SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended July 26, 1997
Commission File No. 1-11254
VERMONT PURE HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
Delaware 06-1325376
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Route 66; PO Box C; Randolph, VT 05060 (Address of
principal executive offices) (Zip Code)
(802)728-3600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class September 5, 1997
Common Stock, $.001 Par Value 10,131,980
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
INDEX
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Page Number
Part I - Financial Information
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Item 1. Financial Statements
Consolidated Balance Sheets as of
July 26, 1997 (unaudited) and
October 26, 1996 4
Consolidated Statements of Operations
(unaudited) for the Three Months and Nine Months
ended July 26, 1997 and July 27, 1996 5
Consolidated Statements of Cash Flows
(unaudited) for the Nine Months ended
July 26, 1997 and July 27, 1996 6
Notes to Consolidated Financial Statements
(unaudited) 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operation 10 - 13
Part II - Other Information 14 - 15
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature 16
2
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Page Number
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Exhibit Index 17
Stock Purchase Agreement between Vermont Pure Springs, Inc. and
Carolyn Howard relating to the capital stock of A.M. Fridays,
Inc. dated July 16, 1997.
Loan agreement Between Vermont Pure Springs and Vermont Pure
Holdings and Chittenden Bank effective June 20, 1997 regarding
an operating line of credit and acquisition line of credit.
Promissory Note Between Vermont Pure Springs and Vermont Pure
Holdings and Chittenden Bank dated July 17, 1997 regarding an
acquisition line of credit.
Commercial Security Agreement between Vermont Pure Springs and
Vermont Pure Holdings and Chittenden Bank dated July 17, 1997
regarding the acquisition line of credit.
Financial data schedule
3
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
July 26, October 26,
1997 1996
============ ============
(Unaudited)
============
ASSETS
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CURRENT ASSETS:
Cash $ 247,854 $ 783,081
Accounts receivable 2,579,712 1,159,806
Inventory 550,109 783,156
Other current assets 140,562 159,145
------------ ------------
TOTAL CURRENT ASSETS 3,518,237 2,885,188
------------ ------------
PROPERTY AND EQUIPMENT - net of accumulated depreciation 6,326,488 5,536,185
------------ ------------
OTHER ASSETS:
Intangible assets - net of accumulated amortization 2,291,299 1,317,082
Other assets 21,918 232,939
------------ ------------
TOTAL OTHER ASSETS 2,313,217 1,550,021
------------ ------------
TOTAL ASSETS $ 12,157,942 $ 9,971,394
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,368,362 $ 879,669
Customer deposits 600,100 421,137
Accrued expenses 1,221,952 446,507
Line of credit 0 441,811
Current portion of long term debt 550,329 197,239
Current portion of obligations under capital lease 60,175 180,183
------------ ------------
TOTAL CURRENT LIABILITIES 3,800,918 2,566,546
Long term debt 3,706,929 2,779,408
Obligations under capital lease 66,169 98,945
------------ ------------
TOTAL LIABILITIES 7,574,016 5,444,899
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock -$.001 par value, 20,000,000 authorized
shares, 9,678,268 issued and outstanding shares at
October 26, 1996 and 9,716,363 issued and outstanding
shares at July 26, 1997 9,716 9,678
Paid in capital 21,499,381 21,399,420
Accumulated deficit (16,925,171) (16,882,603)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,583,926 4,526,495
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,157,942 $ 9,971,394
============ ============
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months ended Three months ended
============================================ =====================================
July 26, July 27, July 26, July 27,
1997 1996 1997 1996
=========== ========= ========= =========
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
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=========== ========= ========= =========
SALES $ 12,255,738 $ 8,410,563 $ 5,724,061 $ 4,825,442
COST OF GOODS SOLD 5,361,124 4,421,337 2,271,827 2,303,620
----------- --------- --------- ---------
GROSS PROFIT 6,894,614 3,989,226 3,452,234 2,521,822
----------- --------- --------- ---------
OPERATING EXPENSES:
Selling,general and
administrative expense 4,176,986 2,990,499 1,629,189 1,344,757
Advertising expenses 2,410,552 1,685,576 1,145,522 744,275
Amortization 136,659 105,819 54,256 60,117
---------- --------- --------- ---------
TOTAL OPERATING EXPENSES 6,724,197 4,781,894 2,828,967 2,149,149
---------- --------- --------- ---------
PROFIT (LOSS)FROM OPERATIONS 170,417 (792,668) 623,267 372,673
---------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest - net (230,939) (119,572) (79,068) (65,725)
Miscellaneous 17,954 1,939 15,818 (1,261)
--------- --------- --------- ---------
TOTAL OTHER INCOME (EXPENSE) (212,985) (117,633) (63,250) (66,986)
--------- --------- --------- ---------
NET PROFIT (LOSS) $ (42,568) $ (910,301) $ 560,017 $ 305,687
========= ========= ========= =========
NET PROFIT (LOSS)
PER SHARE $ (0.00) $ (0.09) $ 0.06 $ 0.03
========= ========= ========= =========
Weighted Average Shares
Used in Computation 9,697,316 9,678,268 9,716,363 9,678,268
========= ========= ========= =========
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
=========================================
July 26, July 27,
1997 1996
================== =================
(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (42,568) $ (910,301)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation 552,046 448,590
Amortization 136,659 105,819
(Gain) loss on disposal of property and equipment (14,440) 2,366
Changes in assets and liabilities
(net of effects of acquisitions):
(Increase)Decrease in accounts receivable (1,237,659) (947,393)
(Increase)Decrease in inventory 270,534 68,416
(Increase)Decrease in other current assets 18,583 (44,914)
(Increase)Decrease in other assets 191,020 48,114
(Decrease)Increase in accounts payable 345,462 272,511
(Decrease)Increase in customer deposits 68,319 243,569
(Decrease)Increase in accrued expenses 765,446 227,169
------------------ -----------------
CASH PROVIDED BY OPERATING ACTIVITIES 1,053,402 (486,054)
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property,plant and equipment (638,030) (318,281)
Proceeds from sale of fixed assets 40,500 42,116
Cash used in acquistions (769,903) (1,240,677)
------------------ -----------------
CASH USED IN INVESTING ACTIVITIES (1,367,433) (1,516,842)
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of)line of credit (441,811) 530,304
Proceeds from debt 808,468 1,290,000
Principal payments of debt (587,853) (553,123)
------------------ -----------------
CASH PROVIDED BY FINANCING ACTIVITIES (221,196) 1,267,181
------------------ -----------------
NET INCREASE (DECREASE) IN CASH (535,227) (735,715)
CASH - Beginning of period 783,081 1,543,260
------------------ -----------------
CASH - End of period $ 247,854 $ 807,545
================== =================
Cash paid for interest $ 266,201 $ 188,055
================== =================
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and in the opinion
of management contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position,
results of operations, and cash flows for the periods presented. The
results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with the Form
10-KSB for the year ended October 26, 1996.
Certain information and footnote disclosures normally included in the
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The accompanying
consolidated financial statements should be read in conjunction with
the financial statements and notes thereto incorporated by reference
from the Company's Form 10-KSB and Annual Report for the year ended
October 26, 1996.
2. ADVERTISING EXPENSES
The Company expenses advertising costs at the time that the advertising
begins to run.
3. INCOME (LOSS) PER SHARE
Income (loss) per share is based on the weighted average number of
common shares and dilutive common share equivalents outstanding during
the period. Common share equivalents are not included for loss periods
as such inclusion would be anti-dilutive.
4. LINE OF CREDIT
On June 20, 1997 the Company executed loan agreements for two credit
facilities with the Chittenden Bank. One, for a term of two years,
provides operating capital of up to $1,500,000 based on a formula
derived from inventory and receivables. The second provides funds for
acquisitions, subject to the banks approval, of up to $2,500,000. Both
loans are secured by substantially all of the Company's assets.
5. ACQUISITION
On July 16, 1997, the Company completed the purchase of all of the
stock of A.M. Fridays,
7
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Inc. a company operating distribution routes for water and coffee to
homes and offices and commercial vending services primarily in the
greater Manchester, New Hampshire area. The purchase price of the stock
was $650,000. Chittenden Bank financed $350,000 of the purchase from
the acquisition credit facility that was provided by the loan agreement
dated June 20, 1997. The balance of the purchase price was settled by
the issuance of a note to Carolyn Howard, the seller of the stock, of
$300,000, for eight years, at 8.5% interest due in equal monthly
installments over the term of the note. An additional amount is due
contingent on the future performance of the acquired company.
6. INTANGIBLE ASSETS
Goodwill that resulted from the acquisition of AMF stock will be
amortized over 30 years and was calculated as follows:
Purchase Price $ 650,000
Acquisition Costs 41,713
Fair Value of Tangible and Identifiable
Intangible Assets (738,985)
Liabilities Assumed 518,474
--------
Total $ 471,202
========
In conjunction with the acquisition during the quarter, the Company
entered into non-competition, employment and consulting agreements with
the majority stockholder of AMF, pursuant to which the owners will
receive payments totaling an aggregate of $175,000 over five years. The
assets acquired consisted primarily of bottles, coolers, vehicles, and
customer lists.
7. LONG TERM DEBT
The principal balance of the Company's original acquisition note for
the acquisition of western New York assets was $1,474,882 as of July
26, 1997. It matures on May 1, 1999 when a lump sum payment of
approximately $1,160,000 is due and payable to Chittenden Bank. In
conjunction with the approval of the new acquisition line of credit,
Chittenden Bank lowered the interest rate on the note from 1.5% to .5%
over the prime rate. The Company borrowed $350,000 from the acquisition
line of credit related to the acquisition of the stock of A.M. Fridays.
This loan matures on July 1, 2001 when a lump sum payment of
approximately $245,000 is due.
8. STOCK ISSUE
As part of the agreement to purchase the stock of AMF, the Company
agreed to contingent consideration in the event gross sales of AMF
exceed $1,135,000 from the period of January 1, 1997 to January 2,
1998. The Company has agreed to issue a number of its unregistered
common shares, valued at the closing price of its registered shares on
December 31, 1997,
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equal to the sales dollars exceeding the stated amount.
9. CONTINGENCIES
A. Former Distributor
In August 1994, an action was brought by a former distributor alleging
that the Company breached an oral distribution arrangement by
terminating its relationship, refusing to continue to supply it with
the Company's products and by allowing another distributor to sell the
Company's products within its alleged territory.
On July 25, 1997 the Company reached a settlement with the distributor.
The settlement had no material financial impact to the Company and both
parties agreed to release their claims against each other.
B. Former Employees
On March 1, 1996, the Company brought suits against two former
employees alleging that they had breached their agreements with the
Company. The suits seek permanent injunctive relief and damages. On
April 1, 1996 the Company was granted a preliminary injunction in
Vermont Superior Court that prevented the former employees from
pursuing ventures competitive to the Company. A future hearing will
address the permanency of the injunction. Subsequently, both employees
filed counterclaims against the Company seeking monetary damages. The
Company has certain defenses arising out of its claims against the
employees that it will assert when necessary.
On February 24, 1997 the Company reached a settlement with one of the
two former employees involved in ongoing litigation with the Company.
The settlement had no material financial impact on the Company and both
parties agreed to release their claims against each other.
The Company does not anticipate that the outcome of the remaining suit
will have a material financial impact on the Company.
10. SUBSEQUENT EVENT
On August 27, 1997, the Company completed the purchase of all of the
stock of Excelsior Spring Water, of Saratoga, New York. Excelsior
distributes water and coffee to home and commercial accounts in the
southern Vermont, upstate New York, and western Massachusetts and had
sales totaling $2.2 million in 1996 and $2.3 million for the first nine
months of 1997. The assets acquired consisted primarily of bottles,
coolers, vehicles, and customer lists. The purchase price of the
acquisition, which was approximately $3.1 million, was financed
primarily through the acquisition line of credit provided by the
Chittenden Bank and issuance of the Company's common stock.
9
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PART I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto as filed in the Company's Form 10-KSB for
the year ended October 26, 1996.
Forward-Looking Statements
When used in the Form 10-QSB and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result"
and "the Company expects," "will continue," "is anticipated," "estimated,"
"project," or "outlook" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, each of which speak
only as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Among these
risks are water supply and bottling capacity constraints in the face of
significant growth, dependence on outside distributors, and reliance on
commodity price fluctuations as they influence raw material pricing. The Company
has no obligation to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.
Results of Operations
Sales - Sales for the first nine months of fiscal year 1997 were $12,255,738, an
increase of $3,845,175 or 46% over the $8,410,563 reported for the corresponding
period last year. Sales for the quarter ending July 26, 1997 were $5,724,061, an
increase of $898,619 or 19% over the third quarter of fiscal year 1996.
Excluding sales attributable to the western New York division that was acquired
on May 1, 1996, sales in the first nine months of fiscal 1997 were 27% over the
corresponding period last year. Total sales for the new division were $1,594,510
for the nine months ending July 26, 1997.
Sales for retail-size products increased $2,316,739, or 26%, for the first nine
months of fiscal year 1997 and $576,795, or 15%, for the third quarter of fiscal
year 1997, compared to the respective periods a year ago. These increases were a
result of volume increases related to the continued growth of both the Vermont
Pure brand and secondary labels. Sales growth is a result of increased
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market penetration, development of new markets, and new product sizes. Average
selling price for the first nine months of fiscal year 1997 was up 2% from the
previous year. The total increase in sales, by respective percentages for the
nine month and three month periods, was made up of the following factors: 69%
and 30% attributable to Vermont Pure sizes, 16% and 30 % attributable to Hidden
Spring, and 15% and 40% attributable to private labels.
Sales for the home and office division increased $1,533,654 or 91%, for the
first nine months of fiscal year 1997 and $355,493, or 27%, for the third
quarter of fiscal year 1997 compared to the respective periods for the prior
year. A substantial portion of the increase in sales for this division can be
attributed to acquisitions. Exclusive of acquisitions, sales increased 13% for
the nine months and 3% for the third quarter of fiscal year 1997.
Cost of Goods Sold - For the first nine months, Cost of Goods Sold were
$5,361,124 for fiscal year 1997 compared to $4,421,337 in fiscal year 1996
resulting in gross profits of $6,894,614, or 56% of sales, for fiscal year 1997
and $3,989,226, or 47% of sales, for fiscal year 1996. For the third quarter,
Cost of Goods Sold were $2,271,827 in fiscal year 1997, a decrease from
$2,303,620 in fiscal year 1996 resulting in gross profits of $3,452,234, or 60%
of sales, for fiscal year 1997 and $2,521,822, or 52% of sales, for fiscal year
1996. The increase in gross profit for the nine months and third quarter was due
to a considerable increase in sales volume and a decrease in raw material
pricing. During the first half of the fiscal year, the Company completed
installation of a new bottle receiving process and implemented a new bottle
supply agreement resulting in a significant material savings per case for the
quarter over the comparable period last year. However, the Company's bottle
prices are dependant on the market costs of resin, and therefore the stability
of these costs cannot be guaranteed. Significant price fluctuations in the
future could result in corresponding positive or negative effects on cost of
goods sold and gross profit.
Operating Expenses - For the first nine months of fiscal year 1997 compared to
the corresponding period in fiscal year 1996, total operating expenses were
$6,724,197 and $4,781,894, respectively, an increase of $1,942,303 or 41%. For
the third quarter of fiscal year 1997 compared to the third quarter of 1996
operating expenses were $2,828,967 and $2,149,149, respectively, an increase of
$679,818, or 32%. Selling, general and administrative expenses increased by
$1,186,487, or 40%, for the first nine months and $284,432, or 21%, for the
third quarter of fiscal year 1997. The increase in these costs was primarily due
to conversion and operating costs associated with the recent acquisitions. The
Company anticipates that it will continue to work on maximizing the operating
efficiencies of the acquired companies over the next six months. Total selling,
general, and administrative expenses associated with new acquisitions were
approximately $1,035,000 for the first nine months and $373,000 for the third
quarter of fiscal 1997. Exclusive of these amounts, selling, general, and
administrative expenses increased 6% for the nine month period and stayed the
same for the three month period. Advertising expenses increased by $724,976, or
43%, for the nine month period and $401,247, or 54%, for the three month period
compared to the respective corresponding periods of fiscal 1996. The increase in
advertising expenses was due to higher promotional expenses associated with
increased market penetration and introduction of new product sizes. Given the
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competitive nature of the industry, the Company anticipates that it will
continue to spend significant amounts in the future for advertising and
promotion as it continues to develop brand recognition and increase market
penetration.
Profit/Loss From Operations - Profit from operations for the first nine months
of fiscal year 1997 was $170,417 as compared to a loss from operations of
$792,668 for the same period last year, an improvement of $963,085. Profit from
operations for the quarter ending July 26, 1997 was $623,267 compared to
$372,673 for the corresponding period of the prior fiscal year, an increase in
profit of $250,594. The improvement for the nine months and the quarter is
attributable to the increase in sales coupled with a decrease in packaging
costs. The Company plans to continue to create greater consumer awareness and to
find alternate distribution channels for its retail product and expand its home
and office distribution which is a less cyclical business. No assurance can be
given that this plan will be successful.
Other Income/Expense - Net interest expense was $230,939 and $79,068 for the
nine months and third quarter of fiscal year 1997, respectively, compared to
$119,572 and $65,725 for the respective periods in fiscal year 1996. The
increase in interest expense was a result of increased borrowing to fund
operations through a bank line of credit and finance the recent acquisitions.
Net Profit/Loss - The Company's net loss for the first nine months of fiscal
year 1997 was $42,568 compared to $910,301 for the corresponding period last
year, an improvement of $867,733 or 95%. Net profit for the third quarter of
fiscal year 1997 was $560,017 compared to $305,687 for the third quarter of the
previous year.
Liquidity and Capital Resources
Largely as a result of reduction of the net loss, cash flow from operations
showed an improvement for the nine month period as compared to the corresponding
period in fiscal year 1996. The net cash inflow from operations improved to
$1,053,402 from an outflow of $486,054, for those respective periods. The
Company's primary requirements for capital continue to be for the marketing and
promotional activities needed to effect market penetration and expand sales,
acquiring operating assets needed to accommodate the growth of the business, and
scheduled debt repayments. These requirements may result in continued net cash
outflows on a seasonal basis.
As of July 26, 1997, the Company had a working capital deficit of $282,681
compared to positive working capital of $318,642 at the end of its fiscal year
on October 26, 1996. The decrease in working capital of $601,323 reflects,
primarily, the use of cash to purchase equipment, for scheduled debt repayment
and to finance acquisitions and resulting integration costs. As of July 26, 1997
the Company had not borrowed on its line of credit compared to a $441,811
balance at the beginning of the fiscal year. The maximum amount available to
borrow as of that date was $1,500,000, based on the level of receivables and
inventory. The Company pays interest on any outstanding principal at the prime
rate as published in the Wall Street Journal plus .50%, which was 9.00% per
annum on
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September 5, 1997. The loan facility is secured by all the inventory,
receivables and intangible assets of the Company and expires June 1, 1999. In
addition, Chittenden Bank's commitment included availability of $2,500,000 to
finance acquisitions under the same terms and interest rate.
The Company borrowed $675,000 during the fiscal year from Chittenden Bank in
connection with the acquisition of stock and assets of A.M. Fridays and
Greatwater Refreshment Services. In addition to the note, the Company issued
note payables to the former owners of the acquired companies aggregating
$375,000, payable over the next five years, at the Company's current borrowing
rate.
The Company has reduced its cash usage over the last year. The Company
anticipates that its working capital position will improve in future quarters
and is adequate to fund operations though it may become necessary for it to draw
down its available line of credit or seek additional sources of working capital
in the future. If the later is the case, no assurances can be given that the
Company will find a source to provide additional working capital under terms
acceptable to the Company.
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PART II - Other Information
Item 1 - Legal Proceedings
An action entitled, S&S Beverage Distributors v. Vermont Pure Springs,
Inc., was commenced by the plaintiff, S&S Distributors ("S&S"), in
August 1994 in the Supreme Court of the State of New York, Suffolk
County, Index No. : 94-20978 (the "S&S Action"). S&S alleges that the
Company breached an oral distribution arrangement by terminating its
relationship with S&S, refusing to continue to supply S&S with the
Company's products and by allowing another distributor to sell the
Company's product within its alleged territory.
On July 25, 1997 the Company reached a settlement with S&S. The
settlement resulted in no material financial impact to the Company and
both parties agreed to release their claims against each other.
Item 2 - Changes in Securities
(a) None
(b) None
(c) As part of the agreement to purchase the stock of AMF, the Company
agreed to contingent consideration in the event gross sales of AMF
exceed $1,135,000 from the period of January 1, 1997 to January 2,
1998. The Company has agreed to issue a number of the its unregistered
common shares, valued at the closing price of its registered shares on
December 31, 1997, equal to the sales dollars exceeding the stated
amount.
Item 3 - Defaults upon Senior Securities
None
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Item 4 - Submission of Matters to a Vote of Security Holders
On June 11, 1997 the Company held its annual shareholders meeting at
1:30 P.M. at Vermont Technical College in Randolph, Vermont. The only
matter of business was the election of directors. A total of 8,163,738
votes were cast and the following directors were elected and the
respective vote tally:
Director "For" Against
Frank McDougall 8,128,768 34,970
Tim Fallon 8,152,018 11,720
Robert Getchell 8,152,018 11,720
David Preston 8,152,018 11,720
Norman Rickard 8,152,018 11,720
Beat Schlagenhauf 8,152,018 11,720
Richard Worth 8,152,018 11,720
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
Exhibit # Description
10.1 Stock Purchase Agreement between Vermont Pure Springs, Inc.and
Carolyn Howard relating to the capital stock of A.M. Fridays,
Inc. dated July 16, 1997.
10.2 Loan agreement Between Vermont Pure Springs and Vermont Pure
Holdings and Chittenden Bank effective June 20, 1997 regarding
an operating line of credit and acquisition line of credit.
10.3 Promissory Note Between Vermont Pure Springs and Vermont Pure
Holdings and Chittenden Bank dated July 17, 1997 regarding an
acquisition line of credit.
10.4 Commercial Security Agreement between Vermont Pure Springs and
Vermont Pure Holdings and Chittenden Bank dated July 17, 1997
regarding the acquisition line of credit.
27.1 Financial data schedule
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: September 5, 1997
Randolph, Vermont
VERMONT PURE HOLDINGS, LTD.
By:
Bruce S. MacDonald
Vice President, Chief Financial Officer
(Principal Accounting Officer and Principal
Financial Officer)
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EXHIBIT INDEX
Exhibit # Description
10.1 Stock Purchase Agreement between Vermont Pure Springs, Inc.and
Carolyn Howard relating to the capital stock of A.M. Fridays,
Inc. dated July 16, 1997.
10.2 Loan agreement Between Vermont Pure Springs and Vermont Pure
Holdings and Chittenden Bank effective June 20, 1997 regarding
an operating line of credit and acquisition line of credit.
10.3 Promissory Note Between Vermont Pure Springs and Vermont Pure
Holdings and Chittenden Bank dated July 17, 1997 regarding an
acquisition line of credit.
10.4 Commercial Security Agreement between Vermont Pure Springs and
Vermont Pure Holdings and Chittenden Bank dated July 17, 1997
regarding the acquisition line of credit.
27.1 Financial data schedule
17
STOCK PURCHASE AGREEMENT
Between
VERMONT PURE SPRINGS, INC.
and
CAROLYN HOWARD
Relating to the
Capital Stock of
A.M. FRIDAYS, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I - REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF THE STOCKHOLDER..............................................................................................-1-
<S> <C>
1.1 Organization.........................................................................-2-
1.2 Subsidiaries; Partnerships...........................................................-2-
1.3 Authority............................................................................-2-
1.4 Capital Structure....................................................................-2-
1.5 Financial Statements.................................................................-3-
1.6 Material Changes since March 31, 1997................................................-3-
1.7 Availability of Assets and Legality of Use...........................................-3-
1.8 Accounts Receivable..................................................................-4-
1.9 Real Property and Leases.............................................................-4-
1.10 Organizational Documents.............................................................-4-
1.11 Material Contracts and Leases........................................................-4-
1.12 Insurance............................................................................-4-
1.13 No Undisclosed Liabilities...........................................................-5-
1.14 Litigation and Claims................................................................-5-
1.15 Tax Liabilities......................................................................-5-
1.16 Employee Agreements..................................................................-5-
1.17 Employee Relations...................................................................-5-
1.18 Benefit Plans........................................................................-6-
1.19 Conflicts............................................................................-7-
1.20 Corporate Name.......................................................................-7-
1.21 Trademarks and Proprietary Rights....................................................-7-
1.22 Brokers..............................................................................-7-
1.23 No Omissions.........................................................................-7-
ARTICLE II REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE
BUYER...........................................................................................................-8-
2.1 Organization.........................................................................-8-
2.2 Authority............................................................................-8-
2.3 Brokers..............................................................................-8-
2.4 No Omissions.........................................................................-8-
2.5 Financial Ability....................................................................-8-
2.6 Conduct After Execution..............................................................-9-
2.7 Acceleration.........................................................................-9-
ARTICLE III - ADDITIONAL COVENANTS OF THE STOCKHOLDER AND THE
BUYER...........................................................................................................-9-
3.1 Non-Competition......................................................................-9-
3.2 Use of Trademarks...................................................................-10-
<PAGE>
3.3 Use of Names........................................................................-10-
------------
3.4 Additional Tax Information..........................................................-10-
--------------------------
3.5 Certain Tax Matters.................................................................-10-
-------------------
ARTICLE IV - ACTION PRIOR TO THE CLOSING DATE.........................................................-11-
4.1 Confidential Nature of Information..................................................-11-
4.2 Accuracy of Representations and Warranties..........................................-11-
4.3 No Material Change in the Company...................................................-11-
4.4 No Public Announcement..............................................................-12-
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
BUYER..........................................................................................................-12-
5.1 No Misrepresentation or Breach of Covenants and Warranties..........................-12-
5.2 No Changes in or Destruction of Property............................................-12-
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
STOCKHOLDER....................................................................................................-12-
ARTICLE VII - PURCHASE PRICE AND CLOSING..............................................................-13-
7.1 Closing.............................................................................-13-
7.2 Purchase and Sale...................................................................-13-
7.3 Deliveries by the Stockholder.......................................................-13-
7.4 Deliveries of the Buyer.............................................................-15-
ARTICLE VIII - SURVIVAL OF OBLIGATIONS; INDEMNIFICATION...............................................-15-
8.1 Survival of Obligations.............................................................-15-
8.2 Indemnification.....................................................................-15-
ARTICLE IX - MISCELLANEOUS............................................................................-17-
9.1 Notices.............................................................................-17-
9.2 Governing Law.......................................................................-17-
9.3 Successors and Assigns..............................................................-18-
9.4 Severability........................................................................-18-
9.5 Expenses............................................................................-18-
9.6 Titles and Headings.................................................................-18-
9.7 Schedules...........................................................................-18-
9.8 Entire Agreement; Amendments and Waivers............................................-18-
9.9 No Assignment.......................................................................-18-
<PAGE>
SCHEDULES
1.1 Jurisdictions of Qualification..................................................................1
1.3 Consents........................................................................................2
1.5 Bank Accounts of the Company....................................................................3
1.7 Assets..........................................................................................5
1.8 Accounts Receivable.............................................................................5
1.9 Real Property...................................................................................5
1.11 Leases..........................................................................................6
1.12 Insurance.......................................................................................6
1.14 Claims..........................................................................................6
1.15 Tax Procedures..................................................................................6
1.16 Employment Agreements...........................................................................7
1.17 Employee Compensation...........................................................................7
1.19 Conflicts.......................................................................................9
1.21 Trademarks and Proprietary Rights..............................................................10
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement, made and entered into this _16_ day of
July, 1997 (the "Agreement") by and among VERMONT PURE SPRINGS, INC., a Delaware
corporation (the "Buyer"), and CAROLYN HOWARD, an individual (the "Stockholder")
and A.M. FRIDAYS, INC., a New Hampshire corporation (the "Company"), all of the
issued and outstanding capital stock (the "Stock") of which is owned by the
Stockholder.
WITNESSETH:
WHEREAS, the Company is engaged in the business of home and office
delivery of water products, vending machines, and coffee/tea products;
WHEREAS, the Stockholder desires to sell the Stock to the Buyer
pursuant to the terms and conditions set forth in this Agreement; and
WHEREAS, the Buyer desires to purchase the Stock from the Stockholder
on the terms and conditions set forth in this Agreement,
NOW, THEREFORE, the Buyer and the Stockholder, in consideration of the
agreements, covenants and conditions contained herein, hereby make the following
representations and warranties, give the following covenants and agree to be
legally bound hereby as follows:
ARTICLE I
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF THE STOCKHOLDER
As an inducement to the Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, the Stockholder represents and
warrants to the Buyer and agrees as set forth in this Article I. The
representations and warranties of the Stockholder are qualified by the
information set forth in the Schedules referred to in this Article I. Buyer
acknowledges and agrees that apart from the representations and warranties of
the Stockholder contained in this Agreement, the Stockholder and representatives
of the Stockholder have made no further or additional representations or
warranties.Buyer acknowledges and agrees that apart from the representations and
warranties of the Stockholder contained in this Agreement, the Stockholder and
representatives of the Stockholder have made no further or additional
representations or warranties.
1.1 Organization. The Stockholder is an individual. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New Hampshire and is duly qualified to transact business as a
foreign corporation and is in good standing as such in the jurisdictions listed
on Schedule 1.1 hereto, which are the only jurisdictions in which the failure to
so qualify would have a material adverse effect on the business or financial
condition of
<PAGE>
the Company. The Company has the corporate power and authority and other
authorizations necessary or required in order for it to own or lease and operate
its properties and to carry on its businesses as now conducted.
1.2 Subsidiaries; Partnerships. The Company does not own any
interest in any other corporation, partnership, joint venture or other entity.
1.3 Authority. The Stockholder has the authority to execute,
deliver and perform its obligations under this Agreement. This Agreement, when
executed and delivered by the Stockholder and assuming the due execution hereof
by the Buyer, will constitute the valid, legal and binding agreement of the
Stockholder enforceable in accordance with its terms. Except as described on
Schedule 1.3 hereof, no consent, authorization, approval, order, license,
certificate or permit of or from or declaration or filing with, any Federal,
state, local or other governmental authority or any court or other tribunal
(collectively, the "Governmental Consents") is required in connection with the
execution, delivery or performance of this Agreement by the Stockholder. Except
as described on Schedule 1.3, no consent of any affiliate of the Company or the
Stockholder or of any party to any, contract, agreement, instrument, lease,
license, arrangement or understanding to which the Company is a party, or to
which any of its properties or assets is subject (the "Stockholder's Contractual
Consents"), is required for the execution, delivery or performance of this
Agreement by the Stockholder. The execution, delivery and performance by the
Stockholder does not (if the Governmental Consents and the Stockholder's
Contractual Consents referred to in Schedule 1.3 hereof have been obtained prior
to the Closing) (I) violate, result in a breach of, conflict with or (with or
without the giving of notice or the passage of time or both) entitle any party
to terminate, modify or otherwise change, in any material respect, the rights or
obligations of the parties thereunder or call a default under any such contract,
agreement, instrument, lease, license, arrangement, or understanding, (ii)
violate or result in a material breach of any term of the certificate of
incorporation or other organizational documents or by-laws of the Company, or
the Stockholder, or (iii) violate, result in a breach of or conflict, in any
material respect, with any law, rule, regulation, order, judgment or decree
binding the Company or the Stockholder, or to which any of their respective
operations, businesses, properties, or assets are subject.
1.4 Capital Structure. The authorized capital stock of the
Company consists of 1000 authorized shares of common stock at no par value per
share, of which 100 shares are issued and outstanding (and none of which is held
by the Company as treasury stock). Except for this Agreement, there are no
agreements, arrangements, options, warrants or rights or commitments of any
character relating to the issuance, sale, purchase or redemption of any shares
of capital stock of the Company. There is outstanding no security or other
investment convertible into or exchangeable for capital stock of the Company.
Each of such outstanding shares of Stock is validly authorized, validly issued,
fully paid and nonassessable, has not been issued and is not owned or held in
violation of any preemptive right; and is owned of record and beneficially by
the Stockholder, free and clear of any liens, security interests, pledges,
charges, encumbrances, stockholders' agreements, voting trusts or restrictions
of any kind and the transfer and delivery
2
<PAGE>
of the Stock to the Buyer by the Stockholder as contemplated by this Agreement
will be sufficient to transfer good and marketable record and beneficial title
and ownership to such Stock to the Buyer free and clear of liens, claims,
encumbrances and restrictions of any kind.
1.5 Financial Statements. The Stockholder has furnished to the
Buyer the audited consolidated balance sheets of the Company for the years ended
December 31, 1995 and 1996 and the related statements of operations, statements
of shareholder's equity and statements of cash flows for the periods then ended,
including the notes thereto (the 1995-1996 statements are collectively defined
as the "Financial Statements") and the unaudited financial statements (balance
sheet and profit and loss statement) at and for the period ended March 31, 1997
(the "March 31 Balance Sheet"). The Financial Statements and the March 31, 1997
Balance Sheet fairly present the respective financial positions of the Company
as of the respective dates thereof and the results of operations for the
respective periods covered thereby, and the Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout all periods and in accordance with the books and
records of the Company.
There is set forth on Schedule 1.5 hereto a correct and complete
list of all (I) accounts, borrowing resolutions and deposit boxes maintained by
the Company at any bank or other financial institution (ii) the names of the
persons authorized to sign or otherwise act with respect thereto, and (iii)
powers of attorney for the Company.
1.6 Material Changes since March 31, 1997. To the best of the
Stockholder's knowledge, since March 31, 1997, the business of the Company has
been operated only in the ordinary course and, whether or not in the ordinary
course of business other than as disclosed in this Agreement or the Schedules
referred to herein there has not been, occurred or arisen (i) any Material
adverse change in the financial condition of the Company from that shown on the
March 31 Balance Sheet; (ii) any damage or destruction in the nature of a
casualty loss, whether covered by insurance or not, to any property or business
of the Company; (iii) any amendment or termination of any agreement other than
in the ordinary course of business, or cancellation or Material reduction of any
debt owing to the Company or waiver or relinquishment of any right of Material
value to the Company; or (iv) any other event or condition which Materially and
adversely affects the results of operations or business, financial condition or
property of the Company ("Material" to be defined as any transaction or event
with a balance sheet effect in excess of $12,000).
1.7 Availability of Assets and Legality of Use. Except as
specified in Schedule 1.7, the assets owned or leased by the Company constitute
all of the assets which are being used in their businesses, and, to the best of
the Stockholder's knowledge, after due inquiry of the Company's Senior Officers,
such assets are in good and serviceable condition (normal wear and tear
excepted) and suitable for the uses for which intended and such assets and their
uses conform in all Material respects to all applicable laws; and except as
specified in Schedule 1.7, the Company has title to, or valid leasehold
interests in, all of their respective properties and assets, including those
reflected on the March 31 Balance Sheet (other than those disposed of for fair
3
<PAGE>
value in the ordinary course of business) which at Closing will be free and
clear of all liens, mortgages, security interests, pledges, charges and
encumbrances.
1.8 Accounts Receivable. All accounts receivable reflected on
the March 31 Balance Sheet for the Company and not collected at the date hereof,
have arisen from bona fide transactions in the ordinary course of the Company's
business. Except as set forth in Schedule 1.8, none of such receivables is
subject to counterclaims, set-offs or is in dispute and all of such accounts are
good and collectible in the ordinary course of business at the aggregate
recorded amounts thereof, subject to the allowance for possible losses shown on
such March 31 Balance Sheet.
1.9 Real Property and Leases. The Company does not own any
real property. Attached hereto as Schedule 1.9 are true, correct and complete
copies of every lease or agreement under which the Company is lessee or
sublessee of, or holds or operates, any real property or personal property owned
by any third party. Each of such leases and agreements is in full force and
effect and constitutes a legal, valid and binding obligation of the Company and,
to the best of the Stockholder's knowledge, after due inquiry of the Company's
Senior Officers, the other parties thereto. The Company is not in default in any
Material respect under any such lease or agreement nor, to the best of the
Stockholder's knowledge has any event occurred which with the passage of time or
giving of notice or both would constitute such a default. Except as set forth on
Schedule 1.9, none of such leases or agreements requires the consent of any
party thereto to the transactions contemplated by this Agreement.
1.10 Organizational Documents. The Company has delivered to
the Buyer the Certificate of Incorporation and Bylaws of the Company, as
presently in effect, certified by the Secretary of the Company. The stock
ledgers and stock transfer books and the minute book records of the Company
relating to all issuances and transfers of stock by the Company and all formal
proceedings of the Stockholder and the Board of Directors of the Company since
their respective incorporations made available to the Buyer are the original
stock ledgers and stock transfer books and minute book records of the Company or
exact copies thereof.
1.11 Material Contracts and Leases. True, correct and complete
copies of every Material contract, agreement, lease or other obligation or
commitment under which the Company, is the obligor, lessor or sublessor have
been made available to the Buyer and attached hereto as Schedule 1.11. Each of
such agreements and leases is in full force and effect and constitutes a legal,
valid and binding obligation of the parties thereto and is enforceable in
accordance with its terms except as enforcement of such agreement may be
limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights generally. Neither the Company nor the other parties to such agreements
and leases are in default under any such lease or agreement in any Material
respect as it relates to the Company nor to the best of the knowledge of the
Stockholder after due inquiry of the Company's Senior Officers, has any event
occurred which with the passage of time or the giving of notice or both would
constitute such a Material default.
4
<PAGE>
1.12 Insurance. Attached hereto as Schedule 1.12 is a list and
an accurate description of all policies of insurance that are held or maintained
by or for the benefit of the Company as of the date hereof (including policy
numbers, nature of coverage, limits, deductibles, carriers, premiums and
effective and termination dates) The Company has complied with each of such
policies and has not failed to give any notice or present any known claim
thereunder. The Company has not received, and no event or omission within the
control of the Company has occurred which may cause it to receive notice that
any such policies will be canceled or will be reduced in amount or scope. True
and complete copies of all such policies have been delivered to the Buyer.
1.13 No Undisclosed Liabilities. The Company is not subject to
any Material liability (including unasserted claims), absolute or contingent,
which is not shown or which is in excess of amounts shown or reserved for in the
March 31 Balance Sheet other than liabilities of the same nature as those set
forth on the March 31 Balance Sheet and reasonably incurred in the ordinary
course of business after March 31, 1997.
1.14 Litigation and Claims. Except as set forth on Schedule
hereto, there are no lawsuits, proceedings, claims, governmental or other
proceedings (formal or informal) or investigations pending or threatened with
respect to the Company or its businesses, properties or assets which may
reasonably be expected to have a Material adverse effect on the Company.
1.15 Tax Liabilities. Schedule 1.15 sets forth a correct
description of the procedures followed with respect to all payments by the
Company to the Stockholder in connection with taxes, including any amounts paid
in 1997, the dates of such payments and any amounts remaining to be paid in
respect of any period prior to the Closing Date. The amounts reflected as
liabilities for taxes on the March 31 Balance Sheet are sufficient for the
payment of all unpaid Federal, state, county, local and foreign taxes of the
Company accrued and applicable to the period ended on such balance sheet date
and all years and periods prior thereto.
1.16 Employee Agreements. Attached hereto as Schedule 1.16 is
a true, correct and complete list of all employee benefit plans, contracts, and
arrangements, oral or written, including, but not limited to, union contracts,
employee benefit plans and severance plans, whereunder the Company has any
obligation (other than the obligation to make current wage or salary payments
terminable on notice of 30 days or less or normal policies concerning holidays,
vacations and salary continuation during short absence for illness or other
reasons) to or on behalf of its officers, employees or their beneficiaries or
whereunder any of such persons owes money to the Company.
1.17 Employee Relations. The Company has not engaged in any
unfair labor practice, unlawful employment practice or unlawful discriminatory
practice in the conduct of its respective businesses. The Company has complied
in all Material respects with all applicable laws, rules and regulations
relating to wages, hours and collective bargaining and have withheld all amounts
required to be withheld from the wages or salaries of employees. The Company is
not a party to or threatened with or in danger of being a party to any labor
dispute which would Materially
5
<PAGE>
interfere with the conduct of their businesses. Set forth on Schedule 1.17
hereto is the name and total annual compensation (including bonuses) paid by the
Company or the Subsidiary to current active employees during the year ended
December 31, 1996 and the annual compensation payable for 1997.
1.18 Benefit Plans. Schedule 1.18 contains a list of any
"employee pension benefit plan" or "employee welfare benefit plan" within the
meaning of Sections 3(1) and 3(2) of the Employee Retirement Income Security Act
of 1974, as amended, ("ERISA") established or maintained by the Company to which
the Company has made any contributions in 1996 or 1997 (collectively the
"Employee Benefit Plans"). The Company is not required, or was not required
within the immediately preceding five years, to make any contribution to any
"multiemployer plan" within the meaning of Section 3(7) of ERISA. The Company
does not have any liability in respect of any employee pension benefit plans
established or maintained and to which contributions are or were made by it to
the Pension Benefit Guaranty Corporation ("PBGC").
Schedule 1.18 also lists each deferred compensation plan, bonus
plan, stock option plan, employee stock purchase plan and any other employee
benefit plan, agreement, arrangement or commitment not required under the
preceding paragraph to be listed on Schedule 1.18 (other than normal policies
concerning holidays, vacations and salary continuation during short absences for
illness or other reasons) maintained by the Company.
Except as set forth on Schedule 1.18, (a) no employee pension
benefit plan, as defined in Section 3(2) of ERISA, maintained or contributed to
by the Company or in respect of which the Company is considered an "employer"
under Section 414 of the Internal Revenue Code of 1986, as amended (the "Code"),
(i) has incurred any "accumulated funding deficiency," as defined in Section 412
of the Code (whether or not waived), or (ii) has incurred any liability to PBGC,
and (b) the Company has not breached any of the responsibilities, obligations or
duties imposed on it by ERISA or the Code with respect to any employee pension
benefit plan or employee welfare benefit plan maintained by it, which breach has
given rise to, or may in the future give rise to, an obligation to pay money,
including the obligation to make any required contribution to any employee
pension benefit plan for any plan year ending prior to the Closing Date. There
is no contribution due for any pension plan for the year in which the Closing
occurs. Except as set forth on Schedule 1.18, neither the Company nor any of its
affiliates or any "party in interest," as defined in Section 3(14) of ERISA, in
respect of any such plan has engaged in any non-exempted prohibited transaction
described in Sections 406 and 408 of ERISA or Section 4975 of the Code which
would result in a Material adverse effect on the Company. Except as set forth on
Schedule 1.18, no reportable event, as defined in Section 4043 of ERISA, has
occurred with respect to any employee pension benefit plan maintained or
contributed to by the Company or in respect of which the Company is an employer
under Section 414 of the Code; and none of such plans has been terminated by the
plan administrator thereof or by the PBGC. The Company has not incurred any
unpaid liability for any pension plan covered under ERISA.
With respect to any employee pension benefit plan or employee
welfare benefit plan
6
<PAGE>
maintained by the Company, no action, suit, grievance, arbitration or other
manner of litigation, or claim with respect to the assets of the plan (other
than the routine claims for benefits made in the ordinary course of plan
administration for which plan administrative review procedures have not been
exhausted) are pending, threatened or imminent against or with respect to the
plan, the Company, or fiduciary (as defined in ERISA ss.3(21)) of the plan
(including any action, suit, grievance, arbitration or other manner of
litigation, or claim regarding conduct which allegedly interferes with the
attainment of rights under the plan), and the Stockholder has no knowledge of
any facts which would give rise to or could give rise to any action, suit,
grievance, arbitration or other manner of litigation, or claim.
1.19 Conflicts. There are (a) no Material situations involving
the interests of the Stockholder (except as listed on Schedule 1.16 or Schedule
1.19) or to the best of Stockholder's knowledge any officer or director of the
Company which may be generally characterized as a "conflict of interest,"
including but not limited to, the leasing of property to or from the Company or
significant direct or indirect interests in the business of competitors,
suppliers or customers of the Company.
1.20 Corporate Name. The Company owns and possesses, to the
exclusion of the Stockholder and its affiliates, all rights to the use of the
names"A.M.Fridays" and "Four Seasons Spring Water" including, but not limited
to, the right to use such names in advertising and neither the Company nor the
Stockholder has licensed either name to any party.
1.21 Trademarks and Proprietary Rights. All trademarks, trade
names, copyrights and applications therefor which are owned or exclusively used
or registered in the name of or licensed to the Company are listed and briefly
described on Schedule 1.21. Other than as specified on Schedule 1.21, no
proceedings have been instituted or are pending or threatened which challenge
the validity of the ownership by the Company of any such trademarks, trade
names, copyrights or applications. The Company has not licensed anyone to use
any of the foregoing or any other technical know-how or other proprietary rights
of the Company and the Stockholder has no knowledge of the infringing use of any
of such trademarks and trade names or the infringement of any such copyrights by
any person except as set forth on Schedule 1.21. The Company owns all
trademarks, trade names, copyrights, processes and other technical know-how and
other proprietary rights now used in the conduct of its business and has not
received any notice of conflict with the asserted rights of others except as
specified in Schedule 1.21.
1.22 Brokers. Neither the Company nor the Stockholder has paid
or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions provided for in this
Agreement. Neither the Company nor the Stockholder has any agreement or
obligation whatsoever with entities other than the Buyer regarding any proposed
acquisition of the Company by any such entity and neither of them is engaged in
any negotiations with any such entity for any such acquisition.
1.23 No Omissions. None of the representations or warranties
of the Stockholder
7
<PAGE>
contained herein and, none of the information contained in the Schedules
referred to in this Article I is false or misleading in any Material respect or
omits to state a fact herein or therein, necessary to make the statements herein
or therein in the circumstances in which they were made not misleading in any
Material respect.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE BUYER
As an inducement to the Stockholder to enter into this Agreement
and to consummate the transactions contemplated herein, the Buyer represents and
warrants to the Stockholder and agrees as follows:
2.1 Organization. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
2.2 Authority. This Agreement and the transactions
contemplated herein have been duly approved by all necessary corporate action
on the part of the Buyer. This Agreement, when executed and delivered by the
Buyer, and assuming due execution hereof by the Stockholder will constitute the
valid and binding agreement of the Buyer enforceable in accordance with its
terms. Neither the execution nor the delivery of this Agreement, nor the
consummation of the transactions contemplated herein, nor compliance
with nor fulfillment of the terms and provisions hereof, will (i) conflict
with or result in a breach of the terms, conditions or provisions of or
constitute a default under the governing instruments of the Buyer, any
instrument, mortgage, agreement, judgment, order, award, decree or other
restriction to which the Buyer is a party or by which the Buyer is bound or any
statute or regulatory provisions affecting it or (ii) require the approval,
consent, or authorization of or any filing with or notification to any
Federal, state or local court, governmental authority or regulatory body.
The Buyer has full power and authority to purchase the Stock pursuant to this
Agreement and to do and perform all acts and things required to be done by the
Buyer under this Agreement.
2.3 Brokers. Neither the Buyer nor its representatives has
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions provided for in this
Agreement.
2.4 No Omissions. None of the representations or warranties
of the Buyer contained herein and none of the other information or documents
furnished to the Stockholders or the Company by the Buyer or its representatives
in connection with this Agreement is false or misleading in any Material respect
or omits to state a fact herein or therein necessary to make the statements
herein or therein not misleading in any Material respect; to the best knowledge
of the Buyer, there is no fact which adversely affects, or in the future is
likely to adversely affect, the business or assets of the Buyer in any Material
respect which has not been disclosed in writing to the Stockholder or the
Company.
8
<PAGE>
Financial Ability. The Buyer has the financial resources and
ability to meet each of its obligations under this Agreement, whether due at
Closing or after Closing, in a timely manner and without default.
2.6 Conduct After Execution. From the date hereof, subject
otherwise to the terms and conditions of this Agreement, Buyer shall do nothing
to jeopardize the transactions contemplated by this Agreement, or fail to take
any action necessary in order to consummate the transactions contemplated by
this Agreement.
2.7 Acceleration. Upon the sale of any of the stock of the Company,
or all or substantially all of the assets of the Company, all obligations of
Buyer to the Stockholder, including but not limited to the Note, Non-Competition
Agreement, Employment Agreement or Consulting Agreement, shall be accelerated
and become immediately due and payable.
ARTICLE III
ADDITIONAL COVENANTS OF THE STOCKHOLDER AND THE BUYER
3.1 Non-Competition.
(a) In furtherance of the sale of the Stock to the Buyer,
upon the consummation of the transactions contemplated herein and more
effectively to transfer and protect the business of the Company, the Stockholder
agrees that for a period ending on the fifth anniversary of the date hereof, she
will not (I) directly or indirectly own, manage or operate a home and office
water delivery business anywhere in New York, Vermont, New Hampshire, Maine,
Massachusetts, Rhode Island, and Connecticut, and any other state in which
the Company presently conducts its business, that sells to any of the Company's
existing customers; provided that ownership of not more than five percent
(5%) of the issued and outstanding shares of a class of securities of a
corporation, the securities of which are traded on a national securities
exchange or in the over-the-counter market, shall not be deemed ownership of
the issuer of such shares for the purposes of this paragraph; or (ii) induce
or attempt to persuade any employee or agent of the Company to terminate such
employment or agency relationship in order to enter into any such relationship
with the Stockholder or any of its subsidiaries or affiliates or to enter into
any such relationship on behalf of any other business organization in
competition with the Company or the Buyer.
(b) Without limiting the right of the Buyer and any of
its successors or assigns to pursue all other legal and equitable rights
available to them for violation of the covenant set forth in Section 3.1(a)
above by the Stockholder, it is agreed that other remedies cannot fully
compensate the Buyer and its successors and assigns for such a violation
and that the Buyer and its successors and assigns shall be entitled to
injunctive relief to prevent violation or continuing violation hereof. It is
the intent and understanding of each party hereto that if, in any action
before any court or agency legally empowered to enforce this covenant, any term,
restriction, covenant or promise is found to be unreasonable and for that reason
unenforceable, then such
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term, restriction, covenant or promise shall be deemed modified to the extent
necessary to make it enforceable by such court or agency.
3.2 Use of Trademarks. From the date hereof, neither the
Stockholder nor any stockholder, director, employee or officer of the
Stockholder shall have the right to use any of the trademarks, trade names,
or applications therefor heretofore exclusively used or owned by the Company
or to use any trademarks or trade names similar thereto or designs imitative
thereof except as officers or agents of the Company in connection with its
business prior to the Closing. From the date hereof, neither the Stockholder nor
any stockholder, director, employee or officer of the Stockholder shall have any
right to use or to disclose, except in the ordinary course of business of the
Company, to any person, firm or corporation other than the Buyer, its employees,
agents and representatives, any
trade or business secrets or client lists or other proprietary information of
the Company.
3.3 Use of Names. From the Closing Date, the Stockholder and
its successors, assigns and affiliates, shall not use the names "A.M.Fridays"
and "Four Seasons Spring Water".
3.4 Additional Tax Information. The Stockholder agrees to
deliver promptly to the Buyer any copies of information in the Stockholder's
possession reasonably requested by the Buyer in connection with any tax
returns relating to the Company (whether filed prior to the Closing or to
be filed hereafter). The Stockholder shall have access to such records of the
Company as shall reasonably be required to enable the Stockholder to prepare
any tax returns for periods ending on or before the Closing.
3.5 Certain Tax Matters. The Stockholder shall pay all
Federal, state and local taxes, including without limitation, income,
profits, occupation, excise, property, sales, use and franchise taxes and
including interest and penalties on, based on, measured by or with respect to
the income, net worth or capital of the Company (the "Taxes") for all taxable
periods up to and including the Closing Date.
Within thirty (30) days after the filing of any tax return relating
to the Company with respect to a tax period commencing before the Closing Date,
and ending after the Closing Date, the Stockholder shall pay to the Buyer its
appropriate share of such Taxes in an amount equal to the Taxes, if any, that
would have been due if such tax period had ended on the Closing Date, less any
estimated taxes previously paid by the Stockholder or its affiliates for such
period.
The Stockholder shall file, or cause the Company to file, all tax
returns required to be filed on or before the Closing Date with respect to the
Company (and amendments thereof) and all tax returns (and amendments thereof)
with respect to Taxes on income for tax periods ending on or before the Closing
Date. The Buyer shall file or cause the Company to file, all tax returns
required to be filed after the Closing Date with respect to the Company, other
than tax returns with respect to Taxes for tax periods ending on or before the
Closing Date.
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ARTICLE IV
ACTION PRIOR TO THE CLOSING DATE
The parties hereto agree to take the following actions between the
date hereof and the Closing Date:
4.1 Confidential Nature of Information. The Buyer and the
Stockholder agree that, in the event that the transactions contemplated herein
shall not be consummated, each will treat in confidence all documents,
Materials and other information which it shall have obtained during the course
of the negotiations leading to the execution of this Agreement, the
investigation of the other party hereto and the preparation of this Agreement
and any other documents relating hereto, and shall return to the other party
all copies of non-public documents and Materials which have been furnished in
connection therewith.
4.2 Accuracy of Representations and Warranties. The
Stockholder shall refrain from intentionally taking any action and shall cause
the Company to refrain from intentionally taking any action which would render
any representation and/or warranty contained in Article I of this Agreement
inaccurate at any time between the date hereof and the Closing Date. The
Stockholder will promptly notify the Buyer of any lawsuits, claims, proceedings
or investigations that, to the knowledge of the Stockholder, may be brought,
asserted or commenced against the Company, its officers or directors, or the
Stockholder.
4.3 No Material Change in the Company. Prior to the Closing
Date, the Stockholder shall not, without the prior written approval of the
Buyer, cause the Company to (i) make any Material change in the business or
operations of the Company; (ii) make any Material change in the accounting
policies applied in the preparation of the financial statements referred to
herein; (iii) declare any dividends on its issued and outstanding shares
of capital stock, or make any other distribution of any kind in respect
thereof; (iv) issue, sell or otherwise distribute any authorized but unissued
shares of its capital stock or effect any stock split or reclassification of
any such shares or grant or commit to grant any option, warrant or other rights
to subscribe for or purchase or otherwise acquire any shares of capital stock
of the Company or any security convertible or exchangeable for any such shares;
(v) purchase or redeem any of the capital stock of the Company; (vi) incur
or be liable for indebtedness to the Stockholder or any of its subsidiaries,
or affiliates other than in the ordinary course of business; (vii) make any
Material change in the base compensation of officers or key employees of the
Company; (viii) enter into any contract, license, franchise or commitment
other than in the ordinary course of business, or waive any rights of
substantial value; or (ix) enter into any other transaction affecting in
any Material respect the
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business of the Company other than in the ordinary course of business and in
conformity with past practices, or as contemplated by this Agreement.
4.4 No Public Announcement. Neither the Stockholder nor the
Buyer shall, without the approval of the other, make any press release or other
public announcements or filing concerning the transactions contemplated by this
Agreement, except as and to the extent that any such party shall be so obligated
by law, in which case the other party shall be advised thereof and given an
opportunity to comment thereon.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER
The obligations of the Buyer under this Agreement to purchase and
pay for the Stock shall, at the option of the Buyer, be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:
5.1 No Misrepresentation or Breach of Covenants and Warranties.
There shall have been no Material breach by the Stockholder in the performance
of any of its covenants and agreements herein, each of the representations and
warranties of the Stockholder contained in this Agreement shall be true and
correct in all Material respects on the Closing Date as though made on the
Closing Date and there shall have been delivered to the Buyer a certificate or
certificates to that effect, dated the Closing Date and signed by the
Stockholder.
5.2 No Change in or Destruction of Property. There shall have
been, between the date hereof and the Closing Date, no Material adverse change
in the condition, financial or otherwise, of the Company or any of its assets.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER
The obligations of the Stockholder under this Agreement to deliver
the Stock shall, at the option of the Stockholder, be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:
There shall have been no Material breach by the Buyer in the
performance of any of its covenants and agreements herein, each of the
representations and warranties of the Buyer contained or referred to in this
Agreement shall be true and correct in all Material respects on the Closing Date
as though made on the Closing Date and there shall have been delivered to the
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Stockholder a certificate or certificates to that effect, dated the Closing Date
and signed on behalf of the Buyer by its President.
ARTICLE VII
PURCHASE PRICE AND CLOSING
7.1 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place on or before July 1, 1997 (the "
Closing Date").
7.2 Purchase and Sale.
(a) On the Closing Date, the Stockholder shall sell to
the Buyer the Stock for the following consideration:
(i) cash payable by Buyer in the amount
of $350,000.00 by wire transfer;
(ii) a Note, in the form attached hereto
as Exhibit "A", made by the Buyer in the amount of $300,000.00 for a term of
five (5) years at the rate of interest of eight and one-half percent (8 1/2%)
with equal monthly payments of principal and interest based on an 8 year
amortization and a balloon payment due at the expiration of the term of the
note;
(iii) contingent consideration in the form
of a bonus in the event that gross sales of the Company, for the time period
January 1, 1997 through January 2, 1998, exceeds $1,135,000.00. In the
event the bonus is earned, Vermont Pure Holdings, Ltd. ("VPUR- NASDAQ")
will, on or before February 1, 1998, subject to all applicable SEC regulations,
issue a number of shares of its unregistered common stock whose market price
(based on the closing price of its registered shares on December 31, 1997) is
equal to the dollar total of gross revenues in excess of $1,135,000.00.
(b) In addition to the Purchase Price, the Stockholder
shall enter into with the Company an Agreement in the form attached hereto as
Exhibit "B" embodying (i) a non-compete agreement that will pay Stockholder
compensation of $20,000.00 per year (plus health and welfare benefits covering
Stockholder and her spouse at current levels of coverage) for five (5) years
with the first payment due on the signing of this agreement; (ii) an employment
agreement for six (6) months at an annual compensation rate of $25,000.00
paid bi-weekly; and, (iii) a consulting agreement commencing at the expiration
of the employment period for thirty (30) months at an annual compensation of
$25,000.00 paid bi-weekly.
7.3 Deliveries by the Stockholder. At the Closing, the
Stockholder shall sell, assign, transfer and convey to the Buyer all of the
outstanding capital stock of the Company and shall
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deliver, at the Closing the following:
(a) A certificate or certificates representing all of
the Stock, together with fully executed and witnessed stock powers (in blank)
attached thereto with signatures guaranteed by an institution that is a
participant in the Securities Transfer Agents Medallion Program.
(b) An opinion dated the Closing Date hereof from
counsel for the Stockholder, in form and substance satisfactory to the Buyer and
its counsel, to the effect that:
(i) The Company is a corporation validly
existing and in good standing under the laws of the State of New Hampshire; and
the Company has full corporate power and authority to own or lease and operate
its properties and to carry on its business as now conducted. To the best of
such counsel's knowledge, the Company has no subsidiaries.
(ii) The authorized capital stock of the
Company consists of 1000 authorized shares of common stock, at no par value
per share, of which 100 shares have been issued and are outstanding and
are owned of record by the Stockholder; except for this Agreement, and all of
the issued and outstanding shares of common stock of the Company as of the
Closing are validly issued, fully paid and nonassessable.
(iii) This Agreement has been duly and
validly executed and delivered by the Stockholder and such Agreement, assuming
due execution by the Buyer, is the valid and binding agreement of the
Stockholder enforceable against the Stockholder in accordance with its terms
except as enforcement of such agreement may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally.
(iv) The Stockholder has full power and
authority to execute and deliver the Agreement and to perform its obligations
hereunder. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated herein, (a) violates or conflicts
with or results in the breach of the terms, conditions or provisions of, or
constitutes a default under, the Certificate of Incorporation or the Bylaws
of the Company or any agreement or instrument known to such counsel to which
the Company or the Stockholder is a party or by which either of them is bound
or (b) requires the consent, approval or authorization of or any filing with or
notification to any Federal, state or local court, governmental authority or
regulatory body not already obtained or made, as the case may be.
(v) To the best of such counsel's
knowledge there is no action, suit, proceeding or investigation pending or
threatened against the Stockholder or the Company, other than actions, suits,
proceedings or investigations described in Schedule 1.14, Schedule 1.17 or
Schedule 1.21 hereto, which might result in a Material adverse change in the
properties, business or assets which questions the legality, validity or
propriety of this Agreement or of any action taken or to be taken by the
Stockholder pursuant to or in connection with this Agreement.
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(vi) The Stockholder is the lawful owner
of the Stock, to the best of such counsel's knowledge, free and clear of
all adverse claims, with unrestricted right and power to transfer and deliver
the Stock to the Buyer. The Stockholder has executed and delivered to the
Buyer such instruments as are sufficient in form to vest good and marketable
title to the Stock in the Buyer free and clear of all adverse claims.
In giving such opinion, counsel for the Stockholder may rely, as to
matters of fact, upon certificates of officers of the Company.
(vii) The resignations immediately prior to
the Closing of (i) each director of the Company and (ii) each officer of the
Company as requested by the Buyer, however, any liability incurred under the
Company's existing severance policy as a result of such resignations shall be
borne by the Buyer.
7.4 Deliveries of the Buyer. At the Closing, the Buyer shall
deliver to the Stockholder an opinion of Ledgewood Law Firm, P.C., counsel for
the Buyer, in form and substance satisfactory to the Stockholder and its
counsel, to the effect that (i) The Buyer is a corporation duly organized,
validly existing and in good standing under the laws State of Delaware; and
(ii) this Agreement and the transactions contemplated herein have been duly
approved by all necessary corporate action of the Buyer and such Agreement,
assuming due execution by the Stockholder, is the valid and binding agreement of
the Buyer enforceable against the Buyer in accordance with its terms except as
enforcement of such agreement may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally and, (iii)
Neither the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated herein, (a) violates or conflicts with or results
in the breach of the terms, conditions or provisions of, or constitutes a
default under, the Certificate of Incorporation or the Bylaws of the
Company or any agreement or instrument known to such counsel to which the
Company or the Stockholder is a party or by which either of them is bound or
(b) requires the consent, approval or authorization of or any filing with or
notification to any Federal, state or local court, governmental authority
or regulatory body not already obtained or made, as the case may be.
In giving such opinion, counsel for the Buyer may rely, as to
matters of fact, upon certificates of officers of the Buyer.
ARTICLE VIII
SURVIVAL OF OBLIGATIONS; INDEMNIFICATION
8.1 Survival of Obligations. All representations and warranties
made herein by the Stockholder and its obligations to be performed pursuant to
the terms hereof, shall survive the Closing hereunder and shall terminate three
years after the Closing; provided, that, (i) the representations and warranties
contained in Section 1.15 shall expire three (3) years after the
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Closing, or with respect to any dispute with the Internal Revenue Service, upon
the later to occur of the following (x) such dispute's final resolution and the
payment of all taxes, interest and penalties arising therefrom and (y) the
expiration of the applicable statute of limitations; and (ii) the
representations in Section 1.4 shall not terminate.
8.2 Indemnification. (a) The Stockholder agrees to indemnify and
hold harmless the Buyer, the Company and their subsidiaries, affiliates,
successors and assigns from and against any and all (x) liabilities, losses,
costs, deficiencies or damages and any and all amounts paid in settlement
("Loss") and (y) reasonable attorneys' and accountants' fees and expenses, court
costs and all other reasonable out-of-pocket expenses ("Expense") net of any
insurance received, incurred by the Buyer or the Company, in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim asserted in good faith in connection with or arising from (i) any claim
that the Stockholder did not convey to the Buyer good and marketable title to
all of the issued and outstanding capital stock of the Company pursuant to this
Agreement, (ii) any breach by the Stockholder of any of its covenants in, or
failure of the Stockholder to perform any of its obligations hereunder, or (iii)
any breach of any warranty or the inaccuracy of any representation of the
Stockholder contained or referred to in this Agreement or in any certificate
delivered by or on behalf of the Stockholder pursuant hereto.
(b) The Buyer and the Company agree to indemnify and
hold harmless the Stockholder and its successors and assigns from and against
any and all Loss and Expense incurred by the Stockholder in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim asserted in good faith in each case net of any insurance received and
retained by the Stockholder in connection with or arising from (i) any breach by
the Buyer or the Company of any of its covenants in, or any failure of the
Buyer or the Company to perform any of its obligations under, this Agreement or
(ii) any breach of any warranty or the inaccuracy of any representation of the
Buyer contained or referred to in this Agreement or in any certificate delivered
by or on behalf of the Buyer pursuant hereto.
(c) If a party incurring a Loss or Expense (an
"Indemnified Person") has suffered or incurred any Loss or Expense, the
Indemnified Person shall so notify the party responsible therefor (an
"Indemnifying Person") promptly in writing describing such Loss or Expense, the
amount thereof, if known, and the method of computation of such Loss or Expense,
all with reasonable particularity and containing a reference to the provisions
of this Agreement or any certificate delivered pursuant hereto in respect of
which such Loss or Expense shall have occurred. If any action at law or suit
in equity is instituted by or against a third party with respect to which an
Indemnified Person intends to claim any liability or expense as Loss or Expense
under this Section 8.2, such Indemnified Person shall promptly notify the
Indemnifying Person of such action or suit.
(d) An Indemnified Person shall have the right, but
not the obligation, to participate at its own expense in the defense of any
third party claim, action or suit with counsel of its own choosing, but the
Indemnifying Person shall be entitled to control the defense unless
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the Indemnified Person has relieved the Indemnifying Person from liability with
respect to the particular matter. In the event that the Indemnifying Person
shall fail timely to defend, contest or otherwise protect against such claim,
the Indemnified Person shall have the right, but not the obligation, to defend,
contest or otherwise protect against the same or, on not less than thirty (30)
days' written notice to the Indemnifying Person, make any compromise or
settlement thereof, and such compromise or settlement shall be binding on the
Indemnifying Person for purposes of indemnification under this Article VIII
unless the Indemnifying Person objects thereto within the thirty day period
aforesaid.
(e) The Buyer and/or the Company shall have the right
to set off against any amounts due the Stockholder in accordance with the
Note issued by the Buyer pursuant to Section 7 hereof up to a limit of
$300,000 with respect to any amounts both (i) owed to the Buyer by the
Stockholder as a result of the indemnification provided in this Section
8.2 and (ii) paid out-of-pocket to third parties by the Buyer or the Company.
ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given (a) three (3)
days after having been sent by certified or registered mail, return receipt
requested, (b) one (1) business day after having been sent by regional
recognized courier guarantying next business day delivery, or (C) upon delivery
if given by hand delivery against written receipt, addressed as follows:
If to the Buyer:
Vermont Pure Springs, Inc.
70 West Red Oak Lane
White Plains, NY 10604
with a copy to:
Kevin F. Berry, Esq.
Ledgewood Law Firm
1521 Locust Street
Philadelphia, PA 19102
If to the Stockholder:
Carolyn Howard
279 Mountain Road
Jaffrey Center, NH 03454
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With a copy to:
Bradford E. Cook, Esq.
Sheehan Phinney Bass & Green, P.A.
1000 Elm Street
P. O. Box 3701
Manchester, NH 03105-3701
9.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Hampshire without
regard to the provisions on conflicts of law.
9.3 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
9.4 Severability. In case any one or more of the provisions
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained herein unless the deletion of such provision
or provisions would result in such a Material change as to cause enforcement of
the terms hereof to be unreasonable.
9.5 Expenses. Each party hereto shall pay its own xpenses
(including, without limitation, legal and accounting fees and expenses) incident
to its negotiation and preparation of this Agreement and to its performance and
compliance with the provisions contained herein.
9.6 Titles and Headings. Titles and headings to Articles and
Sections herein are inserted for the convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
9.7 Schedules. The Schedules and Exhibits to this Agreement shall
be construed with and read as an integral part of this Agreement to the same
extent as if the same had been set forth verbatim herein.
9.8 Entire Agreement; Amendments and Waivers. This Agreement,
including the Exhibits and Schedules hereto, contains the entire understanding
of the parties hereto with regard to the subject matter contained herein. The
parties hereto, by mutual agreement in writing, may amend, modify and supplement
this Agreement. The failure of any party hereto to enforce at any time any
provision of this Agreement shall not be construed to be a waiver of such
provision, nor in any way to affect the validity of this Agreement or any part
hereof or the rights of such party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement
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shall be held to constitute a waiver of any other or subsequent breach.
9.9 No Assignment. Neither party shall assign its right or
delegate its duties under this Agreement to any other person or entity without
the prior written consent of the other party. A consent required by either
party pursuant to this paragraph shall not, once requested, be unreasonably
withheld.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal the day and year first above written.
VERMONT PURE SPRINGS, INC.
Attest: By:
President
CAROLYN HOWARD
Attest:
A.M. FRIDAYS, INC.
Attest: By:
President
19
LOAN AGREEMENT
Borrower: VERMONT PURE HOLDINGS, LTD.(TIN:13-3576606), VERMONT PURE SPRINGS,INC.
(TIN: 03-0330521)
Lender: CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN BANK Burlington Two Burlington
Square P.O. BOX c Burlington, VT 05401
RANDOLPH, VT 05060
THIS LOAN AGREEMENT between VERMONT PURE HOLDINGS, LTD. (TIN: 13-3576606),
VERMONT PURE SPRINGS, INC. (TIN: 03-0330521) ("Borrower") and CHITTENDEN TRUST
COMPANY d/b/a CHITTENDEN BANK ("Lender") Is made and executed on the following
terms and conditions. Borrower has received prior commercial loans from Lender
or has applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to In this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of June 20, 1997, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the par-hes terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
Account. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to Borrower
(or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity obligated
upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds under this
Agreement.
Borrower. The word "Borrower" means VERMONT PURE HOLDINGS, LTD. (TIN:
13-3576606), VERMONT PURE SPRINGS, INC. (TIN: 03-0330521). The word "Borrower"
also includes, as applicable, all subsidiaries and affiliates of Borrower as
provided below in the paragraph titled "Subsidiaries and Affiliates."
Borrowing Base. The words "Borrowing Base" mean the lesser of (a) $1,500,000.00;
or (b) the sum of (i)76% of the aggregate amount of Eligible Accounts, plus (ii)
50% of the aggregate amount of Eligible Inventory. At no time shall advances
against Eligible Inventory exceed $500,000.00.
<PAGE>
Business Day. The words "Business Day" mean a day on which commercial banks are
open for business in the State of Vermont.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive of
extraordinary gains and income, plus depreciation and amortization.
Collateral. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real or
personal property, whether granted directly or indirectly, whether granted now
or in the future, and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien, charge,
lien or title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether created by
law, contract, or otherwise. The word "Collateral" includes without limitation
all collateral described below in the section titled "COLLATERAL."
Debt. The word "Debt" means all of Borrower's liabilities excluding Subordinated
Debt.
Eligible Accounts. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable to
Lender. The net amount of any Eligible Account against which Borrower may
borrow shall exclude all returns, discounts, credits, and offsets of any
nature. Unless otherwise agreed to by Lender in writing, Eligible
Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an officer, an
employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary of,
or affiliated with or related to Borrower or its shareholders, officers, or
directors.
(c) Accounts with respect to which goods are placed on consignment, guaranteed
sale, or other terms by reason of which the payment by the Account Debtor may be
conditional.
(d) Accounts with respect to which the Account Debtor is not a resident of the
United States, except to the extent such Accounts are supported by insurance,
bonds or other assurances satisfactory to Lender.
(e) Accounts with respect to which Borrower is or may become liable to the
Account Debtor for goods sold or services rendered by the Account Debtor to
Borrower.
(f) Accounts which are subject to dispute, counterclaim, or setoff.
(g) Accounts with respect to which the goods have not been shipped or delivered,
or the services have not been rendered, to the Account Debtor.
(h)Accounts with respect to which Lender.in its sole discretion, deems the
creditworthiness or financial condition of the Account Debtor to be
unsatisfactory.
<PAGE>
(i)Accounts of any Account Debtor who has filed or has had filed against
it a petition in bankruptcy or an application for relief under any provision of
any state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who
has had appointed a trustee, custodian, or receiver for the assets of such
Account Debtor; or who has made an assignment for the benefit of creditors or
has become insolvent or fails generally to pay its debts (including its
payrolls) as such debts become due.
(j) Accounts with respect to which the Account Debtor is the United
States government or any department or agency of the United States.
(k) Accounts which have not been paid in full within 60 DAYS (75 DAYS
DURING THE MONTHS OF JANUARY THRU MAY) FOR PET ACCOUNT AND 90 DAYS FOR HOME AND
OFFICE ACCOUNTS from the invoice date. The entire balance of any Account of any
single Account debtor will be ineligible whenever the portion of the Account
which has not been paid within 60 DAYS (75 DAYS DURING THE MONTHS OF JANUARY
THRU MAY) FOR PET ACCOUNT AND 90 DAYS FOR HOME AND OFFICE ACCOUNTS from the
invoice date is in excess of 25.000% of the total amount outstanding on the
Account.
(l) That portion of the Accounts of any single Account Debtor which exceeds
30.000% of all of Borrower's Accounts.
Eligible Inventory. The words "Eligible Inventory" mean, at any time, all of
Borrower's Inventory as defined below except:
(a) Inventory which is not owned by Borrower free and clear of all
security interests, liens, encumbrances, and claims of third parties.
(b) Inventory which Lender, in its sole discretion, deems to be
obsolete, unsalable, damaged, defective, or unfit for further
processing.
(c) Work in progress.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"EVENTS OF DEFAULT."
Expiration Date. The words "Expiration Date" mean the date of termination of
Lender's commitment to lend under this Agreement.
Grantor. The word "Grantor" means and includes without limitation each and all
of the persons or entities granting a Security Interest in any Collateral for
the Indebtedness, including without limitation all Borrowers granting such a
Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each and
all of the guarantors, sureties, and accommodation parties in connection with
any Indebtedness.
06-20-1997
LOAN AGREEMENT
Page 2
(Continued)
Indebtedness. The word "Indebtedness" means and includes without limitation all
Loans, together with all other obligations, debts and liabilities of Borrower to
Lender, or any one or more of them, as well as all claims by Lender against
Borrower, or any one or more of them; whether now or hereafter existing,
voluntary or involuntary, due or not due, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or jointly with
others; whether Borrower may be obligated as a guarantor, surety, or otherwise;
whether recovery upon such Indebtedness may be or hereafter may become barred by
any statute of limitations; and whether such Indebtedness may be or hereafter
may become otherwise unenforceable.
<PAGE>
Inventory. The word "Inventory" means all of Borrower's raw materials, work in
process, finished goods, merchandise, parts and supplies, of every kind and
description, and goods held for sale or lease or furnished under contracts of
service in which Borrower now has or hereafter acquires any right, whether held
by Borrower or others, and all documents of title, warehouse receipts, bills of
lading, and all other documents of every type covering all or any part of the
foregoing. Inventory includes inventory temporarily out of Borrower's custody or
possession and all returns on Accounts.
Lender. The word "Lender" means CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN BANK,
its successors and assigns.
Line of Credit. The words 'Line of Credit' mean the credit facility described in
the Section titled "LINE OF CREDIT" below.
Liquid Assets. The words "Liquid Assets' mean Borrower's cash on hand plus
Borrower's readily marketable securities.
Loan. The word "Loan" or 'Loans' means and includes without limitation any and
all commercial loans and financial accommodations from Lender to Borrower,
whether now or hereafter existing, and however evidenced, including without
limitation those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement from time to
time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note or
notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes,
assessments, or similar charges either not yet due or being contested in good
faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other
like liens arising in the ordinary course of business and securing obligations
which are not yet delinquent; (d) purchase money liens or purchase money
security interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the date of
this Agreement or permitted to be incurred under the paragraph of this Agreement
titled "Indebtedness and Liens"; (a) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the Lender in
writing; and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to the
net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings or
other agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever, whether created by law,
contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of
1986 as now or hereafter amended.
<PAGE>
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total assets
excluding all intangible assets (i.e., goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible items, but including
leaseholds and leasehold improvements) less total Debt.
Working Capital. The words 'Working Capital" mean Borrower's current assets,
excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
Conditions Precedent to Each Advance. Lender's obligation to make any Advance to
or for the account of Borrower under this Agreement is subject to the following
conditions precedent, with all documents, instruments, opinions, reports, and
other items required under this Agreement to be in form and substance
satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all Related
Documents have been duly authorized, executed, and delivered by Borrower to
Lender.
(b) Lender shall have received such opinions of counsel, supplemental opinions,
and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly authorized,
created, and perfected with first lien priority and shall be in full force and
effect.
(d) All guaranties required by Lender for the Line of Credit shall have been
executed by each Guarantor, delivered to Lender, and be in full force and
effect.
<PAGE>
(e) Lender, at its option and for its sole benefit, shall have conducted an
audit of Borrower's Accounts, Inventory, books, records, and operations, and
Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in this Agreement and the Related Documents as are then due and
payable.
(g) There shall not exist at the time of any Advance a condition which
would constitute an Event of Default under this Agreement, and Borrower shall
have delivered to Lender the compliance certificate called for in the paragraph
below titled "Compliance Certificate."
Making Loan Advances. Advances under the credit facility, as well as directions
for payment from Borrower's accounts, may be requested orally or in writing
subject to the limitations set forth below. Lender may, but need not, require
that all oral requests be confirmed in writing. Each Advance shall be
conclusively deemed to have been made at the request of and for the benefit of
Borrower (a) when credited to any deposit account of Borrower maintained with
Lender or (b) when advanced in accordance with the instructions of an authorized
person. Lender, at its option, may set a cutoff time, after which all requests
for Advances will be treated as having been requested on the next succeeding
Business Day. Under no circumstances shall Lender be required to make any
Advance in an amount less than $500.00.
Mandatory Loan Repayments. If at any time the aggregate principal amount of the
outstanding Advances shall exceed the applicable Borrowing Base, Borrower,
Immediately upon written or oral notice from Lender, shall pay to Lender an
amount equal to the difference between the outstanding principal balance of the
Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to
Lender in full the aggregate unpaid principal amount of all Advances then
outstanding and all accrued unpaid interest, together with all other applicable
fees, costs and charges, if any, not yet paid.
Facility Charge. Borrower recognizes that Lender has incurred and will continue
to incur certain costs and expenses in connection with establishing,
maintaining, servicing, and administering the credit facility. To ensure that
Lender is able to recover such costs and expenses, Borrower agrees that,
<PAGE>
notwithstanding any other provision of this Agreement, the promissory note for
the Line of Credit, or the Related Documents, Lender shall be entitled to
collect the following facility charge, which Borrower hereby promises and agrees
to pay: $500.00.
Loan Account. Lender shall maintain on its books a record of account in which
Lender shall make entries for each Advance and such other debits and credits as
shall be appropriate in connection with the credit facility. Lender shall
provide Borrower with periodic statements of Borrower's account, which
statements shall be considered to be correct and conclusively binding on
Borrower unless Borrower notifies Lender to the contrary within thirty (30) days
after Borrower's receipt of any such statement which Borrower deems to be
incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender, Borrower (and others,
if required) shall grant to Lender Security Interests in such property and
assets as Lender may require (the 'Collateral"), including without limitation
Borrower's present and future Accounts, general intangibles, and Inventory.
Lender's Security Interests in the Collateral shall be continuing liens and
shall include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:
Perfection of Security Interests. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests In the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of
06-20-1997
LOAN AGREEMENT
Page 3
(Continued)
the documents evidencing or constituting the Collateral, and Borrower will note
Lender's interest upon any and all chaftel paper if not delivered to Lender for
possession by Lender. Contemporaneous with the execution of this Agreement,
Borrower will execute one or more UCC financing statements and any similar
statements as may be required by applicable law, and will file such financing
statements and all such similar statements in the appropriate location or
locations. Borrower hereby appoints Lender as its irrevocable aftorney-in-fact
for the purpose of executing any documents necessary to perfect or to continue
any Security Interest. Lender may at any time, and without further authorization
from Borrower, file a carbon, photograph, facsimile, or other reproduction of
any financing statement for use as a financing statement. Borrower will
reimburse Lender for all expenses for the perfection, termination, and the
continuation of the perfection of Lender's security interest in the Collateral.
Borrower promptly will notify Lender of any change in Borrower's name including
any change to the assumed business names of Borrower. Borrower also promptly
will notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender in
writing prior to any change in address or location of Borrower's principal
governance office or should Borrower merge or consolidate with any other entity.
<PAGE>
Collateral Records. Borrower does now, and at all times hereafter shall, keep
correct and accurate records of the Collateral, all of which records shall be
available to Lender or Lender's representative upon demand for inspection and
copying at any reasonable time. With respect to the Accounts, Borrower agrees to
keep and maintain such records as Lender may require, including without
limitation information concerning Eligible Accounts and Account balances and
agings. With respect to the Inventory, Borrower agrees to keep and maintain such
records as Lender may require, including without limitation information
concerning Eligible Inventory and records itemizing and describing the kind,
type, quality, and quantity of Inventory, Borrower's Inventory costs and selling
prices, and the daily withdrawals and additions to Inventory. The following is
an accurate and complete list of all locations at which Borrower keeps or
maintains business records concerning Borrower's Accounts and Inventory: ROUTE
66, RANDOLPH, VT.
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of Accounts
and Inventory and Eligible Accounts and Eligible Inventory, in form and
substance satisfactory to the Lender. Thereafter Borrower shall execute and
deliver to Lender such supplemental schedules of Eligible Accounts and Eligible
Inventory and such other matters and information relating to the Accounts and
Inventory as Lender may request. Supplemental schedules shall be delivered
according to the following schedule: MONTHLY, WITHIN 15 DAYS OF EACH MONTH END.
Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this Agreement
conforms to the requirements of the definition of an Eligible Account; (b) All
Account information listed on schedules delivered to Lender will be true and
correct, subject to immaterial variance; and (c) Lender, its assigns, or agents
shall have the right at any time and at Borrower's expense to inspect, examine,
and audit Borrower's records and to confirm with Account Debtors the accuracy of
such Accounts.
<PAGE>
Representations and Warranties Concerning Inventory. With respect to the
Inventory, Borrower represents and warrants to Lender: (a) All Inventory
represented by Borrower to be Eligible Inventory for purposes of this Agreement
conforms to the requirements of the definition of Eligible Inventory; (b) All
Inventory values listed on schedules delivered to Lender will be true and
correct, subject to immaterial variance; (c) The value of the Inventory will be
determined on a consistent accounting basis; (d) Except as agreed to the
contrary by Lender in writing, all Eligible Inventory is now and at all times
hereafter will be in Borrower's physical possession and shall not be held by
others on consignment, sale on approval, or sale or return; (e) Except as
reflected in the Inventory schedules delivered to Lender, all Eligible Inventory
is now and at all times hereafter will be of good and merchantable quality, free
from defects; (f) Eligible Inventory is not now and will not at any time
hereafter be stored with a bailee, warehouseman, or similar party without
Lender's prior written consent, and, in such event, Borrower will concurrently
at the time of bailment cause any such bailee, warehouseman, or similar party to
issue and deliver to Lender, in form acceptable to Lender, warehouse receipts in
Lender's name evidencing the storage of Inventory; and (g) Lender, its assigns,
or agents shall have the right at any time and at Borrower's expense to inspect
and examine the Inventory and to check and test the same as to quality,
quantity, value, and condition.
Remittance Account. Borrower agrees that Lender may at any time require Borrower
to institute procedures whereby the payments and other proceeds of the Accounts
shall be paid by the Account Debtors under a remittance account or lock box
arrangement with Lender, or Lender's agent, or with one or more financial
institutions designated by Lender. Borrower further agrees that, if no Event of
Default exists under this Agreement, any and all of such funds received under
such a remittance account or lock box arrangement shall, at Lender's sole
election and discretion, either be (a) paid or turned over to Borrower; (b)
deposited into one or more accounts for the benefit of Borrower (which deposit
accounts shall be subject to a security assignment in favor of Lender); (c)
deposited into one or more accounts for the joint benefit of Borrower and Lender
(which deposit accounts shall likewise be subject to a security assignment in
favor of Lender); (d) paid or turned over to Lender to be applied to the
Indebtedness in such order and priority as Lender may determine within its sole
discretion; or (e) any combination of the foregoing as Lender shall determine
from time to time. Borrower further agrees that, should one or more Events of
Default exist, any and all funds received under such a remittance account or
lock box arrangement shall be paid or turned over to Lender to be applied to the
Indebtedness, again in such order and priority as Lender may determine within
its sole discretion.
<PAGE>
ADDITIONAL CREDIT FACILITIES. In addition to the Line of Credit facility, the
following credit accommodations are either in place or will be made available to
Borrower:
Term Loan. Subject to the terms and conditions of this Agreement and the
exhibit, a term loan is either in place or will be made available to
Borrower as set forth in an exhibit, which is attached hereto and made a
part hereof.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the state of Borrower's
incorporation and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and authority
to own its properties and to transact the businesses in which it is
presently engaged or presently proposes to engage. Borrower also is duly
qualified as a foreign corporation and is in good standing in all states in
which the failure to so quality would have a material adverse effect on its
businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement and
all Related Documents by Borrower, to the extent to be executed, delivered or
performed by Borrower, have been duly authorized by all necessary action by
Borrower; do not require the consent or approval of any other person, regulatory
authority or governmental body; and do not conflict with, result in a violation
of, or constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other instrument
binding upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to Lender
truly and completely disclosed Borrower's financial condition as of the date of
the statement, and there has been no material adverse change in Borrower's
financial condition subsequent lo the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent obligations
except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and has good title to all
of Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal name,
and Borrower has not used, or filed a financing statement under, any other name
for at least the last five (5) years.
<PAGE>
Hazardous Substances. The terms "hazardous waste hazardous substance,"
"disposal," 'release," and "threatened release,' as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant to any
of the foregoing. Except as disclosed to and acknowledged by Lender in writing,
Borrower represents and warrants that: (a) During the period of Borrower's
ownership of the properties, there has been no use, generation, manufacture,
storage, treatment, disposal, release or threatened release of any hazardous
waste or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been (i)
any use, generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance on, under, about or from
the properties by any prior owners or occupants of any of the properties, or
(ii) any actual or threatened litigation or claims of any kind by any person
relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent
or other authorized user of any of the properties shall use, generate,
manufacture, store, treat, dispose of, or release any hazardous waste or
substance on, under, about or from any of the properties; and any such activity
shall be conducted in compliance with all applicable federal, state, and local
laws, regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above, Borrower authorizes Lender and its
agents to enter upon the properties to make such inspections and tests as Lender
may deem appropriate to determine compliance of the properties with this section
of the Agreement. Any inspections or tests made by Lender shall be at Borrower's
expense and for Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any other
person. The representations and warranties contained herein are based on
Borrower's due diligence in investigating the properties for hazardous waste and
hazardous substances. Borrower hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Borrower becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnity and hold harmless Lender against any and all claims, losses,
liabilities, damages, penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this section of the
Agreement or as a consequence of any use, generation, manufacture,
06-20-1997
LOAN AGREEMENT
Page 4
(Continued)
storage, disposal, release or threatened release occurring prior to Borrower's
ownership or interest in the properties, whether or not the same was or should
have been known to Borrower. The provisions of this section of the Agreement,
including the obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement and shall not
be affected by Lender's acquisition of any interest in any of the properties,
whether by foreclosure or otherwise.
<PAGE>
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against Borrower
is pending or threatened, and no other event has occurred which may materially
adversely affect Borrower's financial condition or properties, other than
litigation, claims, or other events, if any, that have been disclosed to and
acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of Borrower's Loan and
Note, that would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly or
indirectly securing repayment of Borrower's Loan and Note and all of the Related
Documents are binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in accordance with
their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may have
any liability complies in all material respects with all applicable requirements
of law and regulations, and (i) no Reportable Event nor Prohibited Transaction
(as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower
has not withdrawn from any such plan or initiated steps to do so, (iii) no steps
have been taken to terminate any such plan, and (iv) there are no unfunded
liabilities other than those previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business, or
Borrower's Chief executive office, if Borrower has more than one place of
business, is located at P.O. BOX C, RANDOLPH, VT 05060. Unless Borrower has
designated otherwise in writing this location is also the office or offices
where Borrower keeps its records concerning the Collateral.
Information. All information heretofore or contemporaneously herewith furnished
by Borrower to Lender for the purposes of or in connection with this Agreement
or any transaction contemplated hereby is, and all information hereafter
furnished by or on behalf of Borrower to Lender will be, true
<PAGE>
and accurate in every material respect on the date as of which such information
is dated or certified; and none of such information is or will be incomplete by
omitting to stale any material fact necessary to make such information not
misleading.
Survival of Representations and Warranties. Borrower understands and agrees that
Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower. Borrower
further agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain In full force and effect until such time
as Borrower's Indebtedness shall be paid in full, or until this Agreement shall
be terminated in the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in 13orrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis, and
permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender, and, as
soon as available, but in no event later than forty five (45) days after the
end of each fiscal quarter, Borrower's balance sheet and profit and loss
statement for the period ended, prepared and certified as correct to the
best knowledge and belief by Borrower's chief financial officer or other
officer or person acceptable to Lender. All financial reports required to be
provided under this Agreement shall be prepared in accordance with generally
accepted accounting principles, applied on a consistent basis, and certified
by Borrower as being true and correct.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables, inventory
schedules, budgets, forecasts, tax returns, and other reports with respect to
Borrower's financial condition and business operationsas Lender may request from
time to time.
Financial Covenants and Ratios. Comply with the following covenants and ratios:
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net Worth of
less than 1.50 to 1.00.
Cash Flow Requirements. Maintain Cash Flow at not less than the following
level:1.00 TO 1.00. Except as provided above, all computations made to
determine compliance with the requirements contained in this paragraph shall
be made in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being true and
correct.
<PAGE>
Insurance. Maintain fire and other risk insurance, public liability insurance,
and such other insurance as Lender may require with respect to Borrower's
properties and operations, in form, amounts, coverages and with insurance
companies reasonably acceptable to Lender. Borrower, upon request of Lender,
will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that coverages
will not be cancelled or diminished without at least ten (10) days' prior
written notice to Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired in
any way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or is offered
a security interest for the Loans, Borrower will provide Lender with such loss
payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties
insured; (a) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (f) the
expiration date of the policy. In addition, upon request of Lender (however not
more often than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be paid by
Borrower.
Other Agreements. Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.
Loan Fees and Charges. In addition to all other agreed upon fees and charges,
pay the following: $500.00.
<PAGE>
Loan Proceeds. Use all Loan proceeds solely for the following specific purposes:
TO FINANCE ACCOUNTS RECEIVABLE AND INVENTORY FOR WORKING CAPITAL PURPOSES.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (a) the legafity of the same shall be
contested in good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the appropriate governmental official to deliver to
Lender at any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the Related
Documents.
Operations. Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner and in compliance with all applicable federal, state and municipal laws,
ordinances, rules and regulations respecting its properties, charters,
businesses and operations, including without limitation, compliance with the
Americans With DisabilitiesAct and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee benefit
plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books,
<PAGE>
06-20-1997
LOAN AGREEMENT
Page 5
(Continued)
accounts, and records. If Borrower now or at any time hereafter maintains any
records (including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of a
third party, Borrower, upon request of Lender, shall notify such party to permit
Lender free access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender
ANNUALLY AND WITHIN 15 DAYS OF EACH QUARTER END and at the time of each
disbursement of Loan proceeds with a certificate executed by Borrower's chief
financial officer, or other officer or person acceptable to Lender, certifying
that the representations and warranties set forth in this Agreement are true and
correct as of the date of the certificate and further certifying that, as of the
date of the certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects with
all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of a
permit issued by the approp6ate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all Security
Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretaition or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment,
<PAGE>
which demand shall be accompanied by an explanation of such imposition or charge
and a calculation in reasonable detail of the additional amounts payable by
Borrower, which explanation and calculations shall be conclusive in the absence
of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal course
of business and indebtedness to Lender contemplated by this Agreement, create,
incur or assume indebtedness for borrowed money, including capital leases, (b)
except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of Borrower's assets, or
(c) sell with recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (b) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock), provided, however
that notwithstanding the foregoing, but only so long as no Event of Default has
occurred and is continuing or would result from the payment of dividends, if
Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue
Code of 1986, as amended), Borrower may pay cash dividends on its stock to its
shareholders from time to time in amounts necessary to enable the shareholders
to pay income taxes and make estimated income tax payments to satisfy their
liabilities under federal and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their ownership of shares
of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other enterprise or
entity, or (c) incur any obligation as surety or guarantor other than in the
ordinary course of business.
CESSATION OF ADVANCES. It Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
<PAGE>
LIMITATION ON RIGHT OF SETOFF. Lender agrees that it will exercise its right of
setoff, as described herein, only in the event of default under the terms of the
Note or any related document, including (without limitation) the Loan Agreement,
any Guaranty, any Mortgage, any Security Agreement, any Pledge Agreement, or any
Letter of Credit Reimbursement or similar agreement.
ADDITIONAL METHOD OF BORROWING UNDER THE LINE OF CREDIT AND BORROWER'S
AUTHORIZATION FOR LENDER TO TRANSFER FUNDS. From and after the date of this
Agreement, the Borrower shall maintain a demand deposit account (the "Demand
Deposit Account") with the Lender which the Lender shall credit in amounts to be
made available by the Lender to the Borrower under the Line of Credit in
accordance with the terms of this Agreement. Any proceeds of Collateral received
by the Borrower, including without limitation payments on Accounts and other
payments from sales of Inventory, shall be held in trust by Borrower for the
Lender in the same medium in which received, shall not be commingled with any
assets of Borrower and shall be delivered immediately to the Lender for deposit
in Borrower's Demand Deposit Account. Subject to the Conditions Precedent to
Each Advance (detailed above), the Lender shall make an initial amount available
under the Line of Credit equal to the Borrowing Base. The Borrower shall borrow
amounts available under the Line of Credit by issuing checks written on the
Demand Deposit Account. From and after the date of this Agreement, the Lender
will monitor the Demand Deposit Account of the Borrower on a daily basis to
determine the amount in such account computed as follows: (i) the initial
disbursement into such account LESS (ii) all withdrawals to date from such
account by the Borrower PLUS (iii) all deposits to date into such account by the
Borrower which have been collected by Lender (such amount being hereinafter
referred to as the "Net Collected Balance"). In the event that the Net Collected
Balance in the account is positive on any day, the Lender shall apply such Net
Collected Balance toward repayment of the principal balance outstanding on the
Line of Credit. In the event that the Net Collected Balance in the account is
negative on any day, the Lender shall fund the overdraft or draws against
unavailable funds up to the maximum amount of the Borrowing Base of the Line of
Credit, subject to the Mandatory Loan Repayments paragraph, above. Borrower
authorizes Lender to transfer from the Line of Credit to the Borrower's Demand
Deposit Account the funds necessary to cover any overdrafts or draws against
unavailable funds, occuring on the Demand Deposit Account, up to the applicable
Borrowing Base of the Line of Credit. In addition, Borrower authorizes Lender to
transfer funds from the Demand Deposit Account to reduce the principal balance
of the Line of Credit. Borrower grants permission to Lender to debit the Demand
Deposit Account to make monthly interest payments.
FEE PROVISION. In addition to the provisions of the Mandatory Loan Repayments
paragraph, above, on EACH and EVERY day that the aggregate principal amount of
the outstanding Advances exceeds the applicable Borrowing Base, Borrower shall
pay a fee equal to 2% of the amount by which the aggregate principal amount of
the outstanding Advances exceeds the applicable Borrowing Base.
<PAGE>
LINE OF CREDIT SWEEP FEE. The Borrower agrees to pay to the Lender as payment of
the Lender's costs in connection with the monitoring of the Line of Credit, a
monthly fee of $150 commencing on the date of this Loan Agreement and on the
last day of each MONTH thereafter during the term of the Line of Credit.
BORROWING CERTIFICATE. On the date of this Agreement, and WEEKLY during the term
of the Line of Credit, the Borrower shall submit to Lender a Borrowing
Certificate in the form of EXHIBIT I attached hereto showing the computation of
the Line of Credit Borrowing Base as of the close of business on the last day of
the immediately preceding WEEK and will accompany such certificate with such
payment, if any, as may be necessary to comply with the provisions of the
Mandatory Loan Repayments paragraph.
AUDITS BY LENDER. As outlined in the Inspection paragraph, above, Borrower shall
permit Lender or its agent to inspect the collateral and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. The
Borrower shall pay on demand the costs associated with such inspections or
audits. In addition, Borrower will pay to Lender a fee of $500.00 per day in
conjunction with each audit or inspection.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers lo
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
06-20-1997
LOAN AGREEMENT
Page 6
(Continued)
Default on Indebtedness. Failure of Borrower to make any payment when due on the
Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to perform
when due any other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents, or failure of Borrower to comply
with or to perform any other term, obligation, covenant or condition contained
in any other agreement between Lender and Borrower.
Default In Favor of Third Parties. Should Borrower or any Grantor default under
any loan, extension of credit, security agreement, purchase or sales agreement,
or any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower's property or Borrower's or any Grantor's
ability to repay the Loans or perform their respective obligations under this
Agreement or any of the Related Documents.
<PAGE>
False Statements. Any warranty, representation or statement made or furnished to
Lender by or on behalf of Borrower or any Grantor under this Agreement or the
Related Documents is false or misleading in any material respect at the time
made or furnished, or becomes false or misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and for
any reason.
Insolvency. The dissolution or termination of Borrower's existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any part
of Borrower's property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower, any creditor of any Grantor against
any collateral securing the Indebtedness, or by any governmental agency. This
includes a garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
<PAGE>
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of E)efault of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of Vermont. If there is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of Chittenden
County, the State of Vermont. Lender and Borrower hereby waive the right to any
jury trial In any action, proceeding, or counterclaim brought by either Lender
or Borrower against the other. This Agreement shall be governed by and construed
in accordance with the laws of the State of Vermont.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's sale or
transfer, whether now or later, of one or more participation interests in the
Loans to one or more purchasers, whether related or unrelated to Lender. Lender
may provide, without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation interests, as
well as all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will be
considered as the absolute owners of such interests in the Loans and will have
all the rights granted under the participation agreement or agreements governing
the sale of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or against
any purchaser of such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any holder of any interest in
the Loans. Borrower further egress that the purchaser of any such participation
interests may enforce its interests irrespective of any personal claims or
defenses that Borrower may have against Lender.
<PAGE>
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's expenses,
including without limitation attorneys' fees, incurred in connection with the
preparation, execution, enforcement, modification and collection of this
Agreement or in connection with the Loans made pursuant to this Agreement.
Lender may pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes, subject to any
limits under applicable law, Lender's attorneys' fees and Lander's legal
expenses, whether or not there is a lawsuit, including attorneys' fees for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post- judgment collection services.
Borrower also will pay any court costs, in addition to all other sums provided
by law.
Notices. All notices required to be given under this Agreement shall be given in
writing, may be sent by telefacsimile, and shall be effective when actually
delivered or when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage prepaid, addressed to
the party to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of the notice
is to change the party's address. To the extent permitted by applicable law, if
there is more than one Borrower, notice to any Borrower will constitute notice
to all Borrowers. For notice purposes, Borrower will keep Lender informed at all
times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without limitation
any representation, warranty or covenant, the word "Borrower" as used herein
shall include all subsidiaries and affiliates of Borrower. Notwithstanding the
foregoing however, under no circumstances shall this Agreement be construed to
require Lender to make any Loan or other
<PAGE>
financial accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the benefit
of Lender, its successors and assigns. Borrower shall not, however, have the
right to assign its rights under this Agreement or any interest therein, without
the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by Borrower
to Lender under this Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any investigation made by Lender or on Lender's
behalf.
Time Is of the Essence.Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender In exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor, shall constitute a
waiver of any of Lender's rights or of any obligations of Borrower or of any
Grantor as to any future transactions. Whenever the consent of Lender is
required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent in subsequent instances where
such consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
06-20-1997
LOAN AGREEMENT
(Continued)
Page 7
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JUNE 20,1997.
BORROWER:
VERMONT PURE HOLDINGS, LTD. (TIN: 13-3576606), VERMONT PURE SPRINGS, INC.
(TIN: 03-0330621)
VERMONT PURE HOLDINGS, LTD. by: BRUCE MACDONALD, CHIEF FINANCIAL OFFICER
VERMONT PURE SPRINGS, INC. by: BRUCE MACDONALD, CHIEF FINANCIAL OFFICER
LENDER:
CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN BANK
By:
Authorized Officer
PROMISSORY NOTE
Borrower: VERMONT PURE HOLDINGS, LTD. (TIN: 13-3576606),
VERMONT PURE SPRINGS, INC. (TIN: 03-0330521)(TIN:P.O. BOX c RANDOLPH, VT 05060
Principal Amount: $1,814,461.73
Lender: CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN BANK Burlington
Two Burlington Square Burlington, VT 05401
Date of Note: July 17, 1997
PROMISE TO PAY. VERMONT PURE HOLDINGS, LTD. (TIN: 13-3576606), VERMONT PURE
SPRINGS, INC. (TIN: 03-033OS21) ("Borrower") promises to pay to CHITTENDEN TRUST
COMPANY d/b/a CHITTENDEN BANK ("Lender"), or order, in lawful money of the
United States of America, the principal amount of One Million Eight Hundred
Fourteen Thousand Four Hundred Sixty One & 73/100 Dollars ($1,814,461.73),
together with interest on the unpaid principal balance from July 17,1997, until
paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the Index,
Borrower will pay this loan In accordance with the following payment schedule:
47 consecutive monthly interest payments, beginning September 1, 1997,
with Interest calculated on the unpaid principal balances at an
interest rate of 0.500 percentage points over the Index described
below; 47 consecutive monthly principal payments of $15,375.00 each,
beginning September 1, 1997, with Interest calculated on the unpaid
principal balances at an interest rate of 0.500 percentage points over
the Index described below; and 1 principal and interest payment in the
Initial amount of $1,100,298.46 on August 1, 2001, with interest
calculated on the unpaid principal balances at an interest rate of
0.500 percentage points over the Index described below. This estimated
final payment is based on the assumption that all payments will be made
exactly as scheduled and that the Index does not change; the actual
final payment will be for all principal and accrued interest not yet
paid, together with any other unpaid amounts under this Note.
Interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the 'The Wall Street Journal
Prime Rate" (the "Index"). Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each Day. The Index currently Is 8.600% per annum. The Interest rate or rates to
be applied to the unpaid principal balance of this Note will be the rate or
rates set forth above In the "Payment" section. NOTICE: Under no circumstances
will the interest rate on this Note be more than the maximum rate allowed by
applicable law. Whenever increases occur in the interest rate, Lender, at its
option, may do one or more of the following: (a) increase Borrower's payments to
ensure Borrower's loan will pay off by its original final maturity date, (b)
increase Borrower's payments to cover accruing interest, (c) increase the number
of Borrower's payments, and (d) continue Borrower's payments at the same amount
and increase Borrower's final payment.
<PAGE>
PREPAYMENT. Borrower may pay all or a portion of the amount owed earlier than it
is due. Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance due and may result in
Borrower making fewer payments.
LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. lb) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any ofthe Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender. (g) Any guarantor dies or any of the other events described in
this default section occurs with respect to any guarantor of this Note.
(h) A material adverse change occurs in Borrower's financial condition, or
Lender believes the prospect of payment or performance of the Indebtedness is
impaired. (i) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note by 2.000
percentage points. The interest rate will not exceed the maximum rate permitted
by applicable law. Lender may hire or pay someone else to help collect this Note
if Borrower does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. If not prohibited by applicable
law, Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by Lender
in the State of Vermont. If there Is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Chittenden County, the
State of Vermont. Lender and Borrower hereby waive the right to any jury trial
in any action, proceeding, or counterclaim brought by either Lender or Borrower
against the other. This Note shall be governed by and construed In accordance
with the laws of the State of Vermont.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
<PAGE>
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by A SECURITY AGREEMENT DATED 04-29-96,
A SECURITY AGREEMENT DATED 03-07-97 AND A SECURITY AGREEMENT OF EVEN DATE.
DOCUMENTATION FEE. Borrower agrees to pay a documentation fee of $1750.00.
PURPOSE. The purpose of this loan is BUSINESS: FINANCE PURCHASE OF EXISTING
BUSINESS. ADDITIONAL TERMS. Refer to Commitment Letter dated 07-11-97.
FINANCIAL STATEMENT SUBMISSION. Borrower agrees to provide to Lender, upon
request, any financial statements or information that Lender deems necessary.
The failure of Borrower to provide financial statements as required hereunder or
under the Loan Agreement, the Commitment Letter, or any other document related
to the Note is an event of default under the terms of this Note and is subject
to the remedies outlined in "Lender's Rights", above, including the right of
Lender to increase the interest rate on the Note.
WAIVERS AND CONSENTS. Lender shall not be deemed to have waived any rights under
this Note (or under the Related Documents) unless such waiver is in writing and
signed by Lender. No delay or omission on the part of the Lender in exercising
any right shall operate as a waiver of such right or any other right. A waiver
by any party of a provision of this Note shall not constitute a waiver of or
prejudice the party's right otherwise to demand strict compliance with that
provision in the future or any other provision. No prior waiver by Lender, nor
any course of dealing between Lender and Borrower, shall constitute a waiver of
any of Lender's rights or any of Borrower's obligations as to any future
transactions. Whenever consent by Lender is required in this Note, the granting
of such consent by Lender in any instance shall not constitute continuing
consent to subsequent instances where such consent is required.
HAZARDOUS SUBSTANCES. Except as disclosed to Lender in writing, no property of
Borrower ever has been, or ever will be so long as this Note remains in effect,
used for the generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance, as those terms are
defined in the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act ("SARA'), applicable state or
Federal laws, or regulations adopted pursuant to any of the foregoing. The
representations and warranties contained herein are based on Borrower's due
diligence in investigating
07-17-1997
PROMISSORY NOTE
Page 2
(Continued)
the properties for hazardous waste. Borrower hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all claims
and losses resulting from a breach of this provision of this Note. This
obligation to indemnify shall survive the payment and satisfaction of this
Note.
CREDIT REPORTS. Any credit investigation information furnished to Lender by
any person, organization or credit reporting agency is authorized by Borrower
for the purpose of originating, reviewing the performance of, or collecting
this Note.
SALE OF ASSETS OR CHANGE IN OWNERSHIP. Borrower agrees and covenants that it
will not sell, lease, assign, transfer or otherwise dispose of any of its now
owned or hereafter acquired assets other than in the normal course of
business, and that the ownership of the borrowing entity will not change
during the period of this loan, including any extensions, modifications or
renewals thereof, without the prior written consent of Lender.
LIMITATION ON RIGHT OF SETOFF. Lender agrees that it will exercise its right
of setoff, as described above, only in the event of default under the terms of
the Note or any related document, including (without limitation) the Business
Loan Agreement, any Guaranty, any Mortgage, any Security Agreement, any Pledge
Agreement, or any Letter of Credit Reimbursement or similar agreement.
ADDITIONAL EVENT OF DEFAULT. Borrower will be in default if Borrower (or any
Grantor) fails to keep the Collateral insured.
ADDITIONAL LENDER'S RIGHTS. In the event of default, Lender may demand more
security or new parties obligated to pay the Note in return for not using any
other remedy.
<PAGE>
BANKRUPTCY ARREARAGES. If Borrower files a petition under the Bankruptcy Code
and seeks to pay any amount which is past due under this Note, Mortgage and
Security Agreement as of the date of filing of the petition through a Chapter
1 1 or 13 plan, Borrower agrees to pay Lender Interest on the amounts past due
(arrearages) at the Interest Rate. Interest will be calculated on the total
amount past due as of the date of filing of the petition (this may include
Interest on past due Interest and late charges) for the time required to pay
the past due amounts through the bankruptcy case.
AUTO-PAY FEATURE. If this loan contains an automatic payment option and the
automatic payment option is stopped for any reason, the discount will cease
and the rate will be increased to reflect termination of the discount.
PRIOR NOTE. NOTE #34.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive presentment, demand for payment, protest and notice of dishonor. Upon
any change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
VERMONT PURE HOLDINGS, LTD. (TIN: 13-3576606), VERMONT PURE SPRINGS, INC.
(TIN: 03-0330521)
VERMONT PURE HOLDINGS, LTD., BY: BRUCE MACDONALD, CHIEF FINANCIAL OFFICER.
VERMONT PURE SPRINGS, INC., BY: BRUCE MACDONALD, CHIEF FINANCIAL OFFICER
COMMERCIAL SECURITY AGREEMENT
Borrower: VERMONT PURE HOLDINGS, LTD.(TIN: 13-3576606), VERMONT PURE SPRINGS,
INC. (TIN: 03-0330521) P.O. BOX C RANDOLPH, VT 05060
Lender: CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN BANK Burlington Two Burlington
Square Burlington, VT 05401
THIS COMMERCIAL SECURITY AGREEMENT Is entered Into between VERMONT PURE
HOLDINGS, LTD. (TIN: 13-3576606), VERMONT PURE SPRINGS, INC. (TIN: 03-0330521)
(referred to below as "Grantor"); and CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN
BANK (referred to below as "Lender"). For valuable consideration, Grantor grants
to Lender a security interest In the Collateral to secure the Indebtedness and
agrees that Lender shall have the rights stated in this Agreement with respect
to the Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Commercial Security Agreement, as
this Commercial Security Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Commercial
Security Agreement from time to time.
Collateral. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
All inventory, accounts, equipment, general intangibles and fixtures
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising,
and wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b)All products and produce of any of the property described in
this Collateral section.
(c)All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
<PAGE>
Grantor. The word "Grantor" means VERMONT PURE HOLDINGS, LTD. (TIN:
13-3576606), VERMONT PURE SPRINGS, INC. (TIN:03-0330621), its successors
and assigns.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the
word "Indebtedness" includes all other obligations, debts and liabilities,
plus interest thereon, of Grantor, or any one or more of them, to Lender,
as well as all claims by Lender against Grantor, or any one or more of
them, whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Grantor may be liable individually or
jointly with others; whether Grantor may be obligated as guarantor,
surety, accommodation party or otherwise; whether recovery upon such
indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such indebtedness may be or hereafter may become
otherwise unenforceable.
Lender. The word "Lender" means CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN
BANK, its successors and assigns.
Note. The word "Note" means the note or credit agreement dated July 17,
1997, in the principal amount of $1,814,461.73 from VERMONT PURE HOLDINGS,
LTD. (TIN: 13-3576606), VERMONT PURE SPRINGS, INC. (TIN: 03-0330521) to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or
credit agreement.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts.
<PAGE>
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to
Lender for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any
financing statement or of this Agreement for use as a financing statement.
Grantor will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This is a continuing Security Agreement and will continue In
effect even though all or any part of the Indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral
have authority and capacity to contract and are in fact obligated as they
appear to be on the Collateral. At the time any account becomes subject to
a security interest in favor of Lender, the account shall be a good and
valid account representing an undisputed, bona fide indebtedness incurred
by the account debtor, for merchandise held subject to delivery
instructions or theretofore shipped or delivered pursuant to a contract of
sale, or for services theretofore performed by Grantor with or for the
account debtor; there shall be no setoffs or counterclaims against any
such account; and no agreement under which any deductions or discounts may
be claimed shall have been made with the account debtor except those
disclosed to Lender in writing.
Location of the Collateral. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased
by Grantor; (b) all real property being rented or leased by Grantor; lo)
all storage facilities owned, rented, leased, or being used by Grantor;
and (d) all other properties where Collateral is or may be located. Except
in the ordinary course of its business, Grantor shall not remove the
Collateral from its existing locations without the prior written consent
of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall
not remove the Collateral from its existing locations without the prior
<PAGE>
07-17-1997
COMMERCIAL SECURITY AGREEMENT
Page 2
(Continued)
written consent of Lender. To the extent that the Collateral consists of
vehicles, or other titled property, Grantor shall not take or permit any
action which would require application for certificates of title for the
vehicles outside the State of Vermont, without the prior written consent
of Lender.
Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a transfer
in partial or total satisfaction of a debt or any bulk sale. Grantor shall
not pledge, mortgage, encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or charge, other than
the security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if junior
in right to the security interests granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral (for
whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this requirement shall
not constitute consent by Lender to any sale or other disposition. Upon
receipt, Grantor shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
Collateral Schedules and Locations. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and
equipment, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each
<PAGE>
of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the return, rejection, repossession, loss or damage of
or to any Collateral; of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse
judgment before enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond furnished in the
contest proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. C'CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
('SARA'), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also include, without
limitation, petroleum and petroleum by-products or any fraction thereof
and asbestos. The representations and warranties contained herein are
based on Grantor's due diligence in investigating the Collateral for
hazardous wastes and substances. Grantor hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the
event Grantor becomes liable for cleanup or other costs under any such
laws, and lb) agrees to indemnify and hold harmless Lender against any and
all claims and losses resulting from a breach of this provision of this
Agreement. This obligation to indemnify shall survive the payment of the
Indebtedness and the satisfaction of this Agreement.
<PAGE>
Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis
reasonably acceptable to Lender and issued by a company or companies
reasonably acceptable to Lender. Grantor, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least ten (10)
days' prior written notice to Lender and not including any disclaimer of
the insurer's liability for failure to give such a notice. Each insurance
policy also shall include an endorsement providing that coverage in favor
of Lender will not be impaired in any way by any act, omission or default
of Grantor or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest, Grantor
will provide Lender with such loss payable or other endorsements as Lender
may require. If Grantor at any time fails to obtain or maintain any
insurance as required under this Agreement, Lender may (but shall not be
obligated to) obtain such insurance as Lender deems appropriate, including
if it so chooses "single interest insurance," which will cover only
Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or
restoration. If Lender does not consent to repair or replacement of the
Collateral, Lender shall retain a sufficient amount of the proceeds to pay
all of the Indebtedness, and shall pay the balance to Grantor. Any
proceeds which have not been disbursed within six (6) months after their
receipt and which Grantor has not committed to the repair or restoration
of the Collateral shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by Lender to
be sufficient to produce, at least fifteen (15) days before the premium
due date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-4nterest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining
<PAGE>
that value; and (f) the expiration date of the policy. In addition,
Grantor shall upon request by Lender (however not more often than
annually) have an independent appraiser satisfactory to Lender determine,
as applicable, the cash value or replacement cost of the Collateral.
GRANTORIS RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and
07-17-1997
COMMERCIAL SECURITY AGREEMENT
Page 3
(Continued)
other claims, at any time levied or placed on the Collateral, Lender also may
(but shall not be obligated to) pay all costs for Insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender for
such purposes will then bear interest at the rate charged under the Note from
the date incurred or paid by Lender to the date of repayment by Grantor. All
such expenses shall become a part of the Indebtedness and, at Lender's option,
will (a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (II) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of the
Related Documents or in any other agreement between Lender and Grantor.
<PAGE>
Default In Favor of Third Parties. Should Borrower or any Grantor default under
any loan, extension of credit, security agreement, purchase or sales agreement,
or any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower's property or Borrower's or any Grantor's
ability to repay the Loans or perform their respective obligations under this
Agreement of any of the Related Documents.
False Statements. Any warraniy, representation or statement made or furnished to
Lender by or on behalf of Grantor under this Agreement, the Note or the Related
Documents is false or misleading in any material respect, either now or at the
time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any time
and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a going
business, the insolvency of Grantor, the appointment of a receiver for any part
of Grantor's property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or by any governmental agency against
the Collateral or any other collateral securing the Indebtedness. This includes
a garnishment of any of Grantor's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or such Guarantor dies or becomes
incompetent.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Vermont Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any porlion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time of
repossession, Grantor agrees Lender may take such other goods, provided that
Lender makes reasonable efforts to return them to Grantor after
repossession.
<PAGE>
Sell the Collateral. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name or
that of Grantor. Lender may sell the Collateral at public auction or private
sale. Unless the Collateral threatens to decline speedily in value or is of
a type customarily sold on a recognized market, Lender will give Grantor
reasonable notice of the time after which any private sale or any other
intended disposition of the Collateral is to be made. The requirements of
reasonable notice shall be met if such notice is given at least ten (10)
days before the time of the sale or disposition. All expenses relating to
the disposition of the Collateral, including without limitation the expenses
of retaking, holding, insuring, preparing for sale and selling the
Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall have
the following rights and remedies regarding the appointment of a receiver: (a)
Lender may have a receiver appointed as a matter of right, (b) the receiver may
be an employee of Lender and may serve without bond, and (c) all fees of the
receiver and his or her attorney shall become part of the Indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a receiver,
may collect the payments, rents, income, and revenues from the Collateral.
Lender may at any time in its discretion transfer any Collateral into its own
name or that of its nominee and receive the payments, rents, income, and
revenues therefrom and hold the same as security for the Indebtedness or apply
it to payment of the Indebtedness in such order of preference as Lender may
determine. Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or similar
property, Lender may demand, collect, receipt for, settle, compromise, adjust,
sue for, foreclose, or realize on the Collateral as Lender may determine,
whether or not Indebtedness or Collateral is then due. For these purposes,
Lender may, on behalf of and in the name of Grantor, receive, open and dispose
of mail addressed to Grantor; change any address to which mail and payments are
to be sent; and endorse notes, checks, drafts, money orders, documents of title,
instruments and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining on the
Indebtedness due to Lender after application of all amounts received from the
exercise of the rights provided in this Agreement. Grantor shall be liable for a
deficiency even if the transaction described in this subsection is a sale of
accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of a
secured creditor under the provisions of the Uniform Commercial Code, as may be
amended from time to time. In addition, Lender shall have and may exercise any
or all other rights and remedies it may have available at law, in equity, or
otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by
this Agreement or the Related Documents or by any other writing, shall be
cumulative and may be exercised singularly or concurrently. Election by Lender
to pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
<PAGE>
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of Vermont. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of Chittenden
County, the State of Vermont. Lender and Grantor hereby waive the right to any
jury trial in any action, proceeding, or counterclaim brought by either Lender
or Grantor against the other. This Agreement shall be governed by and construed
in accordance with the laws of the State of Vermont.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's
costs and expenses, including attorneys' fees and Lender's legal expenses,
incurred in connection with the enforcement of this Agreement. Lender may pay
someone else to help enforce this Agreement, and Grantor shall pay the costs and
expenses of such enforcement. Costs and expenses include Lender's attorneys'
fees and legal expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (and including efforts to
modify or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all court costs and
such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Notices. All notices required to be given under this Agreement shall be given in
writing, may be sent by telefacsimile, and shall be effective when actually
delivered or when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage prepaid addressed to
the party to whom the notice is to be given at the address shown above. Any
party may change its address for notices
07-17-1997
COMMERCIAL SECURITY AGREEMENT
Page 4
(Continued)
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address. To
the extent permitted by applicable law, if there is more than one Grantor,
notice to any Grantor will constitute notice to all Grantors. For notice
purposes, Granior will keep Lender informed at all times of Grantor's current
address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover all
sums of money or other property which may now or hereafter become due, owing
or payable from the Collateral; (b) to execute, sign and endorse any and all
claims, instruments, receipts, checks, drafts or warrants issued in payment
for the Ccllateral; (c) to settle or compromise any and all claims arising
under the Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any claim
or claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or otherwise,
which in the discretion of Lender may seem to be necessary or advisable.
This power is given as security for the Indebtedness, and the authority
hereby conferred is and shall be irrevocable and shall remain in full force
and effect until renounced by Lender.
<PAGE>
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
cirdumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
LIMITATION ON RIGHT OF SETOFF. Lender agrees that it will exercise its right of
setoff, as described above, only in the event of default under the terms of the
Note or any related document, including (without limitation) the Business Loan
Agreement, any Guaranty, any Mortgage, any Security Agreement, any Pledge
Agreement, or any Letter of Credit Reimbursement or similar agreement.
ADDITIONAL EVENTS OF DEFAULT. Additional events of default include: a) the
Grantor changing its name or assuming an additional name without first notifying
Lender or b) the Grantor failing to plant, cultivate and harvest crops in due
season.
ADDITIONAL RIGHTS AND REMEDIES ON DEFAULT. Lender may demand more security or
new parties obligated to pay any debt Borrower owes to Lender as a condition of
giving up any other remedy.
LIMITATION ON GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Lender
agrees that it will not exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness unless an event of default occurs under the terms of the
Security Agreement, Note, or related documents.
TITLE DISCLOSURE. Borrower will provide to Lender written disclosure of any
liens and encumbrances on the collateral in addition to Lender's lien and such
disclosure will serve to qualify, and not contradict, the representations and
warranties of the Title provision above.
HAZARDOUS SUBSTANCES DISCLOSURE. Borrower will provide to Lender written
disclosure of any prior use of the collateral for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened release of
any hazardous waste or substance. This disclosure shall serve to qualify, and
not contradict, the representations and warranties of the Hazardous Substances
provision above.
BANKRUPTCY ARREARAGES. If Borrower files a petition under the Bankruptcy Code
and seeks to pay any amount which is past due under this Note, Mortgage and
Security Agreement as of the date of filing of the petition through a Chapter I
I or 13 plan, Borrower agrees to pay Lender Interest on the amounts past due
(arrearages) at the Interest Rate. Interest will be calculated on the total
amount past due as of Ihe date of filing of the petition (this may include
Interest on past due Interest and late charges) for the time required to pay the
past due amounts through the bankruptcy case.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS.THIS AGREEMENT IS DATED JULY 17,1997.
GRANTOR:
VERMONT PURE HOLDINGS, LTD. (TIN: 13-3576606), VERMONT PURE SPRINGS, INC.
(TIN: 03-0330521)
VERMONT PURE HOLDINGS, LTD., BY: BRUCE MACDONALD, CHIEF FINANCIAL OFFICER
VERMONT PURE SPRINGS, INC., BY: BRUCE MACDONALD, CHIEF FINANCIAL OFFICER
LENDER:
CHITTENDEN TRUST COMPANY d/b/a CHITTENDEN BANK
By:
Authorized Officer
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<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000885040
<NAME> VERMONT PURE HOLDINGS, LTD.
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-START> OCT-27-1996
<PERIOD-END> JUL-26-1997
<EXCHANGE-RATE> 1
<CASH> 247,854
<SECURITIES> 0
<RECEIVABLES> 2,840,875
<ALLOWANCES> 261,163
<INVENTORY> 550,109
<CURRENT-ASSETS> 3,518,237
<PP&E> 8,963,173
<DEPRECIATION> 2,636,685
<TOTAL-ASSETS> 12,157,942
<CURRENT-LIABILITIES> 3,800,918
<BONDS> 3,773,098
0
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<COMMON> 9,716
<OTHER-SE> 4,574,210
<TOTAL-LIABILITY-AND-EQUITY> 21,157,942
<SALES> 12,255,738
<TOTAL-REVENUES> 12,255,738
<CGS> 5,361,124
<TOTAL-COSTS> 5,361,124
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 230,939
<INCOME-PRETAX> (42,568)
<INCOME-TAX> 0
<INCOME-CONTINUING> (42,568)
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<NET-INCOME> (42,568)
<EPS-PRIMARY> (.00)
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