  due or to become  due,  contractual  or  tortious,  arising  by
     operation  of  law,  by  overdraft,   or  otherwise,   including,   without
     limitation, principal, interest, fees, late fees, expenses, attorneys' fees
     and costs,  and/or  allocated  fees and costs of the Bank's  in-house legal
     counsel, that have been or may hereafter be contracted or incurred.

7.   LOAN  AGREEMENT.  The term "LOAN  AGREEMENT"  means that  certain  Loan and
     Security  Agreement among the Obligors and Bank dated the date hereof,  and
     any subsequent supplement,  modification,  renewal,  extension or amendment
     thereto.

8.   LOAN DOCUMENTS.  The term "LOAN DOCUMENTS" means the Loan Agreement and all
     other  credit  accommodations,   notes,  loan  agreements,  and  any  other
     agreements and documents, now or hereafter existing, creating,  evidencing,
     guarantying,  securing or relating to any or all of the Senior Liabilities,
     together  with  all  amendments,  modifications,  renewals,  or  extensions
     thereof.

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9.   NON-COVENANT  DEFAULT.  The term  "NON-COVENANT  DEFAULT" means an Event of
     Default other than a Financial Covenant Default.

10.  OBLIGOR. The term "OBLIGOR" means the Holdings, Crystal Rock, Platinum, VPS
     and each and every other maker,  endorser,  guarantor,  or surety of or for
     the Senior Liabilities.

11.  SENIOR LIABILITIES.  The term"SENIOR  LIABILITIES" means all Liabilities of
     the Obligors to the Bank and/or to any of the Affiliates including, without
     limitation,  any and all interest accruing on Senior  Liabilities after the
     commencement  of any  proceedings  referred to in  paragraph  B.5.  hereof,
     notwithstanding  any  provision  or rule of law which  might  restrict  the
     rights of the Bank, as against the Obligors  and/or anyone else, to collect
     such interest.  For purposes of this Agreement,  Senior  Liabilities  shall
     include all  Liabilities of the Obligors to the Bank,  notwithstanding  any
     right or power of any of the  Obligors  and/or  anyone  else to assert  any
     claim or  defense  as to the  invalidity  or  unenforceability  of any such
     Senior Liabilities.

12.  SUBORDINATED   LENDERS'   COLLATERAL.   The  term  "SUBORDINATED   LENDERS"
     COLLATERAL"  means  the  personal  property  of  the  Obligors  more  fully
     described in schedule B attached hereto.

13.  SUBORDINATED  LIABILITIES.  The term  "SUBORDINATED  LIABILITIES" means all
     Liabilities of the Obligors to the Subordinate Lender,  including,  without
     limitation,  all  payments  of  principal  and  interest  pursuant  to that
     Subordinated Promissory Note dated the date of this Agreement from Holdings
     payable to the order of the Subordinated  Lender in the original  principal
     amount of $5,200,000.00 (the  "SUBORDINATED  NOTE") and that Guaranty dated
     the date of this  Agreement  from  Platinum and VPS to  Subordinate  Lender
     Guarantying  Payments  due under the  Subordinated  Note (the  "SUBORDINATE
     GUARANTY")  but  specifically  excluding  therefrom  compensation  from the
     Obligors to the Subordinate Lender presently  contemplated  pursuant to the
     existing  employment   agreement  between  any  of  the  Obligors  and  the
     Subordinate Lender, as the compensation clauses thereof may be amended from
     time to time with the  consent  of the Bank,  the normal  reimbursement  of
     expenses in the ordinary course of business and  indemnification  of claims
     arising  solely  from the  Subordinate  Lender's  actions  as an officer or
     director of any of the Obligors.

14.  SUBORDINATED LOAN DOCUMENTS.  The term  "SUBORDINATED LOAN DOCUMENTS" means
     all credit accommodations,  notes, loan agreements and any other agreements
     and   documents,   now  or  hereafter   existing,   creating,   evidencing,
     guarantying,  securing  or  relating  to any  or  all  of the  Subordinated
     Liabilities,  together  with all  amendments,  modifications,  renewals  or
     extensions thereof.

B.  SUBORDINATION AND PLEDGE.

1.   SUBORDINATION TO SENIOR LIABILITIES.

(a)              Except as hereinafter  expressly set forth in this Agreement or
                 as the  Bank  may  hereafter  otherwise  expressly  consent  in
                 writing,  the payment of all Subordinated  Liabilities shall be

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               postponed and subordinated to the indefeasible payment in full of
               all Senior  Liabilities,  and no payments or other  distributions
               whatsoever,  including, without limitation,  payments of interest
               in respect of any  Subordinated  Liabilities  shall be made,  nor
               shall any property or assets of the Borrower or other  Obligor be
               applied to the purchase or other acquisition or retirement of any
               Subordinated  Liabilities,  nor given as  collateral  security to
               secure repayment of same.

(B)            Notwithstanding  the  provisions in paragraph  B.1(A) above,  and
               subject to the other  terms of this  Agreement,  the  Subordinate
               Lender  may be granted a security  interest  in the  Subordinated
               Lenders'  Collateral  to secure the  payments  of  principal  and
               interest and other amounts due pursuant to the Subordinated Note.

(C)            Notwithstanding the provisions of paragraph B.1(A) above, so long
               as no Event of Default exists and is  continuing,  and so long as
               no event  exists  and is  continuing  which,  with the  giving of
               notice or the passage of time or both,  would  constitute a Event
               of  Default,   the  Obligors  may  make  the  following  payments
               (including partial payments thereof), but only to the extent that
               the  making  of such  payments  would not  result in a  Financial
               Covenant Default:  (i) regularly  scheduled quarterly payments of
               interest under the Subordinated  Note, at a rate not in excess of
               twelve per cent (12%) per annum, and past due regularly scheduled
               quarterly  payments of interest under the Subordinated Note which
               were not paid when  scheduled  to be paid because of the terms of
               this  Agreement,  including  interest  at a rate not in excess of
               twelve  per cent  (12%) per annum on such past due  amounts;  and
               (ii)  regularly  scheduled  principal  payments,   together  with
               accrued but unpaid interest at a rate not in excess of twelve per
               cent  (12%)  per  annum,  in  accordance  with  the  terms of the
               Subordinated Note,  commencing with the first regularly scheduled
               principal  payment  more than three  years after the date of this
               Agreement and past due  regularly  scheduled  principal  payments
               under the Subordinated Note which were not paid when scheduled to
               be  paid  because  of the  terms  of  this  Agreement,  including
               interest  at a rate not in excess of  twelve  per cent  (12%) per
               annum on such past due amounts.

2.        PLEDGE OF SUBORDINATED LOAN DOCUMENTS.  In order to secure the due and
          punctual  payment  and  performance  of the  Senior  Liabilities,  the
          Subordinate Lender hereby pledges,  transfers,  assigns, and grants to
          the  Bank  a  continuing  security  interest  in  and  lien  upon  the
          Subordinated Loan Documents.  The Subordinate  Lender has endorsed and
          delivered to the Bank physical  possession of any of the  Subordinated
          Loan Documents which are instruments,  including the Subordinated Note
          and has executed Uniform Commercial Code financing statements and such
          other documents  and/or  instruments as may be necessary or convenient
          to perfect the security interests granted herein.  Bank shall hold the
          Subordinated Note and any other  Subordinated Loan Documents which are
          instruments delivered to the Bank as security for the due and punctual
          payment and performance of the Senior Liabilities and  notwithstanding
          the  possession of the  Subordinated  Note or such other  Subordinated
          Loan Documents by the Bank, the  Subordinate  Lender shall be entitled
          to receive payments  thereunder to the extent  expressly  permitted by
          the  terms  of this  Agreement.  Upon  payment  in full of the  Senior
          Liabilities,  the Bank will deliver to the Subordinate  Lender in care
          of Peter K.  Baker the  Subordinated  Note and any other  Subordinated
          Loan Documents in its possession.

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3.        SUBORDINATION OF SECURITY  INTEREST OF SUBORDINATED  LIABILITIES.  Any
          security interest now or hereafter held by the Subordinate  Lender and
          granted  by any of the  Obligors  to  secure  any of the  Subordinated
          Liabilities,  including the security  interest  described in paragraph
          B.1(B), is hereby  immediately made subordinate,  junior and postponed
          in  priority  and effect to the  priority  and effect of the  security
          interest  purported to be created by any of the Loan Documents,  as if
          (and whether or not) the Bank's  security  interest had been perfected
          by  possession,  by timely filing of financing  statements,  or by any
          other means prior to the time the  security  interest  with respect to
          the Subordinated  Liabilities is perfected, and prior to the filing of
          any  financing   statements  in  connection   with  the   Subordinated
          Liabilities.  The Subordinate  Lender agrees to execute and deliver to
          the Bank all instruments,  including, without limitation, Forms UCC-3,
          subordinations  of lien, and  subordinations of mortgage which, in the
          reasonable  opinion  of the  Bank,  are  necessary  or  convenient  to
          effectuate the purposes of this paragraph and this Agreement.

4.        FURTHER  ASSURANCES  OF  PLEDGE  OF  SUBORDINATED   LIABILITIES.   The
          Subordinate  Lender will (i) promptly  notify the Bank of the creation
          of any Subordinated  Liabilities and of the issuance of any promissory
          note or other  instrument  to evidence any  Subordinated  Liabilities;
          (ii)  cause  any  Subordinated   Liabilities  which  are  not  already
          evidenced by a promissory note or other  instrument of the Obligors to
          be  so  evidenced;   (iii)  as  collateral  security  for  the  Senior
          Liabilities,  endorse,  deliver  and  pledge  to the  Bank any and all
          promissory  notes and/or  other  instruments  evidencing  Subordinated
          Liabilities, and otherwise assign and/or pledge to the Bank any or all
          Subordinated Liabilities and the Subordinated Loan Documents, all in a
          manner  satisfactory  to the  Bank in its  sole  discretion,  and (iv)
          promptly  give the Bank  written  notice of any default by any Obligor
          under  the  Subordinated  Note  or any  agreement  securing  Obligors'
          obligations under any of the other Subordinated Loan Documents.

          FURTHER  ASSURANCES  OF BANK.  Bank will  endeavor  to  deliver to the
          Subordinate  Lender  in care of Peter K.  Baker  prompt  notice of any
          Event  of  Default  or  Financial  Covenant  Default  under  the  Loan
          Agreement or any of the other Loan Documents of which the Bank becomes
          aware but the failure of the Bank to promptly  deliver any such notice
          will not affect any of the rights or  obligations of the parties under
          this Agreement.

    5.    RIGHTS OF BANK TO COLLECT SUBORDINATED  LIABILITIES.  In the event of,
          and commencing  with the date thereof,  any  dissolution,  winding up,
          liquidation,  reorganization or other similar proceedings  relating to
          any Obligor or to any of their creditors,  or to any of their property
          (whether voluntary or involuntary, partial or complete, and whether in
          bankruptcy,  insolvency or receivership, or upon an assignment for the
          benefit  of  creditors,  or any other  marshalling  of the  assets and
          liabilities of any Obligor, or any sale of all or substantially all of
          the assets of any Obligor, or otherwise), the Senior Liabilities shall
          first be paid in full before the Subordinate  Lender shall be entitled
          to receive and/or to retain any payment or  distribution in respect of
          the  Subordinated  Liabilities;  provided that the Subordinate  Lender
          shall be  entitled  to receive  and retain  any  securities  issued in
          connection with  reorganization  proceedings which are junior in right
          of repayment to the Senior Liabilities to the extent set forth herein,
          are treated as Subordinated  Liabilities  hereunder and are subject to
          all the provisions of this  Agreement,  and, in order to implement the

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          foregoing (i) all payments and  distributions of any kind or character
          in  respect  of  the  Subordinated  Liabilities  to  which  any of the
          Subordinate  Lender would be entitled but for the  provisions  of this
          Agreement (other than such junior securities) will be made directly to
          the Bank; (ii) the  Subordinate  Lender shall promptly file a claim or
          claims,  in the  form  required  in such  proceedings,  for  the  full
          outstanding  amount of the Subordinated  Liabilities,  and shall cause
          said  claim or  claims  to be  approved  and all  payments  and  other
          distributions  in respect thereof (other than such junior  securities)
          to be made directly to the Bank;  (iii) the Subordinate  Lender hereby
          irrevocably  agrees that the Bank may, in its sole discretion,  in the
          name of the Subordinate Lender or otherwise, demand, sue for, collect,
          receive,  and receipt for any and all such payments or  distributions,
          and file,  prove,  and vote or  consent in any such  proceedings  with
          respect to, any and all claims of the  Subordinate  Lender relating to
          the Subordinated  Liabilities;  and (iv) the Subordinate Lender hereby
          ratifies all of the foregoing  acts or omissions on the Bank's part or
          behalf  and  waives  any  claim,   counterclaim   or  defense  of  the
          Subordinate  Lender  which may be  alleged  to arise from such acts or
          omissions.

    6.    PROTECTION OF BANK'S RIGHTS IN SUBORDINATED LIABILITIES.  In the event
          that the Subordinate Lender receives any payment or other distribution
          of any  kind  or  character  from  any  Obligor  or any  other  source
          whatsoever in respect of any of the  Subordinated  Liabilities,  other
          than as  expressly  permitted  by the  terms of this  Agreement,  such
          payment or other  distribution shall be received in trust for the Bank
          and promptly  turned over by the  Subordinate  Lender to the Bank. The
          Subordinate  Lender  will mark its books  and  records,  and cause the
          Obligors to mark their books and  records,  so as to clearly  indicate
          that the Subordinated  Liabilities are subordinated in accordance with
          the terms of this Agreement,  and will cause to be clearly inserted in
          any promissory  note or other  instrument  which at any time evidences
          any of the Subordinated Liabilities a statement to the effect that the
          payment  thereof is  subordinated in accordance with the terms of this
          Agreement.  The Subordinate Lender will execute such further documents
          and instruments and take such further action as the Bank may from time
          to time reasonably  request to carry out the intent of this Agreement.
          The  Subordinate  Lender  hereby  irrevocably  appoints  the  Bank its
          attorney in fact, said appointment being coupled with an interest,  to
          execute such further  documents and  instruments and take such further
          action on behalf of the  Subordinate  Lender as the Bank may from time
          to time deem  reasonable  to carry out the  intent of this  agreement,
          including, without limitation, the actions set forth in paragraph B.4.
          hereof.

    7.

          TREATMENT  OF PAYMENT OF  SUBORDINATED  LIABILITIES.  All payments and
          distributions  received  by the Bank in  respect  of the  Subordinated
          Liabilities,  to the extent received in or converted into cash, may be
          applied  by the Bank  first  to the  payment  of any and all  expenses
          (including  attorneys' fees and  disbursements and the allocated fees,
          expenses and cost of in-house counsel) paid or incurred by the Bank in
          enforcing  this Agreement or in endeavoring to collect or realize upon
          any of the  Subordinated  Liabilities,  and any balance thereof shall,
          solely as between the  Subordinate  Lender and the Bank, be applied by
          the Bank,  in such order of  application  as the Bank may from time to
          time  select,  toward the  payment  of any of the  Senior  Liabilities
          remaining  unpaid. As between the Obligors and any of their creditors,
          no such payments or  distributions  of any kind or character  shall be
          deemed to be  payments  or  distributions  in  respect  of the  Senior
          Liabilities;  and,  notwithstanding any such payments or distributions
          received by the Bank in respect of the Subordinated Liabilities and so

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          applied by the Bank toward the payment of the Senior Liabilities,  the
          Subordinate  Lender shall be subrogated to the then existing rights of
          the Bank, if any, in respect of the Senior  Liabilities,  only at such
          time as the Bank shall have received  indefeasible payment of the full
          amount of the Senior Liabilities.

    8.    WAIVERS.  The Subordinate  Lender hereby waives (i) any and all notice
          of the  receipt and  acceptance  by the Bank of this  Agreement;  (ii)
          except  as set  forth  in  paragraph  B.4,  notice  of the  existence,
          incurrence,  or non-payment  of all or any of the Senior  Liabilities;
          (iii) all diligence in collection or protection of or realization upon
          any of the Senior Liabilities or any security  therefor;  and (iv) any
          obligation with respect to the marshalling of assets by the Bank.

9.        PROHIBITION ON CHANGES IN SUBORDINATED LIABILITIES.

         (a)   EXCEPT AS HEREIN SET FORTH IN PARAGRAPH  B.9(B),  the Subordinate
               Lender will not without the prior written consent of the Bank (i)
               cancel,  waive,  forgive,  amend, modify,  transfer or assign, or
               attempt to enforce or collect,  or subordinate to any Liabilities
               other than the Senior Liabilities,  any Subordinated  Liabilities
               or any rights in respect  thereof;  (ii) convert any Subordinated
               Liabilities  into  stock  or  other  securities  in  any  of  the
               Obligors;  (iii) take any Collection  Action;  (iv) commence,  or
               join with any  other  creditor  in  commencing,  any  bankruptcy,
               reorganization  or insolvency  proceedings with respect to any of
               the  Obligors,  or (v) take any other  action  prejudicial  to or
               inconsistent  with the Bank's rights and first  priority  secured
               position with respect to the Obligors,  the Bank  Collateral  and
               collateral for the Senior Liabilities.

         (b)   Notwithstanding  the  provisions  of  paragraph  B.9(A),  if  any
               default has occurred under any of the Subordinated Loan Documents
               and such default has  continued in existence  for a period of one
               hundred  eighty  (180)  consecutive  days after the  Subordinated
               Lenders have  provided  written  notice of the  existence of such
               default to the bank (the "STANDSTILL  PERIOD"),  the Subordinated
               Lender may proceed to take legal action  against the Obligors for
               the sole  purpose of obtaining a judgment  against the  Obligors;
               provided,  however,  at  no  time  either  before  or  after  the
               expiration of the Standstill Period, may any Subordinated  Lender
               take any  action  or  Collection  Action to  enforce  a  security
               interest  in,  liquidate or  otherwise  receive  payment from any
               collateral  for  the  Senior  Liabilities,   including  the  Bank
               Collateral or Subordinated Lenders' Collateral,  unless and until
               the  Bank  has  been  indefeasibly  paid in full  for all  Senior
               Liabilities.

10.       CONTINUING  AGREEMENT.  This  Agreement  shall  in all  respects  be a
          continuing  agreement  and  shall  remain  in full  force  and  effect
          notwithstanding,   without  limitation,  the  death,  incompetency  or
          dissolution of the Subordinate Lender or that at any time or from time
          to time all  Senior  Liabilities  may have been paid in full if any of
          the Loan Documents have not been terminated.

11.       PERMITTED  CHANGES IN SENIOR  LIABILITIES.  The Bank may, from time to
          time, whether before or after any discontinuance of this Agreement, at
          its sole discretion and without notice to the Subordinate Lender, take
          any or all of the following  actions:  (i) retain or obtain a security

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          interest in any property to secure any of the Senior Liabilities; (ii)
          retain or obtain the  primary  or  secondary  obligation  of any other
          Obligor or  Obligors  with  respect to any of the Senior  Liabilities;
          (iii) extend,  renew (whether or not longer than the original period),
          alter or  exchange  any of the  Senior  Liabilities;  (iv)  release or
          compromise any obligation of any nature of any Obligor with respect to
          any of the Senior Liabilities;  and, (v) release its security interest
          or lien in,  allows its security  interest or lien to be  unperfected,
          surrender,  release or permit any substitution or exchange for, all or
          any part of any property  securing any of the Senior  Liabilities,  or
          extend or renew for one or more  periods  (whether  or not longer than
          the  original  period) or release,  compromise,  alter or exchange any
          obligations  of any  nature of any  Obligor  with  respect to any such
          property.

12.       DISPOSITION  OF  ASSETS.   The  Subordinate   Lender  agree  that  any
          disposition by the Bank of any collateral for the Senior  Liabilities,
          whether by collection, sale, or other manner of liquidation,  after an
          Event  of  Default  under  the  Loan  Documents,  if  conducted  in  a
          commercially  reasonable manner, may not be challenged or contested by
          the Subordinate Lender on the grounds of commercial  unreasonableness.
          The  Subordinate  Lender  agrees  that the Bank may use such  means of
          collection  and exercise such  diligence  with respect  thereto as the
          Bank,   in  its  sole   discretion,   deems   appropriate   under  the
          circumstances  and may enter into such  compromise  with and give such
          releases and  acquittances to account debtors or other obligors of the
          Obligors' receivables as it determines in its sole discretion, without
          obtaining  the  agreement or  concurrence  of or giving  notice to the
          Subordinate  Lender and the Subordinate  Lender hereby waive all right
          to require  that its  agreement  or consent be  obtained or that it be
          given  notice.  The  Subordinate  Lender  further  agrees that it will
          release  its  security  interest  on  any  collateral  (including  the
          Subordinated  Lenders' Collateral) for the Senior Liabilities upon the
          sale or other disposition  thereof at the request of the Bank, whether
          or not  any  proceeds  therefrom  will  pay  any  of the  Subordinated
          Liabilities.

C.   REPRESENTATIONS  AND WARRANTIES.  The Subordinate  Lender hereby represents
     and warrants that (i) the  Subordinate  Lender has the necessary  power and
     capacity to make and perform this Agreement and such making and performance
     have been  duly  authorized  by all  necessary  actions  on the part of the
     Subordinate  Lender;  (ii) the making and  performance  by the  Subordinate
     Lender of this Agreement does not and will not violate any provision of law
     or  regulation  or result in the  breach  of, or  constitute  a default  or
     require any consent under,  any indenture or other  agreement or instrument
     to which it is a party or by which any of its properties may be bound;  and
     (iii) this  Agreement  is the legal,  valid and binding  obligation  of the
     Subordinate   Lender,   enforceable   against  the  Subordinate  Lender  in
     accordance with its terms.

D.   REMEDIES.  Upon the occurrence of any Event of Default,  or upon the breach
     of any  representation,  covenant or  agreement  in this  Agreement  by any
     Obligor or the  Subordinate  Lender,  or in the event of the termination of
     this  Agreement,  all of the Senior  Liabilities  shall,  without notice or
     demand,  become  immediately  due and payable at the option of the Bank and
     the Bank may  immediately,  without  further  notice,  resort to all of its
     rights and remedies herein,  in any document  (including the Loan Agreement
     and any of the Loan Documents) by and between the Bank and any Obligor,  or
     in any in any instrument evidencing any obligation under any such document,
     at law or in equity.  The Bank agrees that it shall proceed,  to the extent

                                       8
<PAGE>

     commercially  reasonable,  against  all the assets of the  Obligors  before
     liquidating the Subordinated Note.

E.   MISCELLANEOUS.

     1.   REMEDIES CUMULATIVE; NO WAIVER. The rights, powers and remedies of the
          Bank  provided in this  Agreement  and any of the Loan  Documents  are
          cumulative and not exclusive of any right, power or remedy provided by
          law or  equity.  No  failure  or  delay on the part of the Bank in the
          exercise  of any  right,  power or remedy  shall  operate  as a waiver
          thereof,  nor shall any single or partial exercise  preclude any other
          or further exercise thereof, or the exercise of any other right, power
          or remedy.

    2.    NOTICES.  Notices and communications  under this Agreement shall be in
          writing and shall be given by (i) hand-delivery, (ii) first class mail
          (postage  prepaid),  or (iii) reliable  overnight  commercial  courier
          (charges prepaid) to the addresses listed in this Agreement. Notice by
          overnight  courier  shall be deemed to have been given and received on
          the date  scheduled  for  delivery.  Notice by mail shall be deemed to
          have been given and received  three (3)  calendar  days after the date
          first  deposited in the United  States Mail.  Notice by  hand-delivery
          shall be deemed to have been given and received upon delivery. A party
          may change its address by giving  written notice to the other party as
          specified herein.

    3.    COSTS AND EXPENSES.  Whether or not the  transactions  contemplated by
          this  Agreement  or the Loan  Documents  are  fully  consummated,  the
          Obligors shall promptly pay (or reimburse,  as the Bank may elect) all
          costs and expenses which the Bank has incurred or may hereafter  incur
          in  connection  with  the  negotiation,   preparation,   reproduction,
          interpretation,  perfection, protection of collateral,  administration
          and  enforcement of this Agreement and the other Loan  Documents,  the
          collection of all amounts due under this  Agreement and the other Loan
          Documents, and all amendments,  modifications, consents or waivers, if
          any, to the Loan Documents.  The Obligors'  reimbursement  obligations
          under this Paragraph  shall survive any  termination of this Agreement
          or any  other  Loan  Document  and  are  deemed  part  of  the  Senior
          Liabilities.

    4.    GOVERNING  LAW. This Agreement  shall be construed in accordance  with
          and  governed  by the  substantive  laws of the  State of  Connecticut
          without reference to conflict of laws principles.

    5.    INTEGRATION;  AMENDMENT.  This  Agreement and the other Loan Documents
          constitute  the sole  agreement  of the  parties  with  respect to the
          subject matter hereof and thereof and supersede all oral  negotiations
          and prior  writings  with  respect to the  subject  matter  hereof and
          thereof.  No amendment of this Agreement,  and no waiver of any one or
          more of the provisions  hereof shall be effective  unless set forth in
          writing and signed by the parties hereto.

    6.    SUCCESSORS  AND ASSIGNS.  This Agreement (i) shall be binding upon the
          Subordinate Lender, the Obligors executing this Agreement and the Bank
          and,   where   applicable,    their   respective   heirs,   executors,
          administrators,  successors  and assigns,  and (ii) shall inure to the
          benefit of the  Subordinate  Lender,  the  Obligors  and the Bank and,
          where applicable,  their respective heirs, executors,  administrators,
          successors  and  permitted  assigns;   provided,   however,  that  the

                                       9
<PAGE>

          Subordinate  Lender and the  Obligors  may not assign  their rights or
          obligations hereunder or any interest herein without the prior written
          consent of the Bank, and any such  assignment or attempted  assignment
          by the Subordinate Lender and/or any of the Obligors shall be void and
          of no effect with respect to the Bank.  The Bank may from time to time
          sell or assign,  in whole or in part, or grant  participations  in the
          Loans and/or the Agreement and/or the obligations  evidenced  thereby.
          The  Subordinate  Lender  authorizes  the Bank to provide  information
          concerning the Subordinate  Lender and the Obligors to any prospective
          purchaser, assignee or participant.

    7.    SEVERABILITY  AND  CONSISTENCY.  The illegality,  unenforceability  or
          inconsistency  of any provision of this Agreement or any instrument or
          agreement required hereunder shall not in any way affect or impair the
          legality, enforceability or consistency of the remaining provisions of
          this Agreement or any instrument or agreement required hereunder.  The
          Loan  Documents  and this  Agreement  are  intended to be  consistent.
          However, in the event of any inconsistencies between and/or among this
          Agreement and any of the Loan Documents,  such inconsistency shall not
          affect the validity or  enforceability of this Agreement or any of the
          Loan Documents. In the event of any inconsistency or ambiguity in this
          Agreement or any of the Loan  Documents,  this  Agreement and the Loan
          Documents  shall not be  construed  against any one party but shall be
          interpreted consistent with the Bank's policies and procedures.

    8.  CONSENT TO JURISDICTION AND SERVICE OF PROCESS.  The Subordinate  Lender
        irrevocably  appoints  Rapaport & Ellenthal,  P.C.,  750 Summer  Street,
        Stamford,  CT 06901 as its attorneys upon whom may be served any notice,
        process or pleading in any action or  proceeding  against it arising out
        of or in connection with this Agreement. If service of process cannot be
        delivered  to the  Subordinate  Lender  as  specified  by  statute,  the
        Subordinate Lender agrees that, with court approval, it may be served by
        regular  or  certified  mail  at  the  address  set  forth  herein.  The
        Subordinate  Lender  hereby  consents  and agrees that (i) any action or
        proceeding  against  it may be  commenced  and  maintained  in any court
        within the State of Connecticut  or in the United States  District Court
        for the  District  of  Connecticut  by service of process on  Rapaport &
        Ellenthal and (ii) the courts of the State of Connecticut and the United
        States  District  Court  for the  District  of  Connecticut  shall  have
        jurisdiction with respect to the subject matter hereof and the person of
        the Subordinate Lender and the Subordinated Liabilities. The Subordinate
        Lender  agrees  that any  action  brought by the  Subordinate  Lender on
        account of this Agreement  shall be commenced and  maintained  only in a
        court in the federal  judicial  district or county in which the Bank has
        its principal place of business in Connecticut.

                                       10
<PAGE>

9.       PREJUDGMENT REMEDIES.

        The  Subordinate  Lender  hereby   acknowledges  that  the  transactions
        contemplated  herein  constitute  commercial  transactions.  Pursuant to
        Section 52-278f of the  Connecticut  General  Statutes,  the Subordinate
        Lender hereby waives and  relinquishes  all rights to notice and hearing
        as provided  in Sections  52-278a  through  52-278g of said  Connecticut
        General Statutes prior to the securing of any prejudgment remedy against
        the Subordinate  Lender in connection with the Liabilities or any of the
        instruments or documents executed in connection herewith.

10.      PROVISIONS SOLELY FOR THE BENEFIT OF THE BANK.

        The  provisions  of this  Agreement  are solely to define  the  relative
        rights and  obligations of the Bank and the Subordinate  Lender,  and no
        other  person  or  entity,  including,  without  limitation,  any of the
        Obligors,  shall  have  any  rights  hereunder  or as a  result  of  the
        provisions hereof.

11.       AGENT FOR SUBORDINATE LENDER.

         The Agent hereby agrees to be bound by the terms and provisions of this
         Agreement  and agrees not to make any  payment  or  distribution  or to
         otherwise  take any action which is contrary to the  provisions of this
         Agreement.

12.      JUDICIAL PROCEEDINGS; WAIVERS.

        THE SUBORDINATE  LENDER AND THE BANK  ACKNOWLEDGE AND AGREE THAT (i) ANY
        SUIT,  ACTION OR PROCEEDING,  WHETHER CLAIM OR COUNTERCLAIM,  BROUGHT OR
        INSTITUTED  BY THE BANK,  THE  SUBORDINATE  LENDER OR ANY  SUCCESSOR  OR
        ASSIGN OF THE BANK OR THE SUBORDINATE LENDER, ON OR WITH RESPECT TO THIS
        AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE DEALINGS OF THE PARTIES WITH
        RESPECT HERETO, OR THERETO,  SHALL BE TRIED ONLY BY A COURT AND NOT BY A
        JURY AND EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY;  (ii) EACH WAIVES
        ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER,  IN ANY SUCH SUIT,  ACTION OR
        PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR
        ANY DAMAGES  OTHER THAN, OR IN ADDITION TO,  ACTUAL  DAMAGES;  AND (iii)
        THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THE
        BANK WOULD NOT EXTEND  CREDIT IF THE WAIVERS  SET FORTH IN THIS  SECTION
        WERE NOT A PART OF THIS AGREEMENT.

                                       11
<PAGE>

    IN WITNESS WHEREOF, the Subordinate Lender has executed and delivered to the
Bank this Agreement, as of the day and year first above written.

WITNESSED BY:

-------------------------------------     --------------------------------------
                                          Name:    Peter K. Baker
                                          Address: 1050 Buckingham Street
                                                   Watertown, CT 06795
-------------------------------------

-------------------------------------      -------------------------------------
                                          Ross S. Rapaport, not individually but
                                          as Trustee  of the  Peter K. BakerLife
                                          Insurance  Trust,    The John B.Baker
                                          Insurance Trust and  u/t/a  dated
-------------------------------------     December 16,1991 f/b/o Joan Baker
                                          et. al., as Agent
                                          Address: 1050 Buckingham Street
                                                   Watertown, CT 06795

                                          WEBSTER BANK

------------------------------------      By:-----------------------------------
                                             Robert E. Teittinen
                                             Its Vice President
-----------------------------------          Address: 174 Bank Street
                                             Waterbury, CT 06702

STATE OF CONNECTICUT       )
                           ) ss: Hartford                        October _, 2000
COUNTY OF HARTFORD         )

Personally  appeared  Peter  K.  Baker,  signer  and  sealer  of  the  foregoing
instrument and acknowledged the same to be his free act and deed, before me.

                       Commissioner of the Superior Court

                                                     Notary Public
                                                     My Commission expires:

                                       12
<PAGE>

STATE OF CONNECTICUT       )
                           ) ss: Hartford                        October _, 2000
COUNTY OF HARTFORD         )

Personally  appeared Ross S. Rapaport,  not  individually  but as Trustee of the
Peter K. Baker Life Insurance Trust, the John B. Baker Insurance Trust and U/T/A
dated December 16, 1991 F/B/O Joan Baker et. al, as Agent,  signer and sealer of
the foregoing  instrument and  acknowledged the same to be his free act and deed
as Trustee and Agent, before me.

                       Commissioner of the Superior Court

                                                     Notary Public
                                                     My Commission expires:

STATE OF CONNECTICUT       )
                           ) ss: Hartford                        October _, 2000
COUNTY OF HARTFORD         )

Personally appeared Robert E. Teittinen,  Vice President of Webster Bank, signer
and sealer of the foregoing  instrument and acknowledged the same to be his free
act and deed as such officer and the free act and deed of Webster  Bank,  before
me.

                       Commissioner of the Superior Court

                                                     Notary Public
                                                     My Commission expires:

                                       13
<PAGE>

The Obligors signing below hereby acknowledge receipt of a copy of the foregoing
Agreement, waive notice of acceptance thereof by the Bank, and agree to be bound
by the terms and provisions thereof. The Obligors signing below further agree to
make no payments or distributions,  or grant any security interest,  contrary to
the terms and  provisions of this  Agreement and to do every other act and thing
necessary  or  appropriate  to carry  out such  terms and  provisions.  Upon the
occurrence  of any Event of Default,  or upon the breach of any  representation,
covenant  or  agreement  in  this  Agreement  by  any  of  the  Obligors  or the
Subordinated  Lender, or in the event of the termination of this Agreement,  all
of the Senior  Liabilities shall,  without notice or demand,  become immediately
due and payable at the option of the Bank and the Bank may immediately,  without
further notice, resort to all of its rights and remedies herein, in any document
(including the Loan Agreement and any of the Loan  Documents) by and between the
Bank and any Obligor,  or in any in any  instrument  evidencing  any  obligation
under any such document, at law or in equity.

Dated: As of the 5th day of October, 2000

                                          VERMONT PURE HOLDINGS, LTD.
                                         (f/k/a VP Merger Parent, Inc.)

                                          By:-----------------------------------
                                             Name:     Timothy G. Fallon
                                             Title:    President
                                             Address:  Catamount Industrial Park
                                                       Route 66
                                                       Randolph, VT 05060

                                          CRYSTAL ROCK SPRING WATER COMPANY

                                          By:-----------------------------------
                                             Name:     John B. Baker
                                             Title:    President
                                             Address:  1050 Buckingham Street
                                                       Watertown, CT 06795

                                       14
<PAGE>

                                          PLATINUM ACQUISITION CORP.
                                          (f/k/a Vermont Pure Holdings, Ltd.)

                                          By:______________________
                                             Name:     Timothy G. Fallon
                                             Title:    President
                                             Address:  Catamount Industrial Park
                                                       Route 66
                                                       Randolph, VT 05060

                                          VERMONT PURE SPRINGS, INC.

                                          By:______________________
                                             Name:     Timothy G. Fallon
                                             Title:    President
                                             Address:  Catamount Industrial Park
                                                       Route 66
                                                       Randolph, VT 05060

                                       15
<PAGE>

                                   SCHEDULE A

                                 Bank Collateral

"Collateral"  means  Receivables,  Inventory,  Equipment,  Patents,  Trademarks,
Investment Property, Additional Collateral, and the Premises.

"Additional  Collateral"  means  (i) all  General  Intangibles  (as such term is
defined in the Uniform  Commercial  Code as in effect in Connecticut on the date
of this  Agreement) of every kind and  description  of the  Obligors,  including
without  limitation  federal,  state and local tax  refund  claims of all kinds,
whether  now  existing  or  hereafter  arising;  (ii) all of  Obligors'  deposit
accounts,  whether now owned or hereafter created,  wherever located;  (iii) all
monies,  securities,  instruments,  cash and other  property of Obligors and the
proceeds thereof, now or hereafter held or received by, or in transit to, Lender
from or for Obligors,  whether for safekeeping,  pledge, custody,  transmission,
collection  or  otherwise,  and all of Obligors'  deposits  (general or special,
balances,  sums,  proceeds  and  credits  of  Obligors  with  Lender at any time
existing);  (iv) all  interests  in real  property  held or  owned by  Obligors,
including all leasehold  interests;  (v) all rights under  contracts and license
agreements for water;  (vi) all books,  records,  customer lists,  ledger cards,
computer  programs,  computer  tapes,  disks,  printouts and records,  and other
property and general  intangibles  at any time  evidencing or relating to any of
the foregoing,  whether now in existence or hereafter  created;  (vii) all other
personal  property  and  fixtures  of the  Obligors,  whether  now  existing  or
hereafter arising or created; and all proceeds of the foregoing and all proceeds
of any insurance on the foregoing.

"Equipment"  means all Equipment,  Farm Products and Fixtures (as such terms are
defined in the Uniform  Commercial  Code as in effect in Connecticut on the date
of this Agreement),  including all machinery,  equipment,  furniture,  fixtures,
tools, parts, supplies and motor vehicles,  now owned and hereafter acquired, by
Debtor of whatsoever name, nature,  kind or description,  wherever located,  and
all additions and accessions thereto and replacements or substitutions therefor,
and all proceeds thereof and all proceeds of any insurance thereon.

"Inventory"  means all  Inventory  and Goods (as such  terms are  defined in the
Uniform  Commercial  Code  as in  effect  in  Connecticut  on the  date  of this
Agreement)  of  whatsoever  name,  nature,  kind or  description  now  owned and
hereafter acquired by Debtor, wherever located, including without limitation all
contract  rights with respect thereto and documents  representing  the same, all
goods held for sale or lease or to be  furnished  under  contracts  of  service,
finished  goods,  raw materials,  materials  used or consumed by Debtor,  parts,
supplies,  and all wrapping,  packaging,  advertising and shipping materials and
any documents  relating  thereto,  and all labels and other  devices,  names and
marks affixed or to be affixed thereto for purposes of selling or of identifying
the same or the  seller  or  manufacturer  thereof,  and all  right,  title  and
interest of Debtor  therein and thereto,  and all proceeds of the  foregoing and
all proceeds of any insurance on the foregoing.

<PAGE>

"Investment  Property" means all investment property (as such term is defined in
the  Uniform  Commercial  Code as  adopted  in  Connecticut  on the date of this
Agreement)  of whatever  type or nature now owned or  hereafter  acquired by the
Debtor,  including  without  limitation,   all  certificated   securities,   all
uncertificated securities, all security entitlements, all security accounts, all
commodity  contracts,  all commodity  accounts and all financial assets of every
type and nature and all rights thereto or therein, and all financial accounts of
every type and nature and all rights  thereto or therein,  and all  proceeds and
products  thereof,  including  without  limitation,  all insurance  proceeds and
fidelity bond proceeds related thereto.

"Patents" means all of Debtor's right,  title and interest,  present and future,
in and to (a) all letters patent of the United States or any other country,  all
right,  title and  interest  therein  and  thereto,  and all  registrations  and
recordings thereof, including without limitation applications, registrations and
recordings in the United  States  Patent and Trademark  Office or in any similar
office or agency of the United  States or any state thereof or any other country
or any  political  subdivision  thereof,  all  whether  now  owned or  hereafter
acquired by Debtor; and (b) all reissues,  continuations,  continuations-in-part
or  extensions  thereof  and  all  licenses  thereof;  and all  proceeds  of the
foregoing and all proceeds of any insurance on the foregoing.

"Premises" means the following real property owned by Debtor:

         Hedding Drive, Randolph, Vermont Chase Road, Randolph, Vermont Route 66
         Factory,  Randolph, Vermont North Randolph Road, Randolph, Vermont 20.0
         acres,  Route 66,  Randolph,  Vermont  5.0 acres,  Route 66,  Randolph,
         Vermont

"Receivables"  means  (i) all of  Debtor's  now owned  and  hereafter  acquired,
present and future, Accounts,  Chattel Paper, Documents,  Instruments,  (as such
terms are defined in the Uniform  Commercial Code as in effect in Connecticut on
the date of this Agreement) and contract rights,  including  without  limitation
all  obligations  to Debtor for the  payment of money,  whether  arising  out of
Debtor's  sale of goods or rendition of services or otherwise  (all  hereinafter
called  "Accounts")  and all proceeds of the  foregoing  and all proceeds of any
insurance on the foregoing; (ii) all of Debtor's rights, remedies,  security and
liens,  in, to and in respect of the  Accounts,  present and  future,  including
without limitation,  rights of stoppage in transit,  replevin,  repossession and
reclamation  and other rights and remedies of an unpaid vendor,  lien or secured
party, guaranties or other contracts of suretyship with respect to the Accounts,
deposits or other security for the obligation of any debtor or Debtor in any way
obligated on or in connection with any Accounts, and credit and other insurance,
and all  proceeds of the  foregoing  and all  proceeds of any  insurance  on the
foregoing;  and (iii) all of Debtor's  right,  title and  interest,  present and
future,  in, to and in respect of all goods  relating  to, or which by sale have
resulted in,  Accounts,  including  without  limitation  all goods  described in
invoices  or other  documents  or  instruments  with  respect  to, or  otherwise
representing  or  evidencing  any  Accounts,  and  all  returned,  reclaimed  or
repossessed  goods,  and all proceeds of the  foregoing  and all proceeds of any
insurance on the foregoing.

<PAGE>

                                   SCHEDULE B

                         Subordinated Lender Collateral

         The following property,  whether now existing or subsequently acquired,
and  all  additions,  substitutions,  accessions,  replacements,  proceeds,  and
products thereof or thereto:  all tangible and intangible  assets and properties
of each of Vermont Pure Holdings,  Ltd., a Delaware  corporation  formerly named
"VP Merger Parent,  Inc.", Vermont Pure Springs,  Inc., a Delaware  corporation,
Platinum  Acquisition  Corp.,  f/k/a Vermont Pure  Holdings  (each a "Company"),
including without limitation all furniture,  fixtures, equipment, raw materials,
inventory,  other goods,  accounts,  contract  rights,  rights to the payment of
money, insurance refund claims and all other insurance claims and proceeds, tort
claims, chattel paper, documents,  instruments,  securities and other investment
property,  deposit  accounts,  rights to  proceeds  of letters of credit and all
general  intangibles  including,  without  limitation,  all tax  refund  claims,
license fees, patents, patent applications,  trademarks, trademark applications,
trade names, copyrights,  copyright applications,  rights to sue and recover for
past  infringement  of patents,  trademarks and copyrights,  computer  programs,
computer  software,   engineering  drawings,   service  marks,  customer  lists,
goodwill, and all licenses,  permits,  agreements of any kind or nature pursuant
to which any Company possesses, uses or has authority to possess or use property
(whether  tangible  or  intangible)  of others or  others  possess,  use or have
authority to possess or use property  (whether  tangible or  intangible) of such
Company,  and all recorded data of any kind or nature,  regardless of the medium
of recording  including,  without  limitation,  all software,  writings,  plans,
specifications  and schematics  (each of which terms has the meaning ascribed to
in the  Uniform  Commercial  Code,  as in effect  in the  State of  Connecticut)
(collectively,  the "COLLATERAL");  PROVIDED THAT notwithstanding the foregoing,
such grant of security  interest shall not extend to, and the term  "Collateral"
shall  not  include  any  cash  and cash  equivalents  at any time  owned by any
Company.

                                                               [GRAPHIC OMITTED]

                       SUBORDINATION AND PLEDGE AGREEMENT

                                                                 October 5, 2000

Whereas, VERMONT PURE HOLDINGS, LTD., (f/k/a VP Merger Parent, Inc.), a Delaware
corporation  formerly  named "VP  Merger  Parent,  INC.",  and  whose  principal
executive  office is located at Catamount  Industrial  Park, Route 66, Randolph,
Vermont 05060  ("HOLDINGS"),  CRYSTAL ROCK SPRING WATER  COMPANY,  a Connecticut
corporation  with an office at 1050 Buckingham  Street,  Watertown,  Connecticut
06795  ("CRYSTAL  ROCK"),   PLATINUM  ACQUISITION  CORP.,  (f/k/a  Vermont  Pure
Holdings,  Ltd.), a Delaware  corporation with an office at Catamount INDUSTRIAL
PARK, ROUTE 66, RANDOLPH,  VERMONT 05060  ("PLATINUM") and VERMONT PURE SPRINGS,
INC., a Delaware  corporation with an office at Catamount Industrial Park, Route
66, Randolph, Vermont 05060 ("VPS", and collectively with Holdings, Crystal Rock
and  Platinum,  the  "OBLIGORS  ") are now  indebted  to  PETER  K.  BAKER  (the
"SUBORDINATE LENDER") and may from time to time hereafter become indebted to the
Subordinate Lender in further amounts; and

WHEREAS, Ross S. Rapaport, not individually but as Trustee of the Peter K. Baker
Life Insurance Trust, The John B. Baker Insurance TRUST AND U/T/A DATED DECEMBER
16,  1991  F/B/O  JOAN  BAKER  ET.  AL. IS ACTING  AS AGENT  (THE  "AGENT")  for
Subordinate Lender pursuant to certain of the Subordinated Loan Documents; and

WHEREAS,  the  Obligors  have  requested,  and may from  time to time  hereafter
request, WEBSTER BANK (the "BANK") to make or agree to make loans, extensions of
credit or other financial accommodations to the Obligors (the "LOANS"); and

WHEREAS,  the Bank, as a condition to the making or  continuation  of the Loans,
has required the  Subordinate  Lender to execute and deliver this  Subordination
and Pledge  Agreement  (together  with all schedules  and any exhibits  attached
hereto and amendments or  MOdifications  hereto in effect from time to time, the
"AGREEMENT").

NOW,  THEREFORE,  in order to induce the Bank to make,  or  continue to make the
Loans and in consideration thereof, the Subordinate Lender agrees as follows:

A.  DEFINITIONS.    As used herein, the following terms shall have the following
    meanings:

1.   AFFILIATE. The term "AFFILIATE" means Webster Financial Corporation and any
     of its direct and indirect affiliates and subsidiaries.

2.   BANK COLLATERAL.  The term "BANK COLLATERAL" means the personal property of
     the  Obligors  described  in  Schedule  A and any  other  real or  personal

<PAGE>

     property  of any of the  Obligors  in which  the Bank or an  Affiliate  may
     hereafter  be  granted a  security  interest,  mortgage  interest  or other
     similar interest.

3.   COLLECTION  ACTION.  The term "COLLECTION  ACTION" means to (i) exercise or
     enforce  any  rights or  remedies  or assert any  claims  against  the Bank
     Collateral  or  Subordinated  Lenders'  Collateral;  (ii) make any claim or
     commence or initiate any action, lawsuit, case or proceeding against any of
     the  Obligors or join  together or with any creditor  other than,  with its
     consent,  the Bank in any action,  lawsuit,  case or proceeding against the
     Obligors  (including,  but not  being  limited  to,  proceedings  under the
     Bankruptcy  Code);  (iii)  contact  any  account of any of the  Obligors or
     attach or take possession of any Bank  Collateral or Subordinated  Lenders'
     Collateral or exercise any right of foreclosure or any right or remedy with
     respect  to any of the  Obligors  or the Bank  Collateral  or  Subordinated
     Lenders'  Collateral;  or (iv)  take any  other  action  prejudicial  to or
     inconsistent  with the Bank's rights and first  priority  secured  position
     with respect to the  Obligors or the Bank  Collateral,  including,  without
     limitation,  that any action that will impede, interfere with, restrict, or
     restrain the exercise by the Bank of its rights and remedies under the Loan
     Documents or contest in any manner the perfection,  priority or validity of
     any lien held by the Bank in any of the Bank Collateral.

4.   EVENT OF  DEFAULT.  THE TERM  "EVENT  OF  DEFAULT"  shall  mean an Event of
     Default  under the Loan  Agreement  beyond  any  applicable  grace and cure
     period.

5.   FINANCIAL  COVENANT  DEFAULT.  The term "FINANCIAL  COVENANT DEFAULT" shall
     mean an Event of Default which results solely from the violation of any now
     existing or  hereafter  arising  financial  covenant  contained in the Loan
     Agreement,  including,  by way of  illustration,  those specific  financial
     covenants set forth in Sections  6.16,  6.17,  6.18,  6.19, and 6.20 of the
     Loan Agreement and any supplement,  addition,  modification or amendment to
     those specific financial covenants.

6.   LIABILITIES.  The term  "LIABILITIES"  means  any and all  obligations  and
     indebtedness  of every kind and  description,  now or  hereafter  existing,
     whether  such debts or  obligations  are  primary or  secondary,  direct or
     indirect,  absolute  or  contingent,  sole,  joint or  several,  secured or
     unsecured,  due or to become  due,  contractual  or  tortious,  arising  by
     operation  of  law,  by  overdraft,   or  otherwise,   including,   without
     limitation, principal, interest, fees, late fees, expenses, attorneys' fees
     and costs,  and/or  allocated  fees and costs of the Bank's  in-house legal
     counsel, that have been or may hereafter be contracted or incurred.

7.   LOAN  AGREEMENT.  The term "LOAN  AGREEMENT"  means that  certain  Loan and
     Security  Agreement among the Obligors and Bank dated the date hereof,  and
     any subsequent supplement,  modification,  renewal,  extension or amendment
     thereto.

8.   LOAN DOCUMENTS.  The term "LOAN DOCUMENTS" means the Loan Agreement and all
     other  credit  accommodations,   notes,  loan  agreements,  and  any  other
     agreements and documents, now or hereafter existing, creating,  evidencing,
     guarantying,  securing or relating to any or all of the Senior Liabilities,
     together  with  all  amendments,  modifications,  renewals,  or  extensions
     thereof.

                                       2
<PAGE>

9.   NON-COVENANT  DEFAULT.  The term  "NON-COVENANT  DEFAULT" means an Event of
     Default other than a Financial Covenant Default.

10.  OBLIGOR. The term "OBLIGOR" means the Holdings, Crystal Rock, Platinum, VPS
     and each and every other maker,  endorser,  guarantor,  or surety of or for
     the Senior Liabilities.

11.  SENIOR LIABILITIES.  The term"SENIOR  LIABILITIES" means all Liabilities of
     the Obligors to the Bank and/or to any of the Affiliates including, without
     limitation,  any and all interest accruing on Senior  Liabilities after the
     commencement  of any  proceedings  referred to in  paragraph  B.5.  hereof,
     notwithstanding  any  provision  or rule of law which  might  restrict  the
     rights of the Bank, as against the Obligors  and/or anyone else, to collect
     such interest.  For purposes of this Agreement,  Senior  Liabilities  shall
     include all  Liabilities of the Obligors to the Bank,  notwithstanding  any
     right or power of any of the  Obligors  and/or  anyone  else to assert  any
     claim or  defense  as to the  invalidity  or  unenforceability  of any such
     Senior Liabilities.

12.  SUBORDINATED   LENDERS'   COLLATERAL.   The  term  "SUBORDINATED   LENDERS"
     COLLATERAL"  means  the  personal  property  of  the  Obligors  more  fully
     described in schedule B attached hereto.

13.  SUBORDINATED  LIABILITIES.  The term  "SUBORDINATED  LIABILITIES" means all
     Liabilities of the Obligors to the Subordinate Lender,  including,  without
     limitation,  all  payments  of  principal  and  interest  pursuant  to that
     Subordinated Promissory Note dated the date of this Agreement from Holdings
     payable to the order of the Subordinated  Lender in the original  principal
     amount of $5,200,000.00 (the  "SUBORDINATED  NOTE") and that Guaranty dated
     the date of this  Agreement  from  Platinum and VPS to  Subordinate  Lender
     Guarantying  Payments  due under the  Subordinated  Note (the  "SUBORDINATE
     GUARANTY")  but  specifically  excluding  therefrom  compensation  from the
     Obligors to the Subordinate Lender presently  contemplated  pursuant to the
     existing  employment   agreement  between  any  of  the  Obligors  and  the
     Subordinate Lender, as the compensation clauses thereof may be amended from
     time to time with the  consent  of the Bank,  the normal  reimbursement  of
     expenses in the ordinary course of business and  indemnification  of claims
     arising  solely  from the  Subordinate  Lender's  actions  as an officer or
     director of any of the Obligors.

14.  SUBORDINATED LOAN DOCUMENTS.  The term  "SUBORDINATED LOAN DOCUMENTS" means
     all credit accommodations,  notes, loan agreements and any other agreements
     and   documents,   now  or  hereafter   existing,   creating,   evidencing,
     guarantying,  securing  or  relating  to any  or  all  of the  Subordinated
     Liabilities,  together  with all  amendments,  modifications,  renewals  or
     extensions thereof.

B.  SUBORDINATION AND PLEDGE.

1.   SUBORDINATION TO SENIOR LIABILITIES.

(a)              Except as hereinafter  expressly set forth in this Agreement or
                 as the  Bank  may  hereafter  otherwise  expressly  consent  in
                 writing,  the payment of all Subordinated  Liabilities shall be

                                       3
<PAGE>

               postponed and subordinated to the indefeasible payment in full of
               all Senior  Liabilities,  and no payments or other  distributions
               whatsoever,  including, without limitation,  payments of interest
               in respect of any  Subordinated  Liabilities  shall be made,  nor
               shall any property or assets of the Borrower or other  Obligor be
               applied to the purchase or other acquisition or retirement of any
               Subordinated  Liabilities,  nor given as  collateral  security to
               secure repayment of same.

(B)            Notwithstanding  the  provisions in paragraph  B.1(A) above,  and
               subject to the other  terms of this  Agreement,  the  Subordinate
               Lender  may be granted a security  interest  in the  Subordinated
               Lenders'  Collateral  to secure the  payments  of  principal  and
               interest and other amounts due pursuant to the Subordinated Note.

(C)            Notwithstanding the provisions of paragraph B.1(A) above, so long
               as no Event of Default exists and is  continuing,  and so long as
               no event  exists  and is  continuing  which,  with the  giving of
               notice or the passage of time or both,  would  constitute a Event
               of  Default,   the  Obligors  may  make  the  following  payments
               (including partial payments thereof), but only to the extent that
               the  making  of such  payments  would not  result in a  Financial
               Covenant Default:  (i) regularly  scheduled quarterly payments of
               interest under the Subordinated  Note, at a rate not in excess of
               twelve per cent (12%) per annum, and past due regularly scheduled
               quarterly  payments of interest under the Subordinated Note which
               were not paid when  scheduled  to be paid because of the terms of
               this  Agreement,  including  interest  at a rate not in excess of
               twelve  per cent  (12%) per annum on such past due  amounts;  and
               (ii)  regularly  scheduled  principal  payments,   together  with
               accrued but unpaid interest at a rate not in excess of twelve per
               cent  (12%)  per  annum,  in  accordance  with  the  terms of the
               Subordinated Note,  commencing with the first regularly scheduled
               principal  payment  more than three  years after the date of this
               Agreement and past due  regularly  scheduled  principal  payments
               under the Subordinated Note which were not paid when scheduled to
               be  paid  because  of the  terms  of  this  Agreement,  including
               interest  at a rate not in excess of  twelve  per cent  (12%) per
               annum on such past due amounts.

2.        PLEDGE OF SUBORDINATED LOAN DOCUMENTS.  In order to secure the due and
          punctual  payment  and  performance  of the  Senior  Liabilities,  the
          Subordinate Lender hereby pledges,  transfers,  assigns, and grants to
          the  Bank  a  continuing  security  interest  in  and  lien  upon  the
          Subordinated Loan Documents.  The Subordinate  Lender has endorsed and
          delivered to the Bank physical  possession of any of the  Subordinated
          Loan Documents which are instruments,  including the Subordinated Note
          and has executed Uniform Commercial Code financing statements and such
          other documents  and/or  instruments as may be necessary or convenient
          to perfect the security interests granted herein.  Bank shall hold the
          Subordinated Note and any other  Subordinated Loan Documents which are
          instruments delivered to the Bank as security for the due and punctual
          payment and performance of the Senior Liabilities and  notwithstanding
          the  possession of the  Subordinated  Note or such other  Subordinated
          Loan Documents by the Bank, the  Subordinate  Lender shall be entitled
          to receive payments  thereunder to the extent  expressly  permitted by
          the  terms  of this  Agreement.  Upon  payment  in full of the  Senior
          Liabilities,  the Bank will deliver to the Subordinate  Lender in care
          of Peter K.  Baker the  Subordinated  Note and any other  Subordinated
          Loan Documents in its possession.

                                       4
<PAGE>

3.        SUBORDINATION OF SECURITY  INTEREST OF SUBORDINATED  LIABILITIES.  Any
          security interest now or hereafter held by the Subordinate  Lender and
          granted  by any of the  Obligors  to  secure  any of the  Subordinated
          Liabilities,  including the security  interest  described in paragraph
          B.1(B), is hereby  immediately made subordinate,  junior and postponed
          in  priority  and effect to the  priority  and effect of the  security
          interest  purported to be created by any of the Loan Documents,  as if
          (and whether or not) the Bank's  security  interest had been perfected
          by  possession,  by timely filing of financing  statements,  or by any
          other means prior to the time the  security  interest  with respect to
          the Subordinated  Liabilities is perfected, and prior to the filing of
          any  financing   statements  in  connection   with  the   Subordinated
          Liabilities.  The Subordinate  Lender agrees to execute and deliver to
          the Bank all instruments,  including, without limitation, Forms UCC-3,
          subordinations  of lien, and  subordinations of mortgage which, in the
          reasonable  opinion  of the  Bank,  are  necessary  or  convenient  to
          effectuate the purposes of this paragraph and this Agreement.

4.        FURTHER  ASSURANCES  OF  PLEDGE  OF  SUBORDINATED   LIABILITIES.   The
          Subordinate  Lender will (i) promptly  notify the Bank of the creation
          of any Subordinated  Liabilities and of the issuance of any promissory
          note or other  instrument  to evidence any  Subordinated  Liabilities;
          (ii)  cause  any  Subordinated   Liabilities  which  are  not  already
          evidenced by a promissory note or other  instrument of the Obligors to
          be  so  evidenced;   (iii)  as  collateral  security  for  the  Senior
          Liabilities,  endorse,  deliver  and  pledge  to the  Bank any and all
          promissory  notes and/or  other  instruments  evidencing  Subordinated
          Liabilities, and otherwise assign and/or pledge to the Bank any or all
          Subordinated Liabilities and the Subordinated Loan Documents, all in a
          manner  satisfactory  to the  Bank in its  sole  discretion,  and (iv)
          promptly  give the Bank  written  notice of any default by any Obligor
          under  the  Subordinated  Note  or any  agreement  securing  Obligors'
          obligations under any of the other Subordinated Loan Documents.

          FURTHER  ASSURANCES  OF BANK.  Bank will  endeavor  to  deliver to the
          Subordinate  Lender  in care of Peter K.  Baker  prompt  notice of any
          Event  of  Default  or  Financial  Covenant  Default  under  the  Loan
          Agreement or any of the other Loan Documents of which the Bank becomes
          aware but the failure of the Bank to promptly  deliver any such notice
          will not affect any of the rights or  obligations of the parties under
          this Agreement.

    5.    RIGHTS OF BANK TO COLLECT SUBORDINATED  LIABILITIES.  In the event of,
          and commencing  with the date thereof,  any  dissolution,  winding up,
          liquidation,  reorganization or other similar proceedings  relating to
          any Obligor or to any of their creditors,  or to any of their property
          (whether voluntary or involuntary, partial or complete, and whether in
          bankruptcy,  insolvency or receivership, or upon an assignment for the
          benefit  of  creditors,  or any other  marshalling  of the  assets and
          liabilities of any Obligor, or any sale of all or substantially all of
          the assets of any Obligor, or otherwise), the Senior Liabilities shall
          first be paid in full before the Subordinate  Lender shall be entitled
          to receive and/or to retain any payment or  distribution in respect of
          the  Subordinated  Liabilities;  provided that the Subordinate  Lender
          shall be  entitled  to receive  and retain  any  securities  issued in
          connection with  reorganization  proceedings which are junior in right
          of repayment to the Senior Liabilities to the extent set forth herein,
          are treated as Subordinated  Liabilities  hereunder and are subject to
          all the provisions of this  Agreement,  and, in order to implement the

                                       5
<PAGE>

          foregoing (i) all payments and  distributions of any kind or character
          in  respect  of  the  Subordinated  Liabilities  to  which  any of the
          Subordinate  Lender would be entitled but for the  provisions  of this
          Agreement (other than such junior securities) will be made directly to
          the Bank; (ii) the  Subordinate  Lender shall promptly file a claim or
          claims,  in the  form  required  in such  proceedings,  for  the  full
          outstanding  amount of the Subordinated  Liabilities,  and shall cause
          said  claim or  claims  to be  approved  and all  payments  and  other
          distributions  in respect thereof (other than such junior  securities)
          to be made directly to the Bank;  (iii) the Subordinate  Lender hereby
          irrevocably  agrees that the Bank may, in its sole discretion,  in the
          name of the Subordinate Lender or otherwise, demand, sue for, collect,
          receive,  and receipt for any and all such payments or  distributions,
          and file,  prove,  and vote or  consent in any such  proceedings  with
          respect to, any and all claims of the  Subordinate  Lender relating to
          the Subordinated  Liabilities;  and (iv) the Subordinate Lender hereby
          ratifies all of the foregoing  acts or omissions on the Bank's part or
          behalf  and  waives  any  claim,   counterclaim   or  defense  of  the
          Subordinate  Lender  which may be  alleged  to arise from such acts or
          omissions.

    6.    PROTECTION OF BANK'S RIGHTS IN SUBORDINATED LIABILITIES.  In the event
          that the Subordinate Lender receives any payment or other distribution
          of any  kind  or  character  from  any  Obligor  or any  other  source
          whatsoever in respect of any of the  Subordinated  Liabilities,  other
          than as  expressly  permitted  by the  terms of this  Agreement,  such
          payment or other  distribution shall be received in trust for the Bank
          and promptly  turned over by the  Subordinate  Lender to the Bank. The
          Subordinate  Lender  will mark its books  and  records,  and cause the
          Obligors to mark their books and  records,  so as to clearly  indicate
          that the Subordinated  Liabilities are subordinated in accordance with
          the terms of this Agreement,  and will cause to be clearly inserted in
          any promissory  note or other  instrument  which at any time evidences
          any of the Subordinated Liabilities a statement to the effect that the
          payment  thereof is  subordinated in accordance with the terms of this
          Agreement.  The Subordinate Lender will execute such further documents
          and instruments and take such further action as the Bank may from time
          to time reasonably  request to carry out the intent of this Agreement.
          The  Subordinate  Lender  hereby  irrevocably  appoints  the  Bank its
          attorney in fact, said appointment being coupled with an interest,  to
          execute such further  documents and  instruments and take such further
          action on behalf of the  Subordinate  Lender as the Bank may from time
          to time DEEM  REASONABLE  TO CARRY OUT THE  INTENT OF THIS  AGREEMENT,
          INCLUDING, WITHOUT LIMITATION, THE ACTIONS SET FORTH IN PARAGRAPH B.4.
          hereof.

    7.

          TREATMENT  OF PAYMENT OF  SUBORDINATED  LIABILITIES.  All payments and
          distributions  received  by the Bank in  respect  of the  Subordinated
          Liabilities,  to the extent received in or converted into cash, may be
          applied  by the Bank  first  to the  payment  of any and all  expenses
          (including  attorneys' fees and  disbursements and the allocated fees,
          expenses and cost of in-house counsel) paid or incurred by the Bank in
          enforcing  this Agreement or in endeavoring to collect or realize upon
          any of the  Subordinated  Liabilities,  and any balance thereof shall,
          solely as between the  Subordinate  Lender and the Bank, be applied by
          the Bank,  in such order of  application  as the Bank may from time to
          time  select,  toward the  payment  of any of the  Senior  Liabilities
          remaining  unpaid. As between the Obligors and any of their creditors,
          no such payments or  distributions  of any kind or character  shall be
          deemed to be  payments  or  distributions  in  respect  of the  Senior
          Liabilities;  and,  notwithstanding any such payments or distributions
          received by the Bank in respect of the Subordinated Liabilities and so

                                       6
<PAGE>

          applied by the Bank toward the payment of the Senior Liabilities,  the
          Subordinate  Lender shall be subrogated to the then existing rights of
          the Bank, if any, in respect of the Senior  Liabilities,  only at such
          time as the Bank shall have received  indefeasible payment of the full
          amount of the Senior Liabilities.

    8.    WAIVERS.  The Subordinate  Lender hereby waives (i) any and all notice
          of the  receipt and  acceptance  by the Bank of this  Agreement;  (ii)
          except  as set  forth  in  paragraph  B.4,  notice  of the  existence,
          incurrence,  or non-payment  of all or any of the Senior  Liabilities;
          (iii) all diligence in collection or protection of or realization upon
          any of the Senior Liabilities or any security  therefor;  and (iv) any
          obligation with respect to the marshalling of assets by the Bank.

9.        PROHIBITION ON CHANGES IN SUBORDINATED LIABILITIES.

         (a)   EXCEPT AS HEREIN SET FORTH IN PARAGRAPH  B.9(B),  the Subordinate
               Lender will not without the prior written consent of the Bank (i)
               cancel,  waive,  forgive,  amend, modify,  transfer or assign, or
               attempt to enforce or collect,  or subordinate to any Liabilities
               other than the Senior Liabilities,  any Subordinated  Liabilities
               or any rights in respect  thereof;  (ii) convert any Subordinated
               Liabilities  into  stock  or  other  securities  in  any  of  the
               Obligors;  (iii) take any Collection  Action;  (iv) commence,  or
               join with any  other  creditor  in  commencing,  any  bankruptcy,
               reorganization  or insolvency  proceedings with respect to any of
               the  Obligors,  or (v) take any other  action  prejudicial  to or
               inconsistent  with the Bank's rights and first  priority  secured
               position with respect to the Obligors,  the Bank  Collateral  and
               collateral for the Senior Liabilities.

         (b)   Notwithstanding  the  provisions  of  paragraph  B.9(A),  if  any
               default has occurred under any of the Subordinated Loan Documents
               and such default has  continued in existence  for a period of one
               hundred  eighty  (180)  consecutive  days after the  Subordinated
               Lenders have  provided  written  notice of the  existence of such
               default to the bank (the "STANDSTILL  PERIOD"),  the Subordinated
               Lender may proceed to take legal action  against the Obligors for
               the sole  purpose of obtaining a judgment  against the  Obligors;
               provided,  however,  at  no  time  either  before  or  after  the
               expiration of the Standstill Period, may any Subordinated  Lender
               take any  action  or  Collection  Action to  enforce  a  security
               interest  in,  liquidate or  otherwise  receive  payment from any
               collateral  for  the  Senior  Liabilities,   including  the  Bank
               Collateral or Subordinated Lenders' Collateral,  unless and until
               the  Bank  has  been  indefeasibly  paid in full  for all  Senior
               Liabilities.

10.       CONTINUING  AGREEMENT.  This  Agreement  shall  in all  respects  be a
          continuing  agreement  and  shall  remain  in full  force  and  effect
          notwithstanding,   without  limitation,  the  death,  incompetency  or
          dissolution of the Subordinate Lender or that at any time or from time
          to time all  Senior  Liabilities  may have been paid in full if any of
          the Loan Documents have not been terminated.

11.       PERMITTED  CHANGES IN SENIOR  LIABILITIES.  The Bank may, from time to
          time, whether before or after any discontinuance of this Agreement, at
          its sole discretion and without notice to the Subordinate Lender, take
          any or all of the following  actions:  (i) retain or obtain a security

                                       7
<PAGE>

          interest in any property to secure any of the Senior Liabilities; (ii)
          retain or obtain the  primary  or  secondary  obligation  of any other
          Obligor or  Obligors  with  respect to any of the Senior  Liabilities;
          (iii) extend,  renew (whether or not longer than the original period),
          alter or  exchange  any of the  Senior  Liabilities;  (iv)  release or
          compromise any obligation of any nature of any Obligor with respect to
          any of the Senior Liabilities;  and, (v) release its security interest
          or lien in,  allows its security  interest or lien to be  unperfected,
          surrender,  release or permit any substitution or exchange for, all or
          any part of any property  securing any of the Senior  Liabilities,  or
          extend or renew for one or more  periods  (whether  or not longer than
          the  original  period) or release,  compromise,  alter or exchange any
          obligations  of any  nature of any  Obligor  with  respect to any such
          property.

12.       DISPOSITION  OF  ASSETS.   The  Subordinate   Lender  agree  that  any
          disposition by the Bank of any collateral for the Senior  Liabilities,
          whether by collection, sale, or other manner of liquidation,  after an
          Event  of  Default  under  the  Loan  Documents,  if  conducted  in  a
          commercially  reasonable manner, may not be challenged or contested by
          the Subordinate Lender on the grounds of commercial  unreasonableness.
          The  Subordinate  Lender  agrees  that the Bank may use such  means of
          collection  and exercise such  diligence  with respect  thereto as the
          Bank,   in  its  sole   discretion,   deems   appropriate   under  the
          circumstances  and may enter into such  compromise  with and give such
          releases and  acquittances to account debtors or other obligors of the
          Obligors' receivables as it determines in its sole discretion, without
          obtaining  the  agreement or  concurrence  of or giving  notice to the
          Subordinate  Lender and the Subordinate  Lender hereby waive all right
          to require  that its  agreement  or consent be  obtained or that it be
          given  notice.  The  Subordinate  Lender  further  agrees that it will
          release  its  security  interest  on  any  collateral  (including  the
          Subordinated  Lenders' Collateral) for the Senior Liabilities upon the
          sale or other disposition  thereof at the request of the Bank, whether
          or not  any  proceeds  therefrom  will  pay  any  of the  Subordinated
          Liabilities.

C.   REPRESENTATIONS  AND WARRANTIES.  The Subordinate  Lender hereby represents
     and warrants that (i) the  Subordinate  Lender has the necessary  power and
     capacity to make and perform this Agreement and such making and performance
     have been  duly  authorized  by all  necessary  actions  on the part of the
     Subordinate  Lender;  (ii) the making and  performance  by the  Subordinate
     Lender of this Agreement does not and will not violate any provision of law
     or  regulation  or result in the  breach  of, or  constitute  a default  or
     require any consent under,  any indenture or other  agreement or instrument
     to which it is a party or by which any of its properties may be bound;  and
     (iii) this  Agreement  is the legal,  valid and binding  obligation  of the
     Subordinate   Lender,   enforceable   against  the  Subordinate  Lender  in
     accordance with its terms.

D.   REMEDIES.  Upon the occurrence of any Event of Default,  or upon the breach
     of any  representation,  covenant or  agreement  in this  Agreement  by any
     Obligor or the  Subordinate  Lender,  or in the event of the termination of
     this  Agreement,  all of the Senior  Liabilities  shall,  without notice or
     demand,  become  immediately  due and payable at the option of the Bank and
     the Bank may  immediately,  without  further  notice,  resort to all of its
     rights and remedies herein,  in any document  (including the Loan Agreement
     and any of the Loan Documents) by and between the Bank and any Obligor,  or
     in any in any instrument evidencing any obligation under any such document,
     at law or in equity.  The Bank agrees that it shall proceed,  to the extent

                                       8
<PAGE>

     commercially  reasonable,  against  all the assets of the  Obligors  before
     liquidating the Subordinated Note.

E.   MISCELLANEOUS.

     1.   REMEDIES CUMULATIVE; NO WAIVER. The rights, powers and remedies of the
          Bank  provided in this  Agreement  and any of the Loan  Documents  are
          cumulative and not exclusive of any right, power or remedy provided by
          law or  equity.  No  failure  or  delay on the part of the Bank in the
          exercise  of any  right,  power or remedy  shall  operate  as a waiver
          thereof,  nor shall any single or partial exercise  preclude any other
          or further exercise thereof, or the exercise of any other right, power
          or remedy.

    2.    NOTICES.  Notices and communications  under this Agreement shall be in
          writing and shall be given by (i) hand-delivery, (ii) first class mail
          (postage  prepaid),  or (iii) reliable  overnight  commercial  courier
          (charges prepaid) to the addresses listed in this Agreement. Notice by
          overnight  courier  shall be deemed to have been given and received on
          the date  scheduled  for  delivery.  Notice by mail shall be deemed to
          have been given and received  three (3)  calendar  days after the date
          first  deposited in the United  States Mail.  Notice by  hand-delivery
          shall be deemed to have been given and received upon delivery. A party
          may change its address by giving  written notice to the other party as
          specified herein.

    3.    COSTS AND EXPENSES.  Whether or not the  transactions  contemplated by
          this  Agreement  or the Loan  Documents  are  fully  consummated,  the
          Obligors shall promptly pay (or reimburse,  as the Bank may elect) all
          costs and expenses which the Bank has incurred or may hereafter  incur
          in  connection  with  the  negotiation,   preparation,   reproduction,
          interpretation,  perfection, protection of collateral,  administration
          and  enforcement of this Agreement and the other Loan  Documents,  the
          collection of all amounts due under this  Agreement and the other Loan
          Documents, and all amendments,  modifications, consents or waivers, if
          any, to the Loan Documents.  The Obligors'  reimbursement  obligations
          under this Paragraph  shall survive any  termination of this Agreement
          or any  other  Loan  Document  and  are  deemed  part  of  the  Senior
          Liabilities.

    4.    GOVERNING  LAW. This Agreement  shall be construed in accordance  with
          and  governed  by the  substantive  laws of the  State of  Connecticut
          without reference to conflict of laws principles.

    5.    INTEGRATION;  AMENDMENT.  This  Agreement and the other Loan Documents
          constitute  the sole  agreement  of the  parties  with  respect to the
          subject matter hereof and thereof and supersede all oral  negotiations
          and prior  writings  with  respect to the  subject  matter  hereof and
          thereof.  No amendment of this Agreement,  and no waiver of any one or
          more of the provisions  hereof shall be effective  unless set forth in
          writing and signed by the parties hereto.

    6.    SUCCESSORS  AND ASSIGNS.  This Agreement (i) shall be binding upon the
          Subordinate Lender, the Obligors executing this Agreement and the Bank
          and,   where   applicable,    their   respective   heirs,   executors,
          administrators,  successors  and assigns,  and (ii) shall inure to the
          benefit of the  Subordinate  Lender,  the  Obligors  and the Bank and,
          where applicable,  their respective heirs, executors,  administrators,
          successors  and  permitted  assigns;   provided,   however,  that  the

                                       9
<PAGE>

          Subordinate  Lender and the  Obligors  may not assign  their rights or
          obligations hereunder or any interest herein without the prior written
          consent of the Bank, and any such  assignment or attempted  assignment
          by the Subordinate Lender and/or any of the Obligors shall be void and
          of no effect with respect to the Bank.  The Bank may from time to time
          sell or assign,  in whole or in part, or grant  participations  in the
          Loans and/or the Agreement and/or the obligations  evidenced  thereby.
          The  Subordinate  Lender  authorizes  the Bank to provide  information
          concerning the Subordinate  Lender and the Obligors to any prospective
          purchaser, assignee or participant.

    7.    SEVERABILITY  AND  CONSISTENCY.  The illegality,  unenforceability  or
          inconsistency  of any provision of this Agreement or any instrument or
          agreement required hereunder shall not in any way affect or impair the
          legality, enforceability or consistency of the remaining provisions of
          this Agreement or any instrument or agreement required hereunder.  The
          Loan  Documents  and this  Agreement  are  intended to be  consistent.
          However, in the event of any inconsistencies between and/or among this
          Agreement and any of the Loan Documents,  such inconsistency shall not
          affect the validity or  enforceability of this Agreement or any of the
          Loan Documents. In the event of any inconsistency or ambiguity in this
          Agreement or any of the Loan  Documents,  this  Agreement and the Loan
          Documents  shall not be  construed  against any one party but shall be
          interpreted consistent with the Bank's policies and procedures.

    8.  CONSENT TO JURISDICTION AND SERVICE OF PROCESS.  The Subordinate  Lender
        irrevocably  appoints  Rapaport & Ellenthal,  P.C.,  750 Summer  Street,
        Stamford,  CT 06901 as its attorneys upon whom may be served any notice,
        process or pleading in any action or  proceeding  against it arising out
        of or in connection with this Agreement. If service of process cannot be
        delivered  to the  Subordinate  Lender  as  specified  by  statute,  the
        Subordinate Lender agrees that, with court approval, it may be served by
        regular  or  certified  mail  at  the  address  set  forth  herein.  The
        Subordinate  Lender  hereby  consents  and agrees that (i) any action or
        proceeding  against  it may be  commenced  and  maintained  in any court
        within the State of Connecticut  or in the United States  District Court
        for the  District  of  Connecticut  by service of process on  Rapaport &
        Ellenthal and (ii) the courts of the State of Connecticut and the United
        States  District  Court  for the  District  of  Connecticut  shall  have
        jurisdiction with respect to the subject matter hereof and the person of
        the Subordinate Lender and the Subordinated Liabilities. The Subordinate
        Lender  agrees  that any  action  brought by the  Subordinate  Lender on
        account of this Agreement  shall be commenced and  maintained  only in a
        court in the federal  judicial  district or county in which the Bank has
        its principal place of business in Connecticut.

                                       10
<PAGE>

9.       PREJUDGMENT REMEDIES.

        The  Subordinate  Lender  hereby   acknowledges  that  the  transactions
        contemplated  herein  constitute  commercial  transactions.  Pursuant to
        Section 52-278f of the  Connecticut  General  Statutes,  the Subordinate
        Lender hereby waives and  relinquishes  all rights to notice and hearing
        as provided  in Sections  52-278a  through  52-278g of said  Connecticut
        General Statutes prior to the securing of any prejudgment remedy against
        the Subordinate  Lender in connection with the Liabilities or any of the
        instruments or documents executed in connection herewith.

10.      PROVISIONS SOLELY FOR THE BENEFIT OF THE BANK.

        The  provisions  of this  Agreement  are solely to define  the  relative
        rights and  obligations of the Bank and the Subordinate  Lender,  and no
        other  person  or  entity,  including,  without  limitation,  any of the
        Obligors,  shall  have  any  rights  hereunder  or as a  result  of  the
        provisions hereof.

11.       AGENT FOR SUBORDINATE LENDER.

         The Agent hereby agrees to be bound by the terms and provisions of this
         Agreement  and agrees not to make any  payment  or  distribution  or to
         otherwise  take any action which is contrary to the  provisions of this
         Agreement.

12.      JUDICIAL PROCEEDINGS; WAIVERS.

        THE SUBORDINATE  LENDER AND THE BANK  ACKNOWLEDGE AND AGREE THAT (i) ANY
        SUIT,  ACTION OR PROCEEDING,  WHETHER CLAIM OR COUNTERCLAIM,  BROUGHT OR
        INSTITUTED  BY THE BANK,  THE  SUBORDINATE  LENDER OR ANY  SUCCESSOR  OR
        ASSIGN OF THE BANK OR THE SUBORDINATE LENDER, ON OR WITH RESPECT TO THIS
        AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE DEALINGS OF THE PARTIES WITH
        RESPECT HERETO, OR THERETO,  SHALL BE TRIED ONLY BY A COURT AND NOT BY A
        JURY AND EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY;  (ii) EACH WAIVES
        ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER,  IN ANY SUCH SUIT,  ACTION OR
        PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR
        ANY DAMAGES  OTHER THAN, OR IN ADDITION TO,  ACTUAL  DAMAGES;  AND (iii)
        THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THE
        BANK WOULD NOT EXTEND  CREDIT IF THE WAIVERS  SET FORTH IN THIS  SECTION
        WERE NOT A PART OF THIS AGREEMENT.

                                       11
<PAGE>

    IN WITNESS WHEREOF, the Subordinate Lender has executed and delivered to the
Bank this Agreement, as of the day and year first above written.

WITNESSED BY:

-------------------------------------     --------------------------------------
                                          Name:    Peter K. Baker
                                          Address: 1050 Buckingham Street
                                                   Watertown, CT 06795
-------------------------------------

-------------------------------------      -------------------------------------
                                          Ross S. Rapaport, not individually but
                                          as Trustee  of the  Peter K. BakerLife
                                          Insurance  Trust,    The John B.Baker
                                          Insurance Trust and  u/t/a  dated
-------------------------------------     December 16,1991 f/b/o Joan Baker
                                          et. al., as Agent
                                          Address: 1050 Buckingham Street
                                                   Watertown, CT 06795

                                          WEBSTER BANK

------------------------------------      By:-----------------------------------
                                             Robert E. Teittinen
                                             Its Vice President
-----------------------------------          Address: 174 Bank Street
                                             Waterbury, CT 06702

STATE OF CONNECTICUT       )
                           ) ss: Hartford                        October _, 2000
COUNTY OF HARTFORD         )

Personally  appeared  Peter  K.  Baker,  signer  and  sealer  of  the  foregoing
instrument and acknowledged the same to be his free act and deed, before me.

                       Commissioner of the Superior Court

                                                     Notary Public
                                                     My Commission expires:

                                       12
<PAGE>

STATE OF CONNECTICUT       )
                           ) ss: Hartford                        October _, 2000
COUNTY OF HARTFORD         )

Personally  appeared Ross S. Rapaport,  not  individually  but as Trustee of the
Peter K. Baker Life Insurance Trust, the John B. Baker Insurance Trust and U/T/A
dated December 16, 1991 F/B/O Joan Baker et. al, as Agent,  signer and sealer of
the foregoing  instrument and  acknowledged the same to be his free act and deed
as Trustee and Agent, before me.

                       Commissioner of the Superior Court

                                                     Notary Public
                                                     My Commission expires:

STATE OF CONNECTICUT       )
                           ) ss: Hartford                        October _, 2000
COUNTY OF HARTFORD         )

Personally appeared Robert E. Teittinen,  Vice President of Webster Bank, signer
and sealer of the foregoing  instrument and acknowledged the same to be his free
act and deed as such officer and the free act and deed of Webster  Bank,  before
me.

                       Commissioner of the Superior Court

                                                     Notary Public
                                                     My Commission expires:

                                       13
<PAGE>

The Obligors signing below hereby acknowledge receipt of a copy of the foregoing
Agreement, waive notice of acceptance thereof by the Bank, and agree to be bound
by the terms and provisions thereof. The Obligors signing below further agree to
make no payments or distributions,  or grant any security interest,  contrary to
the terms and  provisions of this  Agreement and to do every other act and thing
necessary  or  appropriate  to carry  out such  terms and  provisions.  Upon the
occurrence  of any Event of Default,  or upon the breach of any  representation,
covenant  or  agreement  in  this  Agreement  by  any  of  the  Obligors  or the
Subordinated  Lender, or in the event of the termination of this Agreement,  all
of the Senior  Liabilities shall,  without notice or demand,  become immediately
due and payable at the option of the Bank and the Bank may immediately,  without
further notice, resort to all of its rights and remedies herein, in any document
(including the Loan Agreement and any of the Loan  Documents) by and between the
Bank and any Obligor,  or in any in any  instrument  evidencing  any  obligation
under any such document, at law or in equity.

Dated: As of the 5th day of October, 2000

                                          VERMONT PURE HOLDINGS, LTD.
                                         (f/k/a VP Merger Parent, Inc.)

                                          By:-----------------------------------
                                             Name:     Timothy G. Fallon
                                             Title:    President
                                             Address:  Catamount Industrial Park
                                                       Route 66
                                                       Randolph, VT 05060

                                          CRYSTAL ROCK SPRING WATER COMPANY

                                          By:-----------------------------------
                                             Name:     John B. Baker
                                             Title:    President
                                             Address:  1050 Buckingham Street
                                                       Watertown, CT 06795

                                       14
<PAGE>

                                          PLATINUM ACQUISITION CORP.
                                          (f/k/a Vermont Pure Holdings, Ltd.)

                                          By:______________________
                                             Name:     Timothy G. Fallon
                                             Title:    President
                                             Address:  Catamount Industrial Park
                                                       Route 66
                                                       Randolph, VT 05060

                                          VERMONT PURE SPRINGS, INC.

                                          By:______________________
                                             Name:     Timothy G. Fallon
                                             Title:    President
                                             Address:  Catamount Industrial Park
                                                       Route 66
                                                       Randolph, VT 05060

                                       15
<PAGE>

                                   SCHEDULE A

                                 Bank Collateral

"Collateral"  means  Receivables,  Inventory,  Equipment,  Patents,  Trademarks,
Investment Property, Additional Collateral, and the Premises.

"Additional  Collateral"  means  (i) all  General  Intangibles  (as such term is
defined in the Uniform  Commercial  Code as in effect in Connecticut on the date
of this  Agreement) of every kind and  description  of the  Obligors,  including
without  limitation  federal,  state and local tax  refund  claims of all kinds,
whether  now  existing  or  hereafter  arising;  (ii) all of  Obligors'  deposit
accounts,  whether now owned or hereafter created,  wherever located;  (iii) all
monies,  securities,  instruments,  cash and other  property of Obligors and the
proceeds thereof, now or hereafter held or received by, or in transit to, Lender
from or for Obligors,  whether for safekeeping,  pledge, custody,  transmission,
collection  or  otherwise,  and all of Obligors'  deposits  (general or special,
balances,  sums,  proceeds  and  credits  of  Obligors  with  Lender at any time
existing);  (iv) all  interests  in real  property  held or  owned by  Obligors,
including all leasehold  interests;  (v) all rights under  contracts and license
agreements for water;  (vi) all books,  records,  customer lists,  ledger cards,
computer  programs,  computer  tapes,  disks,  printouts and records,  and other
property and general  intangibles  at any time  evidencing or relating to any of
the foregoing,  whether now in existence or hereafter  created;  (vii) all other
personal  property  and  fixtures  of the  Obligors,  whether  now  existing  or
hereafter arising or created; and all proceeds of the foregoing and all proceeds
of any insurance on the foregoing.

"Equipment"  means all Equipment,  Farm Products and Fixtures (as such terms are
defined in the Uniform  Commercial  Code as in effect in Connecticut on the date
of this Agreement),  including all machinery,  equipment,  furniture,  fixtures,
tools, parts, supplies and motor vehicles,  now owned and hereafter acquired, by
Debtor of whatsoever name, nature,  kind or description,  wherever located,  and
all additions and accessions thereto and replacements or substitutions therefor,
and all proceeds thereof and all proceeds of any insurance thereon.

"Inventory"  means all  Inventory  and Goods (as such  terms are  defined in the
Uniform  Commercial  Code  as in  effect  in  Connecticut  on the  date  of this
Agreement)  of  whatsoever  name,  nature,  kind or  description  now  owned and
hereafter acquired by Debtor, wherever located, including without limitation all
contract  rights with respect thereto and documents  representing  the same, all
goods held for sale or lease or to be  furnished  under  contracts  of  service,
finished  goods,  raw materials,  materials  used or consumed by Debtor,  parts,
supplies,  and all wrapping,  packaging,  advertising and shipping materials and
any documents  relating  thereto,  and all labels and other  devices,  names and
marks affixed or to be affixed thereto for purposes of selling or of identifying
the same or the  seller  or  manufacturer  thereof,  and all  right,  title  and
interest of Debtor  therein and thereto,  and all proceeds of the  foregoing and
all proceeds of any insurance on the foregoing.

<PAGE>

"Investment  Property" means all investment property (as such term is defined in
the  Uniform  Commercial  Code as  adopted  in  Connecticut  on the date of this
Agreement)  of whatever  type or nature now owned or  hereafter  acquired by the
Debtor,  including  without  limitation,   all  certificated   securities,   all
uncertificated securities, all security entitlements, all security accounts, all
commodity  contracts,  all commodity  accounts and all financial assets of every
type and nature and all rights thereto or therein, and all financial accounts of
every type and nature and all rights  thereto or therein,  and all  proceeds and
products  thereof,  including  without  limitation,  all insurance  proceeds and
fidelity bond proceeds related thereto.

"Patents" means all of Debtor's right,  title and interest,  present and future,
in and to (a) all letters patent of the United States or any other country,  all
right,  title and  interest  therein  and  thereto,  and all  registrations  and
recordings thereof, including without limitation applications, registrations and
recordings in the United  States  Patent and Trademark  Office or in any similar
office or agency of the United  States or any state thereof or any other country
or any  political  subdivision  thereof,  all  whether  now  owned or  hereafter
acquired by Debtor; and (b) all reissues,  continuations,  continuations-in-part
or  extensions  thereof  and  all  licenses  thereof;  and all  proceeds  of the
foregoing and all proceeds of any insurance on the foregoing.

"Premises" means the following real property owned by Debtor:

         Hedding Drive, Randolph, Vermont Chase Road, Randolph, Vermont Route 66
         Factory,  Randolph, Vermont North Randolph Road, Randolph, Vermont 20.0
         acres,  Route 66,  Randolph,  Vermont  5.0 acres,  Route 66,  Randolph,
         Vermont

"Receivables"  means  (i) all of  Debtor's  now owned  and  hereafter  acquired,
present and future, Accounts,  Chattel Paper, Documents,  Instruments,  (as such
terms are defined in the Uniform  Commercial Code as in effect in Connecticut on
the date of this Agreement) and contract rights,  including  without  limitation
all  obligations  to Debtor for the  payment of money,  whether  arising  out of
Debtor's  sale of goods or rendition of services or otherwise  (all  hereinafter
called  "Accounts")  and all proceeds of the  foregoing  and all proceeds of any
insurance on the foregoing; (ii) all of Debtor's rights, remedies,  security and
liens,  in, to and in respect of the  Accounts,  present and  future,  including
without limitation,  rights of stoppage in transit,  replevin,  repossession and
reclamation  and other rights and remedies of an unpaid vendor,  lien or secured
party, guaranties or other contracts of suretyship with respect to the Accounts,
deposits or other security for the obligation of any debtor or Debtor in any way
obligated on or in connection with any Accounts, and credit and other insurance,
and all  proceeds of the  foregoing  and all  proceeds of any  insurance  on the
foregoing;  and (iii) all of Debtor's  right,  title and  interest,  present and
future,  in, to and in respect of all goods  relating  to, or which by sale have
resulted in,  Accounts,  including  without  limitation  all goods  described in
invoices  or other  documents  or  instruments  with  respect  to, or  otherwise
representing  or  evidencing  any  Accounts,  and  all  returned,  reclaimed  or
repossessed  goods,  and all proceeds of the  foregoing  and all proceeds of any
insurance on the foregoing.

<PAGE>

                                   SCHEDULE B

                         Subordinated Lender Collateral

         The following property,  whether now existing or subsequently acquired,
and  all  additions,  substitutions,  accessions,  replacements,  proceeds,  and
products thereof or thereto:  all tangible and intangible  assets and properties
of each of Vermont Pure Holdings,  Ltd., a Delaware  corporation  formerly named
"VP Merger Parent,  Inc.", Vermont Pure Springs,  Inc., a Delaware  corporation,
Platinum  Acquisition  Corp.,  f/k/a Vermont Pure  Holdings  (each a "Company"),
including without limitation all furniture,  fixtures, equipment, raw materials,
inventory,  other goods,  accounts,  contract  rights,  rights to the payment of
money, insurance refund claims and all other insurance claims and proceeds, tort
claims, chattel paper, documents,  instruments,  securities and other investment
property,  deposit  accounts,  rights to  proceeds  of letters of credit and all
general  intangibles  including,  without  limitation,  all tax  refund  claims,
license fees, patents, patent applications,  trademarks, trademark applications,
trade names, copyrights,  copyright applications,  rights to sue and recover for
past  infringement  of patents,  trademarks and copyrights,  computer  programs,
computer  software,   engineering  drawings,   service  marks,  customer  lists,
goodwill, and all licenses,  permits,  agreements of any kind or nature pursuant
to which any Company possesses, uses or has authority to possess or use property
(whether  tangible  or  intangible)  of others or  others  possess,  use or have
authority to possess or use property  (whether  tangible or  intangible) of such
Company,  and all recorded data of any kind or nature,  regardless of the medium
of recording  including,  without  limitation,  all software,  writings,  plans,
specifications  and schematics  (each of which terms has the meaning ascribed to
in the  Uniform  Commercial  Code,  as in effect  in the  State of  Connecticut)
(collectively,  the "COLLATERAL");  provided that notwithstanding the foregoing,
such grant of security  interest shall not extend to, and the term  "Collateral"
shall  not  include  any  cash  and cash  equivalents  at any time  owned by any
Company.[GRAPHIC OMITTED]

                       SUBORDINATION AND PLEDGE AGREEMENT

                                                                 October 5, 2000

WHEREAS, VERMONT PURE HOLDINGS, LTD., (f/k/a VP Merger Parent, Inc.), a Delaware
corporation  formerly  named "VP  Merger  Parent,  Inc.",  and  whose  principal
executive  office is located at Catamount  Industrial  Park, Route 66, RANDOLPH,
VERMONT 05060  ("HOLDINGS"),  CRYSTAL ROCK SPRING WATER  COMPANY,  a Connecticut
corporation  with an office AT 1050 BUCKINGHAM  STREET,  WATERTOWN,  CONNECTICUT
06795  ("CRYSTAL  ROCK"),   PLATINUM  ACQUISITION  CORP.,  (f/k/a  Vermont  Pure
Holdings,  Ltd.), a Delaware  corporation with an office at Catamount Industrial
Park, Route 66, Randolph,  Vermont 05060  ("PLATINUM") and VERMONT PURE SPRINGS,
INC., a Delaware  corporation with an office at Catamount Industrial Park, Route
66, Randolph, Vermont 05060 ("VPS", and collectively with Holdings, Crystal Rock
AND  PLATINUM,  THE  "OBLIGORS  ") are now  indebted  to ROSS S.  RAPAPORT,  not
individually but as trustee of the PETER K. BAKER LIFE INSURANCE TRUST, THE JOHN
B. BAKER  INSURANCE  TRUST AND U/T/A DATED DECEMBER 16, 1991 F/B/O JOAN BAKER ET
AL.  (the  "SUBORDINATE  LENDER")  and may from  time to time  hereafter  become
indebted to the Subordinate Lender in further amounts; and

WHEREAS, Ross S. Rapaport, not individually but as Trustee of the Peter K. Baker
Life Insurance Trust, The John B. Baker Insurance Trust and u/t/a dated December
16,  1991  f/b/o  Joan  Baker  et.  al. is acting  as agent  (the  "Agent")  for
Subordinate Lender pursuant to certain of the Subordinated Loan Documents; and

WHEREAS,  THE  OBLIGORS  HAVE  REQUESTED,  AND MAY FROM  TIME TO TIME  HEREAFTER
REQUEST, WEBSTER BANK (THE "BANK") to make or agree to make loans, extensions of
credit or other financial accommodations to the Obligors (the "Loans"); and

WHEREAS,  the Bank, as a condition to the making or  continuation  of the Loans,
has required the  Subordinate  Lender to execute and deliver this  Subordination
and Pledge  Agreement  (together  with all schedules  and any exhibits  ATTACHED
HERETO AND AMENDMENTS OR  MODIFICATIONS  HERETO IN EFFECT FROM TIME TO TIME, THE
"AGREEMENT").

NOW,  THEREFORE,  in order to induce the Bank to make,  or  continue to make the
Loans and in consideration thereof, the Subordinate Lender agrees as follows:

A.  DEFINITIONS.    As used herein, the following terms shall have the following
meanings:

1.   AFFILIATE. The term "AFFILIATE" means Webster Financial Corporation and any
     of its direct and indirect affiliates and subsidiaries.

2.   BANK COLLATERAL.  The term "BANK COLLATERAL" means the personal property of
     the  Obligors  described  in  SCHEDULE  A and any  other  real or  personal
     property  of any of the  Obligors  in which  the Bank or an  Affiliate  may
     hereafter  be  granted a  security  interest,  mortgage  interest  or other
     similar interest.

3.   COLLECTION  ACTION.  The term "COLLECTION  ACTION" means to (i) exercise or
     enforce  any  rights or  remedies  or assert any  claims  against  the Bank
     Collateral  or  Subordinated  Lenders'  Collateral;  (ii) make any claim or
     commence or initiate any action, lawsuit, case or proceeding against any of
     the  Obligors or join  together or with any creditor  other than,  with its
     consent,  the Bank in any action,  lawsuit,  case or proceeding against the
     Obligors  (including,  but not  being  limited  to,  proceedings  under the
     Bankruptcy  Code);  (iii)  contact  any  account of any of the  Obligors or
     attach or take possession of any Bank  Collateral or Subordinated  Lenders'
     Collateral or exercise any right of foreclosure or any right or remedy with
     respect  to any of the  Obligors  or the Bank  Collateral  or  Subordinated
     Lenders'  Collateral;  or (iv)  take any  other  action  prejudicial  to or
     inconsistent  with the Bank's rights and first  priority  secured  position
     with respect to the  Obligors or the Bank  Collateral,  including,  without
     limitation,  that any action that will impede, interfere with, restrict, or
     restrain the exercise by the Bank of its rights and remedies under the Loan
     Documents or contest in any manner the perfection,  priority or validity of
     any lien held by the Bank in any of the Bank Collateral.

4.   EVENT OF  DEFAULT.  The term  "EVENT  OF  DEFAULT"  shall  mean an Event of
     Default  under the Loan  Agreement  beyond  any  applicable  grace and cure
     period.

5.   FINANCIAL  COVENANT  DEFAULT.  The term "FINANCIAL  COVENANT DEFAULT" shall
     mean an Event of Default which results solely from the violation of any now
     existing or  hereafter  arising  financial  covenant  contained in the Loan
     Agreement,  including,  by way of  illustration,  those specific  financial
     covenants set forth in Sections  6.16,  6.17,  6.18,  6.19, and 6.20 of the
     Loan Agreement and any supplement,  addition,  modification or amendment to
     those specific financial covenants.

6.   LIABILITIES.  The term  "LIABILITIES"  means  any and all  obligations  and
     indebtedness  of every kind and  description,  now or  hereafter  existing,
     whether  such debts or  obligations  are  primary or  secondary,  direct or
     indirect,  absolute  or  contingent,  sole,  joint or  several,  secured or
     unsecured,  due or to become  due,  contractual  or  tortious,  arising  by
     operation  of  law,  by  overdraft,   or  otherwise,   including,   without
     limitation, principal, interest, fees, late fees, expenses, attorneys' fees
     and costs,  and/or  allocated  fees and costs of the Bank's  in-house legal
     counsel, that have been or may hereafter be contracted or incurred.

7.   LOAN  AGREEMENT.  The term "LOAN  AGREEMENT"  means that  certain  Loan and
     Security  Agreement among the Obligors and Bank dated the date hereof,  and
     any subsequent supplement,  modification,  renewal,  extension or amendment
     thereto.

8.   LOAN DOCUMENTS.  The term "LOAN DOCUMENTS" means the Loan Agreement and all
     other  credit  accommodations,   notes,  loan  agreements,  and  any  other
     agreements and documents, now or hereafter existing, creating,  evidencing,
     guarantying,  securing or relating to any or all of the Senior Liabilities,
     together  with  all  amendments,  modifications,  renewals,  or  extensions
     thereof.

9.   NON-COVENANT  DEFAULT.  The term  "NON-COVENANT  DEFAULT" means an Event of
     Default other than a Financial Covenant Default.

10.  OBLIGOR. The term "OBLIGOR" means the Holdings, Crystal Rock, Platinum, VPS
     and each and every other maker,  endorser,  guarantor,  or surety of or for
     the Senior Liabilities.

11.  SENIOR LIABILITIES.  The term "SENIOR LIABILITIES" means all Liabilities of
     the Obligors to the Bank and/or to any of the Affiliates including, without
     limitation,  any and all interest accruing on Senior  Liabilities after the
     commencement  of any  proceedings  referred to in  Paragraph  B.5.  hereof,
     notwithstanding  any  provision  or rule of law which  might  restrict  the
     rights of the Bank, as against the Obligors  and/or anyone else, to collect
     such interest.  For purposes of this Agreement,  Senior  Liabilities  shall
     include all  Liabilities of the Obligors to the Bank,  notwithstanding  any
     right or power of any of the  Obligors  and/or  anyone  else to assert  any
     claim or  defense  as to the  invalidity  or  unenforceability  of any such
     Senior Liabilities.

12.  SUBORDINATED   LENDERS'   COLLATERAL.   The  term  "SUBORDINATED   LENDERS'
     COLLATERAL"  means  the  personal  property  of  the  obligors  more  fully
     described in schedule B attached hereto.

13.  SUBORDINATED  LIABILITIES.  THE TERM  "SUBORDINATED  LIABILITIES" means all
     Liabilities of the Obligors to the Subordinate Lender,  including,  without
     limitation,  all  payments  of  principal  and  interest  pursuant  to that
     Subordinated Promissory Note dated the date of this Agreement from Holdings
     payable to the order of the subordinated  lender in the original  principal
     amount of $5,200,000.00 (THE  "SUBORDINATED  NOTE") and that Guaranty dated
     the date of this  Agreement  from  Platinum and VPS to  Subordinate  Lender
     guarantying payments due under the subordinated note (the "SUBORDINATE
     GUARANTY")  but  specifically  excluding  therefrom  compensation  from the
     Obligors to the Subordinate Lender presently  contemplated  pursuant to the
     existing  employment   agreement  between  any  of  the  Obligors  and  the
     Subordinate Lender, as the compensation clauses thereof may be amended from
     time to time with the  consent  of the Bank,  the normal  reimbursement  of
     expenses in the ordinary course of business and  indemnification  of claims
     arising  solely  from the  Subordinate  Lender's  actions  as an officer or
     director of any of the Obligors.

14.  SUBORDINATED LOAN DOCUMENTS.  THE TERM  "SUBORDINATED LOAN DOCUMENTS" means
     all credit accommodations,  notes, loan agreements and any other agreements
     and   documents,   now  or  hereafter   existing,   creating,   evidencing,
     guarantying,  securing  or  relating  to any  or  all  of the  Subordinated
     Liabilities,  together  with all  amendments,  modifications,  renewals  or
     extensions thereof.

B.    SUBORDINATION AND PLEDGE.

1.       SUBORDINATION TO SENIOR LIABILITIES.

(a)            Except as hereinafter expressly set forth in this Agreement or as
               the Bank may hereafter  otherwise  expressly  consent in writing,
               the payment of all  Subordinated  Liabilities  shall be postponed
               and  subordinated  to the  indefeasible  payment  in  full of all
               Senior  Liabilities,  and  no  payments  or  other  distributions
               whatsoever,  including, without limitation,  payments of interest
               in respect of any  Subordinated  Liabilities  shall be made,  nor
               shall any property or assets of the Borrower or other  Obligor be
               applied to the purchase or other acquisition or retirement of any
               Subordinated  Liabilities,  nor given as  collateral  security to
               secure repayment of same.

(b)            NOTWITHSTANDING  THE  PROVISIONS IN PARAGRAPH  B.1(A) above,  and
               subject to the other  terms of this  Agreement,  the  Subordinate
               Lender  may be granted a security  interest  in the  Subordinated
               Lenders'  Collateral  to secure the  payments  of  principal  and
               interest and other amounts due pursuant to the Subordinated Note.

(c)            NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH B.1(A) above, so long
               as no Event of Default exists and is  continuing,  and so long as
               no event  exists  and is  continuing  which,  with the  giving of
               notice or the passage of time or both,  would  constitute a Event
               of  Default,   the  Obligors  may  make  the  following  payments
               (including partial payments thereof), but only to the extent that
               the  making  of such  payments  would not  result in a  Financial
               Covenant Default:  (i) regularly  scheduled quarterly payments of
               interest under the Subordinated  Note, at a rate not in excess of
               twelve per cent (12%) per annum, and past due regularly scheduled
               quarterly  payments of interest under the Subordinated Note which
               were not paid when  scheduled  to be paid because of the terms of
               this  Agreement,  including  interest  at a rate not in excess of
               twelve  per cent  (12%) per annum on such past due  amounts;  and
               (ii)  regularly  scheduled  principal  payments,   together  with
               accrued but unpaid interest at a rate not in excess of twelve per
               cent  (12%)  per  annum,  in  accordance  with  the  terms of the
               Subordinated Note,  commencing with the first regularly scheduled
               principal  payment  more than three  years after the date of this
               Agreement and past due  regularly  scheduled  principal  payments
               under the Subordinated Note which were not paid when scheduled to
               be  paid  because  of the  terms  of  this  Agreement,  including
               interest  at a rate not in excess of  twelve  per cent  (12%) per
               annum on such past due amounts.

2.   PLEDGE OF  SUBORDINATED  LOAN  DOCUMENTS.  In order to  secure  the due and
     punctual payment and performance of the Senior Liabilities, the Subordinate
     Lender  hereby  pledges,  transfers,  assigns,  and  grants  to the  Bank a
     continuing  security  interest  in and  lien  upon  the  Subordinated  Loan
     Documents.  The  Subordinate  Lender has endorsed and delivered to the Bank
     physical  possession of any of the  Subordinated  Loan Documents  which are
     instruments,  including  the  Subordinated  Note and has  executed  Uniform
     Commercial  Code  financing  statements  and such  other  documents  and/or
     instruments  as may be  necessary  or  convenient  to perfect the  security
     interests  granted herein.  Bank shall hold the  Subordinated  Note and any
     other  Subordinated  Loan Documents which are instruments  delivered to the
     Bank as security for the due and punctual  payment and  performance  of the
     Senior Liabilities and  notwithstanding  the possession of the Subordinated
     Note or such other Subordinated Loan Documents by the Bank, the Subordinate
     Lender  shall be  entitled  to receive  payments  thereunder  to the extent
     expressly permitted by the terms of this Agreement. Upon payment in full of
     the Senior Liabilities,  the Bank will deliver to the Subordinate Lender in
     care of John B. Baker the Subordinated Note and any other Subordinated Loan
     Documents in its possession.

3.   SUBORDINATION  OF  SECURITY  INTEREST  OF  SUBORDINATED  LIABILITIES.   Any
     security  interest  now or  hereafter  held by the  Subordinate  Lender and
     granted  by  any  of  the  Obligors  to  secure  any  of  the  Subordinated
     Liabilities, including the security interest described in paragraph B.1(B),
     is hereby  immediately made  subordinate,  junior and postponed in priority
     and effect to the priority and effect of the security interest purported to
     be created  by any of the Loan  Documents,  as if (and  whether or not) the
     Bank's security interest had been perfected by possession, by timely filing
     of  financing  statements,  or by any  other  means  prior  to the time the
     security   interest  with  respect  to  the  Subordinated   Liabilities  is
     perfected,  and  prior  to  the  filing  of  any  financing  statements  in
     connection with the Subordinated Liabilities. The Subordinate Lender agrees
     to execute  and  deliver to the Bank all  instruments,  including,  without
     limitation,  Forms UCC-3,  subordinations  of lien, and  subordinations  of
     mortgage  which,  in the  reasonable  opinion of the Bank, are necessary or
     convenient to effectuate the purposes of this paragraph and this Agreement.

4.   FURTHER ASSURANCES OF PLEDGE OF SUBORDINATED  LIABILITIES.  The Subordinate
     Lender  will  (i)  promptly   notify  the  Bank  of  the  creation  of  any
     Subordinated  Liabilities  and of the  issuance of any  promissory  note or
     other instrument to evidence any Subordinated  Liabilities;  (ii) cause any
     Subordinated  Liabilities  which are not already  evidenced by a promissory
     note or other  instrument  of the  Obligors  to be so  evidenced;  (iii) as
     collateral security for the Senior Liabilities, endorse, deliver and pledge
     to  the  Bank  any  and  all  promissory  notes  and/or  other  instruments
     evidencing Subordinated Liabilities,  and otherwise assign and/or pledge to
     the Bank any or all  Subordinated  Liabilities  and the  Subordinated  Loan
     Documents, all in a manner satisfactory to the Bank in its sole discretion,
     and (iv)  promptly  give the Bank  written  notice  of any  default  by any
     Obligor under the  Subordinated  Note or any agreement  securing  Obligors'
     obligations under any of the other Subordinated Loan Documents.

     FURTHER   ASSURANCES  OF  BANK.  Bank  will  endeavor  to  deliver  to  the
     Subordinate  Lender in care of John B. Baker prompt  notice of any Event of
     Default or Financial  Covenant  Default under the Loan  Agreement or any of
     the other Loan Documents of which the Bank becomes aware but the failure of
     the Bank to  promptly  deliver  any such  notice will not affect any of the
     rights or obligations of the parties under this Agreement.

5.   RIGHTS OF BANK TO COLLECT  SUBORDINATED  LIABILITIES.  In the event of, and
     commencing with the date thereof, any dissolution, winding up, liquidation,
     reorganization or other similar  proceedings  relating to any Obligor or to
     any of their creditors,  or to any of their property (whether  voluntary or
     involuntary, partial or complete, and whether in bankruptcy,  insolvency or
     receivership,  or upon an assignment  for the benefit of creditors,  or any
     other marshalling of the assets and liabilities of any Obligor, or any sale
     of all or  substantially  all of the assets of any Obligor,  or otherwise),
     the Senior  Liabilities  shall first be paid in full before the Subordinate
     Lender  shall be  entitled  to  receive  and/or to retain  any  payment  or
     distribution in respect of the Subordinated Liabilities;  provided that the
     Subordinate  Lender shall be entitled to receive and retain any  securities
     issued in connection with  reorganization  proceedings  which are junior in
     right of  repayment  to the  Senior  Liabilities  to the  extent  set forth
     herein, are treated as Subordinated  Liabilities  hereunder and are subject
     to all the  provisions  of this  Agreement,  and, in order to implement the
     foregoing  (i) all payments and  distributions  of any kind or character in
     respect of the  Subordinated  Liabilities  to which any of the  Subordinate
     Lender would be entitled but for the  provisions of this  Agreement  (other
     than such junior  securities)  will be made directly to the Bank;  (ii) the
     Subordinate  Lender  shall  promptly  file a claim or  claims,  in the form
     required  in such  proceedings,  for the  full  outstanding  amount  of the
     Subordinated  Liabilities,  and  shall  cause  said  claim or  claims to be
     approved and all payments and other distributions in respect thereof (other
     than such junior  securities)  to be made  directly to the Bank;  (iii) the
     Subordinate Lender hereby irrevocably agrees that the Bank may, in its sole
     discretion, in the name of the Subordinate Lender or otherwise, demand, sue
     for,  collect,  receive,  and  receipt  for any and all  such  payments  or
     distributions, and file, prove, and vote or consent in any such proceedings
     with respect to, any and all claims of the  Subordinate  Lender relating to
     the  Subordinated  Liabilities;  and (iv)  the  Subordinate  Lender  hereby
     ratifies  all of the  foregoing  acts or  omissions  on the Bank's  part or
     behalf and waives any  claim,  counterclaim  or defense of the  Subordinate
     Lender which may be alleged to arise from such acts or omissions.

  6. PROTECTION OF BANK'S RIGHTS IN SUBORDINATED LIABILITIES.  In the event that
     the Subordinate  Lender  receives any payment or other  distribution of any
     kind or  character  from any  Obligor  or any other  source  whatsoever  in
     respect of any of the  Subordinated  Liabilities,  other than as  expressly
     permitted  by  the  terms  of  this   Agreement,   such  payment  or  other
     distribution  shall be received in trust for the Bank and  promptly  turned
     over by the  Subordinate  Lender to the Bank. The  Subordinate  Lender will
     mark its books and records,  and cause the Obligors to mark their books and
     records,  so as to clearly indicate that the  Subordinated  Liabilities are
     subordinated in accordance with the terms of this Agreement, and will cause
     to be clearly  inserted in any promissory note or other instrument which at
     any time evidences any of the  Subordinated  Liabilities a statement to the
     effect that the payment  thereof is  subordinated  in  accordance  with the
     terms of this Agreement.  The Subordinate  Lender will execute such further
     documents and instruments and take such further action as the Bank may from
     time to time reasonably  request to carry out the intent of this Agreement.
     The Subordinate Lender hereby irrevocably appoints the Bank its attorney in
     fact,  said  appointment  being  coupled with an interest,  to execute such
     further documents and instruments and take such further action on behalf of
     the Subordinate Lender as the Bank may from time to time deem reasonable to
     carry out the intent of this Agreement,  including, without limitation, the
     ACTIONS SET FORTH IN PARAGRAPH B.4. hereof.

 7.  TREATMENT  OF  PAYMENT  OF  SUBORDINATED  LIABILITIES.   All  payments  and
     distributions   received  by  the  Bank  in  respect  of  the  Subordinated
     Liabilities,  to the extent  received  in or  converted  into cash,  may be
     applied by the Bank first to the payment of any and all expenses (including
     attorneys' fees and disbursements and the allocated fees, expenses and cost
     of  in-house  counsel)  paid or  incurred  by the  Bank in  enforcing  this
     Agreement  or in  endeavoring  to  collect  or  realize  upon  any  of  the
     Subordinated Liabilities,  and any balance thereof shall, solely as between
     the Subordinate  Lender and the Bank, be applied by the Bank, in such order
     of application as the Bank may from time to time select, toward the payment
     of any of the Senior Liabilities  remaining unpaid. As between the Obligors
     and any of their  creditors,  no such payments or distributions of any kind
     or character shall be deemed to be payments or  distributions in respect of
     the  Senior  Liabilities;   and,   notwithstanding  any  such  payments  or
     distributions   received  by  the  Bank  in  respect  of  the  Subordinated
     Liabilities  and so  applied by the Bank  toward the  payment of the Senior
     Liabilities,  the  Subordinate  Lender  shall  be  subrogated  to the  then
     existing rights of the Bank, if any, in respect of the Senior  Liabilities,
     only at such time as the Bank shall have received  indefeasible  payment of
     the full amount of the Senior Liabilities.

8.   WAIVERS. The Subordinate Lender hereby waives (i) any and all notice of the
     receipt and  acceptance by the Bank of this  Agreement;  (ii) except as set
     forth in paragraph B.4, notice of the existence, incurrence, or non-payment
     of all or any of the Senior Liabilities;  (iii) all diligence in collection
     or protection of or realization  upon any of the Senior  Liabilities or any
     security therefor;  and (iv) any obligation with respect to the marshalling
     of assets by the Bank.

9.   PROHIBITION ON CHANGES IN SUBORDINATED LIABILITIES.

    (a)   EXCEPT AS HEREIN SET FORTH IN PARAGRAPH B.9(B), the Subordinate Lender
          will not  without  the prior  written  consent of the Bank (i) cancel,
          waive,  forgive,  amend,  modify,  transfer  or assign,  or attempt to
          enforce or collect,  or subordinate to any Liabilities  other than the
          Senior  Liabilities,  any  Subordinated  Liabilities  or any rights in
          respect thereof; (ii) convert any Subordinated  Liabilities into stock
          or other securities in any of the Obligors;  (iii) take any Collection
          Action; (iv) commence,  or join with any other creditor in commencing,
          any bankruptcy,  reorganization or insolvency proceedings with respect
          to any of the Obligors, or (v) take any other action prejudicial to or
          inconsistent  with  the  Bank's  rights  and  first  priority  secured
          position  with  respect  to the  Obligors,  the  Bank  Collateral  and
          collateral for the Senior Liabilities.

   (b)    NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH B.9(A), if any default has
          occurred under any of the Subordinated Loan Documents and such default
          has  continued in existence  for a period of one hundred  eighty (180)
          consecutive days after the Subordinated  Lenders have provided written
          notice of the  EXISTENCE OF SUCH DEFAULT TO THE BANK (THE  "STANDSTILL
          PERIOD"),  the  Subordinated  Lender may proceed to take legal  action
          against  the  Obligors  for the sole  purpose of  obtaining a judgment
          against the Obligors;  provided,  however, at no time either before or
          after the expiration of the Standstill  Period,  may any  Subordinated
          Lender  take any  action or  Collection  Action to  enforce a security
          interest  in,   liquidate  or  otherwise   receive  payment  from  any
          collateral for the Senior  Liabilities,  including the Bank Collateral
          or  Subordinated  Lenders'  Collateral,  unless and until the Bank has
          been indefeasibly paid in full for all Senior Liabilities.

10.  CONTINUING AGREEMENT.  This Agreement shall in all respects be a continuing
     agreement  and shall  remain  in full  force  and  effect  notwithstanding,
     without  limitation,   the  death,   incompetency  or  dissolution  of  the
     Subordinate  Lender  or that at any time or from  time to time  all  Senior
     Liabilities  may have been paid in full if any of the Loan  Documents  have
     not been terminated.

11.  PERMITTED CHANGES IN SENIOR  LIABILITIES.  The Bank may, from time to time,
     whether before or after any  discontinuance of this Agreement,  at its sole
     discretion and without notice to the Subordinate Lender, take any or all of
     the  following  actions:  (i) retain or obtain a security  interest  in any
     property to secure any of the Senior Liabilities; (ii) retain or obtain the
     primary or  secondary  obligation  of any other  Obligor or  Obligors  with
     respect to any of the Senior Liabilities;  (iii) extend,  renew (whether or
     not longer than the original  period),  alter or exchange any of the Senior
     Liabilities; (iv) release or compromise any obligation of any nature of any
     Obligor with respect to any of the Senior Liabilities; and, (v) release its
     security  interest or lien in,  allows its security  interest or lien to be
     unperfected, surrender, release or permit any substitution or exchange for,
     all or any part of any property securing any of the Senior Liabilities,  or
     extend or renew for one or more  periods  (whether  or not longer  than the
     original period) or release,  compromise, alter or exchange any obligations
     of any nature of any Obligor with respect to any such property.

12.  DISPOSITION OF ASSETS. The Subordinate Lender agree that any disposition by
     the  Bank  of  any  collateral  for  the  Senior  Liabilities,  whether  by
     collection, sale, or other manner of liquidation, after an Event of Default
     under the Loan Documents, if conducted in a commercially reasonable manner,
     may not be challenged or contested by the Subordinate Lender on the grounds
     of commercial unreasonableness. The Subordinate Lender agrees that the Bank
     may use such means of collection  and exercise such  diligence with respect
     thereto as the Bank, in its sole discretion,  deems  appropriate  under the
     circumstances  and may  enter  into  such  compromise  with and  give  such
     releases  and  acquittances  to account  debtors or other  obligors  of the
     Obligors'  receivables  as it  determines in its sole  discretion,  without
     obtaining  the  agreement  or  concurrence  of  or  giving  notice  to  the
     Subordinate  Lender and the  Subordinate  Lender  hereby waive all right to
     require  that its  agreement  or  consent be  obtained  or that it be given
     notice.  The  Subordinate  Lender  further  agrees that it will release its
     security  interest on any collateral  (including the Subordinated  Lenders'
     Collateral) for the Senior  Liabilities upon the sale or other  disposition
     thereof at the request of the Bank,  whether or not any proceeds  therefrom
     will pay any of the Subordinated Liabilities.

C.   REPRESENTATIONS  AND WARRANTIES.  The Subordinate  Lender hereby represents
     and warrants that (i) the  Subordinate  Lender has the necessary  power and
     capacity to make and perform this Agreement and such making and performance
     have been  duly  authorized  by all  necessary  actions  on the part of the
     Subordinate  Lender;  (ii) the making and  performance  by the  Subordinate
     Lender of this Agreement does not and will not violate any provision of law
     or  regulation  or result in the  breach  of, or  constitute  a default  or
     require any consent under,  any indenture or other  agreement or instrument
     to which it is a party or by which any of its properties may be bound;  and
     (iii) this  Agreement  is the legal,  valid and binding  obligation  of the
     Subordinate   Lender,   enforceable   against  the  Subordinate  Lender  in
     accordance with its terms.

D.   REMEDIES.  Upon the occurrence of any Event of Default,  or upon the breach
     of any  representation,  covenant or  agreement  in this  Agreement  by any
     Obligor or the  Subordinate  Lender,  or in the event of the termination of
     this  Agreement,  all of the Senior  Liabilities  shall,  without notice or
     demand,  become  immediately  due and payable at the option of the Bank and
     the Bank may  immediately,  without  further  notice,  resort to all of its
     rights and remedies herein,  in any document  (including the Loan Agreement
     and any of the Loan Documents) by and between the Bank and any Obligor,  or
     in any in any instrument evidencing any obligation under any such document,
     at law or in equity.  The Bank agrees that it shall proceed,  to the extent
     commercially  reasonable,  against  all the assets of the  Obligors  before
     liquidating the Subordinated Note.

E.   MISCELLANEOUS.

     1. REMEDIES CUMULATIVE;  NO WAIVER. The rights,  powers and remedies of the
        Bank  provided  in this  Agreement  and any of the  Loan  Documents  are
        cumulative and not exclusive of any right,  power or remedy  provided by
        law or  equity.  No  failure  or  delay  on the  part of the Bank in the
        exercise  of any  right,  power  or  remedy  shall  operate  as a waiver
        thereof,  nor shall any single or partial exercise preclude any other or
        further exercise thereof,  or the exercise of any other right,  power or
        remedy.

     2. NOTICES.  Notices and  communications  under this Agreement  shall be in
        writing and shall be given by (i)  hand-delivery,  (ii) first class mail
        (postage  prepaid),  or  (iii)  reliable  overnight  commercial  courier
        (charges  prepaid) to the addresses listed in this Agreement.  Notice by
        overnight courier shall be deemed to have been given and received on the
        date scheduled for delivery. Notice by mail shall be deemed to have been
        given  and  received  three  (3)  calendar  days  after  the date  first
        deposited in the United States Mail.  Notice by  hand-delivery  shall be
        deemed to have been given and received upon delivery. A party may change
        its address by giving  written  notice to the other  party as  specified
        herein.

     3. COSTS AND EXPENSES. Whether or not the transactions contemplated by this
        Agreement  or the Loan  Documents  are fully  consummated,  the Obligors
        shall promptly pay (or  reimburse,  as the Bank may elect) all costs and
        expenses  which  the  Bank  has  incurred  or  may  hereafter  incur  in
        connection   with   the    negotiation,    preparation,    reproduction,
        interpretation, perfection, protection of collateral, administration and
        enforcement  of  this  Agreement  and  the  other  Loan  Documents,  the
        collection  of all amounts due under this  Agreement  and the other Loan
        Documents,  and all amendments,  modifications,  consents or waivers, if
        any, to the Loan  Documents.  The  Obligors'  reimbursement  obligations
        under this Paragraph  shall survive any termination of this Agreement or
        any other Loan Document and are deemed part of the Senior Liabilities.

     4. GOVERNING LAW. This Agreement shall be construed in accordance  with and
        governed by the  substantive  laws  of  the State of Connecticut without
        reference to conflict of laws principles.

     5. INTEGRATION;  AMENDMENT.  This  Agreement  and the other Loan  Documents
        constitute the sole agreement of the parties with respect to the subject
        matter hereof and thereof and supersede all oral  negotiations and prior
        writings  with  respect to the subject  matter  hereof and  thereof.  No
        amendment  of this  Agreement,  and no  waiver of any one or more of the
        provisions  hereof  shall be  effective  unless set forth in writing and
        signed by the parties hereto.

     6. SUCCESSORS  AND ASSIGNS.  This  Agreement  (i) shall be binding upon the
        Subordinate  Lender,  the Obligors executing this Agreement and the Bank
        and,   where   applicable,    their   respective    heirs,    executors,
        administrators,  successors  and  assigns,  and (ii) shall  inure to the
        benefit of the Subordinate  Lender, the Obligors and the Bank and, where
        applicable,   their   respective   heirs,   executors,   administrators,
        successors  and  permitted   assigns;   provided,   however,   that  the
        Subordinate  Lender  and the  Obligors  may not assign  their  rights or
        obligations  hereunder or any interest  herein without the prior written
        consent of the Bank, and any such assignment or attempted  assignment by
        the  Subordinate  Lender and/or any of the Obligors shall be void and of
        no effect with respect to the Bank.  The Bank may from time to time sell
        or assign,  in whole or in part,  or grant  participations  in the Loans
        and/or the  Agreement  and/or the  obligations  evidenced  thereby.  The
        Subordinate Lender authorizes the Bank to provide information concerning
        the Subordinate  Lender and the Obligors to any  prospective  purchaser,
        assignee or participant.

     7. SEVERABILITY  AND  CONSISTENCY.  The  illegality,   unenforceability  or
        inconsistency  of any provision of this  Agreement or any  instrument or
        agreement  required  hereunder shall not in any way affect or impair the
        legality,  enforceability or consistency of the remaining  provisions of
        this Agreement or any instrument or agreement  required  hereunder.  The
        Loan  Documents  and  this  Agreement  are  intended  to be  consistent.
        However, in the event of any  inconsistencies  between and/or among this
        Agreement and any of the Loan Documents,  such  inconsistency  shall not
        affect the validity or  enforceability  of this  Agreement or any of the
        Loan Documents.  In the event of any  inconsistency or ambiguity in this
        Agreement  or any of the Loan  Documents,  this  Agreement  and the Loan
        Documents  shall  not be  construed  against  any one party but shall be
        interpreted consistent with the Bank's policies and procedures.

     8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.  The Subordinate  Lender
        irrevocably  appoints  Rapaport & Ellenthal,  P.C.,  750 Summer  Street,
        Stamford,  CT 06901 as its attorneys upon whom may be served any notice,
        process or pleading in any action or  proceeding  against it arising out
        of or in connection with this Agreement. If service of process cannot be
        delivered  to the  Subordinate  Lender  as  specified  by  statute,  the
        Subordinate Lender agrees that, with court approval, it may be served by
        regular  or  certified  mail  at  the  address  set  forth  herein.  The
        Subordinate  Lender  hereby  consents  and agrees that (i) any action or
        proceeding  against  it may be  commenced  and  maintained  in any court
        within the State of Connecticut  or in the United States  District Court
        for the  District  of  Connecticut  by service of process on  Rapaport &
        Ellenthal and (ii) the courts of the State of Connecticut and the United
        States  District  Court  for the  District  of  Connecticut  shall  have
        jurisdiction with respect to the subject matter hereof and the person of
        the Subordinate Lender and the Subordinated Liabilities. The Subordinate
        Lender  agrees  that any  action  brought by the  Subordinate  Lender on
        account of this Agreement  shall be commenced and  maintained  only in a
        court in the federal  judicial  district or county in which the Bank has
        its principal place of business in Connecticut.

    9.  PREJUDGMENT REMEDIES.

        The  Subordinate  Lender  hereby   acknowledges  that  the  transactions
        contemplated  herein  constitute  commercial  transactions.  Pursuant to
        Section 52-278f of the  Connecticut  General  Statutes,  the Subordinate
        Lender hereby waives and  relinquishes  all rights to notice and hearing
        as provided  in Sections  52-278a  through  52-278g of said  Connecticut
        General Statutes prior to the securing of any prejudgment remedy against
        the Subordinate  Lender in connection with the Liabilities or any of the
        instruments or documents executed in connection herewith.

   10.  PROVISIONS SOLELY FOR THE BENEFIT OF THE BANK.

        The  provisions  of this  Agreement  are solely to define  the  relative
        rights and  obligations of the Bank and the Subordinate  Lender,  and no
        other  person  or  entity,  including,  without  limitation,  any of the
        Obligors,  shall  have  any  rights  hereunder  or as a  result  of  the
        provisions hereof.

   11.  AGENT FOR SUBORDINATE LENDER.

        The  Agent hereby agrees to be bound by the terms and provisions of this
        Agreement  and agrees  not to make any  payment  or  distribution  or to
        otherwise  take any action  which is contrary to the  provisions of this
        Agreement.

   12.  JUDICIAL PROCEEDINGS; WAIVERS.

        THE SUBORDINATE  LENDER AND THE BANK  ACKNOWLEDGE AND AGREE THAT (i) ANY
        SUIT,  ACTION OR PROCEEDING,  WHETHER CLAIM OR COUNTERCLAIM,  BROUGHT OR
        INSTITUTED  BY THE BANK,  THE  SUBORDINATE  LENDER OR ANY  SUCCESSOR  OR
        ASSIGN OF THE BANK OR THE SUBORDINATE LENDER, ON OR WITH RESPECT TO THIS
        AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE DEALINGS OF THE PARTIES WITH
        RESPECT HERETO, OR THERETO,  SHALL BE TRIED ONLY BY A COURT AND NOT BY A
        JURY AND EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY;  (ii) EACH WAIVES
        ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER,  IN ANY SUCH SUIT,  ACTION OR
        PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR
        ANY DAMAGES  OTHER THAN, OR IN ADDITION TO,  ACTUAL  DAMAGES;  AND (iii)
        THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THE
        BANK WOULD NOT EXTEND  CREDIT IF THE WAIVERS  SET FORTH IN THIS  SECTION
        WERE NOT A PART OF THIS AGREEMENT.

    IN WITNESS WHEREOF, the Subordinate Lender has executed and delivered to the
Bank this Agreement, as of the day and year first above written.

WITNESSED BY:

                                  ----------------------------------------------
-------------------------------
                                  Ross S. Rapaport, not individually
                                  but as Trustee of the Peter K.
-------------------------------   Baker Life Insurance Trust, the

                                  John B. Baker Insurance Trust
                                  and U/T/A/ dated December 16,
                                  1991 F/B/O Joan Baker et.al
                                  Address: Rapaport & Ellenthal, P.C.
                                           750 Summer Street
                                           Stamford, CT 06901

------------------------------ -------------------------------------------------
                               Ross S. Rapaport, not individually but as Trustee
                               of the Peter K. Baker Life Insurance Trust, The
                               John B. Baker Insurance Trust and u/t/a dated
                               December 16,  1991  f/b/o  Joan Baker et. al., as
                               Agent
-----------------------------  Address: 1050 Buckingham Street
                                        Watertown, CT 06795

                               WEBSTER BANK

-----------------------------  By:----------------------------------------------
                                  Robert E. Teittinen
                                  Its Vice President
-----------------------------     Address: 174 Bank Street
                                  Waterbury, CT 06702

<PAGE>

STATE OF CONNECTICUT                                              )
                                    ) ss: Hartford               October _, 2000
COUNTY OF HARTFORD         )

Personally  appeared Ross S. Rapaport,  not  individually  but as Trustee of the
Peter K. Baker Life Insurance Trust, the John B. Baker Insurance Trust and U/T/A
dated  December  16,  1991 F/B/O  Joan  Baker et.  al,  signer and sealer of the
foregoing  instrument and  acknowledged  the same to be his free act and deed as
Trustee, before me.

                                              Commissioner of the Superior Court

                                              Notary Public
                                              My Commission expires:

STATE OF CONNECTICUT       )
                                    ) ss: Hartford               October _, 2000
COUNTY OF HARTFORD         )

Personally  appeared Ross S. Rapaport,  not  individually  but as Trustee of the
Peter K. Baker Life Insurance Trust, the John B. Baker Insurance Trust and U/T/A
dated December 16, 1991 F/B/O Joan Baker et. al, as Agent,  signer and sealer of
the foregoing  instrument and  acknowledged the same to be his free act and deed
as Trustee and Agent, before me.

                                              Commissioner of the Superior Court

                                              Notary Public
                                              My Commission expires:

STATE OF CONNECTICUT       )
                                    ) ss: Hartford               October _, 2000
COUNTY OF HARTFORD         )

Personally appeared Robert E. Teittinen,  Vice President of Webster Bank, signer
and sealer of the foregoing  instrument and acknowledged the same to be his free
act and deed as such officer and the free act and deed of Webster  Bank,  before
me.

                                              Commissioner of the Superior Court

                                              Notary Public
                                              My Commission expires:

<PAGE>

The Obligors signing below hereby acknowledge receipt of a copy of the foregoing
Agreement, waive notice of acceptance thereof by the Bank, and agree to be bound
by the terms and provisions thereof. The Obligors signing below further agree to
make no payments or distributions,  or grant any security interest,  contrary to
the terms and  provisions of this  Agreement and to do every other act and thing
necessary  or  appropriate  to carry  out such  terms and  provisions.  Upon the
occurrence  of any Event of Default,  or upon the breach of any  representation,
covenant  or  agreement  in  this  Agreement  by  any  of  the  Obligors  or the
Subordinated  Lender, or in the event of the termination of this Agreement,  all
of the Senior  Liabilities shall,  without notice or demand,  become immediately
due and payable at the option of the Bank and the Bank may immediately,  without
further notice, resort to all of its rights and remedies herein, in any document
(including the Loan Agreement and any of the Loan  Documents) by and between the
Bank and any Obligor,  or in any in any  instrument  evidencing  any  obligation
under any such document, at law or in equity.

DATED: AS OF THE 5TH day of October, 2000

                                             VERMONT PURE HOLDINGS, LTD.
                                             (f/k/a VP Merger Parent, Inc.)

                                             By:______________________
                                             Name:     Timothy G. Fallon
                                             Title:    President
                                             Address:Catamount Industrial Park
                                                     Route 66
                                                     Randolph, VT 05060

                                             CRYSTAL ROCK SPRING WATER COMPANY

                                             By:______________________
                                             Name:       John B. Baker
                                             Title:      President
                                             Address:  1050 Buckingham Street
                                                       Watertown, CT 06795

                                             PLATINUM ACQUISITION CORP.
                                             (f/k/a Vermont Pure Holdings, Ltd.)

                                             By:______________________
                                             Name:       Timothy G. Fallon
                                             Title:      President
                                             Address:  Catamount Industrial Park
                                                       Route 66
                                                       Randolph, VT 05060

                                             VERMONT PURE SPRINGS, INC.

                                             By:______________________
                                             Name:        Timothy G. Fallon
                                             Title:       President
                                             Address:  Catamount Industrial Park
                                                       Route 66
                                                       Randolph, VT 05060

<PAGE>

                                   SCHEDULE A

                                 Bank Collateral

"Collateral"  means  Receivables,  Inventory,  Equipment,  Patents,  Trademarks,
Investment Property, Additional Collateral, and the Premises.

"Additional  Collateral"  means  (i) all  General  Intangibles  (as such term is
defined in the Uniform  Commercial  Code as in effect in Connecticut on the date
of this  Agreement) of every kind and  description  of the  Obligors,  including
without  limitation  federal,  state and local tax  refund  claims of all kinds,
whether  now  existing  or  hereafter  arising;  (ii) all of  Obligors'  deposit
accounts,  whether now owned or hereafter created,  wherever located;  (iii) all
monies,  securities,  instruments,  cash and other  property of Obligors and the
proceeds thereof, now or hereafter held or received by, or in transit to, Lender
from or for Obligors,  whether for safekeeping,  pledge, custody,  transmission,
collection  or  otherwise,  and all of Obligors'  deposits  (general or special,
balances,  sums,  proceeds  and  credits  of  Obligors  with  Lender at any time
existing);  (iv) all  interests  in real  property  held or  owned by  Obligors,
including all leasehold  interests;  (v) all rights under  contracts and license
agreements for water;  (vi) all books,  records,  customer lists,  ledger cards,
computer  programs,  computer  tapes,  disks,  printouts and records,  and other
property and general  intangibles  at any time  evidencing or relating to any of
the foregoing,  whether now in existence or hereafter  created;  (vii) all other
personal  property  and  fixtures  of the  Obligors,  whether  now  existing  or
hereafter arising or created; and all proceeds of the foregoing and all proceeds
of any insurance on the foregoing.

"Equipment"  means all Equipment,  Farm Products and Fixtures (as such terms are
defined in the Uniform  Commercial  Code as in effect in Connecticut on the date
of this Agreement),  including all machinery,  equipment,  furniture,  fixtures,
tools, parts, supplies and motor vehicles,  now owned and hereafter acquired, by
Debtor of whatsoever name, nature,  kind or description,  wherever located,  and
all additions and accessions thereto and replacements or substitutions therefor,
and all proceeds thereof and all proceeds of any insurance thereon.

"Inventory"  means all  Inventory  and Goods (as such  terms are  defined in the
Uniform  Commercial  Code  as in  effect  in  Connecticut  on the  date  of this
Agreement)  of  whatsoever  name,  nature,  kind or  description  now  owned and
hereafter acquired by Debtor, wherever located, including without limitation all
contract  rights with respect thereto and documents  representing  the same, all
goods held for sale or lease or to be  furnished  under  contracts  of  service,
finished  goods,  raw materials,  materials  used or consumed by Debtor,  parts,
supplies,  and all wrapping,  packaging,  advertising and shipping materials and
any documents  relating  thereto,  and all labels and other  devices,  names and
marks affixed or to be affixed thereto for purposes of selling or of identifying
the same or the  seller  or  manufacturer  thereof,  and all  right,  title  and
interest of Debtor  therein and thereto,  and all proceeds of the  foregoing and
all proceeds of any insurance on the foregoing.

"Investment  Property" means all investment property (as such term is defined in
the  Uniform  Commercial  Code as  adopted  in  Connecticut  on the date of this
Agreement)  of whatever  type or nature now owned or  hereafter  acquired by the
Debtor,  including  without  limitation,   all  certificated   securities,   all
uncertificated securities, all security entitlements, all security accounts, all
commodity  contracts,  all commodity  accounts and all financial assets of every
type and nature and all rights thereto or therein, and all financial accounts of
every type and nature and all rights  thereto or therein,  and all  proceeds and
products  thereof,  including  without  limitation,  all insurance  proceeds and
fidelity bond proceeds related thereto.

"Patents" means all of Debtor's right,  title and interest,  present and future,
in and to (a) all letters patent of the United States or any other country,  all
right,  title and  interest  therein  and  thereto,  and all  registrations  and
recordings thereof, including without limitation applications, registrations and
recordings in the United  States  Patent and Trademark  Office or in any similar
office or agency of the United  States or any state thereof or any other country
or any  political  subdivision  thereof,  all  whether  now  owned or  hereafter
acquired by Debtor; and (b) all reissues,  continuations,  continuations-in-part
or  extensions  thereof  and  all  licenses  thereof;  and all  proceeds  of the
foregoing and all proceeds of any insurance on the foregoing.

"Premises" means the following  real property  owned by Debtor:  Hedding  Drive,
         Randolph,  Vermont  Chase  Road,  Randolph,  Vermont  Route 66 Factory,
         Randolph,  Vermont North Randolph Road,  Randolph,  Vermont 20.0 acres,
         Route 66, Randolph, Vermont 5.0 acres, Route 66, Randolph, Vermont

"Receivables"  means  (i) all of  Debtor's  now owned  and  hereafter  acquired,
present and future, Accounts,  Chattel Paper, Documents,  Instruments,  (as such
terms are defined in the Uniform  Commercial Code as in effect in Connecticut on
the date of this Agreement) and contract rights,  including  without  limitation
all  obligations  to Debtor for the  payment of money,  whether  arising  out of
Debtor's  sale of goods or rendition of services or otherwise  (all  hereinafter
called  "Accounts")  and all proceeds of the  foregoing  and all proceeds of any
insurance on the foregoing; (ii) all of Debtor's rights, remedies,  security and
liens,  in, to and in respect of the  Accounts,  present and  future,  including
without limitation,  rights of stoppage in transit,  replevin,  repossession and
reclamation  and other rights and remedies of an unpaid vendor,  lien or secured
party, guaranties or other contracts of suretyship with respect to the Accounts,
deposits or other security for the obligation of any debtor or Debtor in any way
obligated on or in connection with any Accounts, and credit and other insurance,
and all  proceeds of the  foregoing  and all  proceeds of any  insurance  on the
foregoing;  and (iii) all of Debtor's  right,  title and  interest,  present and
future,  in, to and in respect of all goods  relating  to, or which by sale have
resulted in,  Accounts,  including  without  limitation  all goods  described in
invoices  or other  documents  or  instruments  with  respect  to, or  otherwise
representing  or  evidencing  any  Accounts,  and  all  returned,  reclaimed  or
repossessed  goods,  and all proceeds of the  foregoing  and all proceeds of any
insurance on the foregoing.

<PAGE>

                                   SCHEDULE B

                         Subordinated Lender Collateral

         The following property,  whether now existing or subsequently acquired,
and  all  additions,  substitutions,  accessions,  replacements,  proceeds,  and
products thereof or thereto:  all tangible and intangible  assets and properties
of each of Vermont Pure Holdings,  Ltd., a Delaware  corporation  formerly named
"VP Merger Parent,  Inc.", Vermont Pure Springs,  Inc., a Delaware  corporation,
Platinum  Acquisition  Corp.,  f/k/a Vermont Pure  Holdings  (each a "Company"),
including without limitation all furniture,  fixtures, equipment, raw materials,
inventory,  other goods,  accounts,  contract  rights,  rights to the payment of
money, insurance refund claims and all other insurance claims and proceeds, tort
claims, chattel paper, documents,  instruments,  securities and other investment
property,  deposit  accounts,  rights to  proceeds  of letters of credit and all
general  intangibles  including,  without  limitation,  all tax  refund  claims,
license fees, patents, patent applications,  trademarks, trademark applications,
trade names, copyrights,  copyright applications,  rights to sue and recover for
past  infringement  of patents,  trademarks and copyrights,  computer  programs,
computer  software,   engineering  drawings,   service  marks,  customer  lists,
goodwill, and all licenses,  permits,  agreements of any kind or nature pursuant
to which any Company possesses, uses or has authority to possess or use property
(whether  tangible  or  intangible)  of others or  others  possess,  use or have
authority to possess or use property  (whether  tangible or  intangible) of such
Company,  and all recorded data of any kind or nature,  regardless of the medium
of recording  including,  without  limitation,  all software,  writings,  plans,
specifications  and schematics  (each of which terms has the meaning ascribed to
in the  Uniform  Commercial  Code,  as in effect  in the  State of  Connecticut)
(collectively,  the "COLLATERAL");  provided that notwithstanding the foregoing,
such grant of security  interest shall not extend to, and the term  "Collateral"
shall  not  include  any  cash  and cash  equivalents  at any time  owned by any
Company.

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