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 April 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 June 6, 1997
Common Stock, $.001 Par Value 9,716,363
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
INDEX
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Page Number
Part I - Financial Information
<S> <C> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as at
April 26, 1997 (unaudited) and
October 26, 1996 4
Consolidated Statements of Operations
(unaudited) for the Three Months and Six Months
ended April 26, 1997 and April 27, 1996 5
Consolidated Statements of Cash Flows
(unaudited) for the Six Months ended
April 26, 1997 and April 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 - 12
Part II - Other Information 13 - 14
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 15
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2
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Page Number
Exhibit Index 16
Asset Purchase Agreement dated February 19, 1997 between
Vermont Pure Springs, Incorporated and Greatwater Refreshment
Services, Incorporated
3
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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April 26, October 26,
1997 1996
------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 540,825 $ 783,081
Accounts receivable 1,711,130 1,159,806
Inventory 554,981 783,156
Other current assets 160,201 159,145
------------------- -------------------
TOTAL CURRENT ASSETS 2,967,137 2,885,188
-------------------- -------------------
PROPERTY AND EQUIPMENT - net of accumulated depreciation 5,649,885 5,536,185
------------------ -------------------
OTHER ASSETS:
Intangible assets - net of accumulated amortization 1,832,708 1,317,082
Other assets 25,589 232,939
------------------- -------------------
TOTAL OTHER ASSETS 1,858,297 1,550,021
------------------- -------------------
TOTAL ASSETS $ 10,471,319 $ 9,971,394
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,317,108 $ 879,669
Customer deposits 518,664 421,137
Accrued expenses 507,289 446,507
Line of credit 552,616 441,811
Current portion of long term debt 313,834 197,239
Current portion of obligations under capital lease 63,588 180,183
------------------- -------------------
TOTAL CURRENT LIABILITIES 3,273,099 2,566,546
Long term debt 3,120,463 2,779,408
Obligations under capital lease 57,848 98,945
------------------- -------------------
TOTAL LIABILITIES 6,451,410 5,444,899
------------------- -------------------
STOCKHOLDERS' EQUITY:
Common stock - $.001 par value, 20,000,000 9,716 9,678
authorized shares, 9,678,268 issued and outstanding
shares at October 26, 1996 and 9,716,363 issued and
outstanding shares at April 26, 1997
Paid in capital 21,499,381 21,399,420
Accumulated deficit (17,485,188) (16,882,603)
------------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 4,023,909 4,526,495
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,475,319 $ 9,971,394
=================== ===================
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4
SEE NOTES TO FINANCIAL STATEMENTS
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
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Six months ended Three months ended
-------------------------------------------------------------------------------------------------
April 26, April 27, April 26, April 27,
1997 1996 1997 1996
-------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SALES $ 6,531,677 $ 3,585,121 $ 4,216,262 $ 2,315,090
COST OF GOODS SOLD 3,089,297 2,117,717 1,858,402 1,326,482
------------------ ------------------ ------------------ ------------------
GROSS PROFIT 3,442,380 1,467,404 2,357,860 988,608
------------------ --------------- ------------------ ------------------
OPERATING EXPENSES:
Selling, general and
administrative expense 2,547,797 1,645,742 1,310,311 859,586
Advertising expenses 1,265,030 941,301 844,374 537,457
Amortization 82,403 45,702 47,804 22,851
------------------ ------------------ ------------------ ------------------
TOTAL OPERATING EXPENSES 3,895,230 2,632,745 2,202,489 1,419,894
------------------ ------------------ ------------------ ------------------
PROFIT (LOSS) FROM OPERATIONS (452,850) (1,165,341) 155,371 (431,286)
------------------ ------------------ ------------------ ------------------
OTHER INCOME (EXPENSE):
Interest - net (151,871) (53,847) (78,880) (31,578)
Miscellaneous 2,136 3,200 (8,835) 4,035
------------------ ------------------ ------------------ ------------------
TOTAL OTHER INCOME (EXPENSE) (149,735) (50,647) (87,715) (27,543)
------------------ ------------------ ------------------ ------------------
NET PROFIT (LOSS) $ (602,585) $ (1,215,988) $ 67,656 $ (458,829)
================== ================== ================== ==================
NET PROFIT (LOSS) PER SHARE $ (0.06) $ (0.13) $ 0.01 $ (0.05)
================== ================== ================== ==================
Weighted Average Shares Used
in Computation 9,687,792 9,678,268 9,697,316 9,678,268
================== ================== ================== ==================
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5
SEE NOTES TO FINANCIAL STATEMENTS.
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
-------------------------------------------------
April 26, April 27,
1997 1996
-------------------------------------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (602,585) $ (1,215,988)
Adjustments to reconcile net loss to net cash from operating
activities:
Depreciation 268,327 284,204
Amortization 82,403 45,702
(Gain) loss on disposal of property and equipment 194 (4,205)
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable (462,746) (220,131)
(Increase) Decrease in inventory 249,175 93,182
(Increase) Decrease in other current assets (1,056) 80,959
(Increase) Decrease in other assets 193,126 (12,959)
(Decrease) Increase in accounts payable 437,439 217,180
(Decrease) Increase in customer deposits 14,015 24,679
(Decrease) Increase in accrued expenses 60,782 257
----------------- ----------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 239,074 (707,120)
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (293,720) (210,692)
Proceeds from sale of fixed assets 40,500 5,117
Cash used in acquisition (383,295) 0
----------------- ----------------
CASH USED IN INVESTING ACTIVITIES (636,515) (205,575)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 110,805 577,588
Proceeds from debt 435,725 140,000
Principal payments of debt (391,345) (411,051)
----------------- ----------------
CASH PROVIDED BY FINANCING ACTIVITIES 155,185 306,537
----------------- ----------------
NET INCREASE (DECREASE) IN CASH (242,256) (606,158)
CASH - Beginning of period 783,081 1,543,260
----------------- ----------------
CASH - End of period $ 540,825 $ 937,102
================= ================
Cash paid for interest $ 183,772 $ 101,846
================= ================
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6
SEE NOTES TO FINANCIAL STATEMENTS
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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. ACQUISITION
On March 10, 1997, the Company completed the purchase of certain assets
and the assumption of selected liabilities associated with the
distribution of water to homes and offices in upstate New York from
Greatwater Refreshment Services, Inc. (GRS). The purchase price of
these assets was $580,000. Chittenden Bank financed $325,000 of the
purchase by increasing the amount of the Company's existing loan that
it initially made in connection with a 1996 acquisition. The balance of
the purchase price was settled by the assumption of selected operating
liabilities of $83,512, the issuance of a note to GRS of $75,000 which
was without interest and discounted at the Company's borrowing rate of
10%, and the issuance of 38,095 shares of the Company's common stock at
market value of $100,000, or $2.625
7
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per share, at the time of the purchase.
5. INTANGIBLE ASSETS
Goodwill that resulted from the acquisition of GRS assets will be
amortized over 30 years and was calculated as follows:
Purchase Price $580,000
Acquisition Costs 61,807
Fair Value of Tangible and Identifiable Intangible Assets (207,300)
---------
Total $434,507
=========
The purchase price includes $83,512 of deposit liability for acquired
GRS customers. In addition, the Company purchased $88,578 of GRS
receivables by agreeing to pay GRS that amount in weekly payments
cumulatively over the ten weeks following the aquisition. As of June 6,
1997, the amount was paid in full.
In conjunction with the acquisition of assets during the quarter, the
Company entered into non-competition agreements with two of the owners
of GRS, pursuant to which the owners will receive payments totaling an
aggregate of $92,000 over two years. The cost of these agreements will
be amortized over the two year non-competition term. The assets
acquired consisted primarily of bottles, coolers, vehicles, and mailing
lists.
6. LONG TERM DEBT
After increasing the amount payable under the Company's existing
acquisition note with Chittenden Bank in connection with the
acquisition of GRS assets, the principal balance of this note was
$1,531,281 as of March 10, 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 increase in
borrowing, Chittenden Bank lowered the interest rate on the note from
1.75% to 1.5% over the prime rate and approved the existing line of
credit for a one year renewal with the same decrease in interest rate.
7. STOCK ISSUE
As part of the agreement to purchase assets from GRS, the Company
issued 38,095 shares of the Company's common stock at $2.625, the fair
market value at the time the agreement was signed. The shares remain in
escrow pending performance of the acquired assets for one year from the
anniversary date of the sale.
8. 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. The distributor is
seeking monetary damages and injunctive relief. The Company has certain
defenses against the claim and counterclaims which it will assert
against the distributor at the appropriate time. The
8
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Company does not anticipate that the outcome of the suit will have a
material financial impact on the Company.
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.
9. SUBSEQUENT EVENT
On May 5, 1997 the Company received a commitment letter from Chittenden
Bank to renew its present line of credit agreement under the same terms
for a maximum of up to $1,500,000. Also, Chittenden Bank made available
an additional $2,500,000 with the same terms to finance acquisitions.
Under the commitment, the interest rate on these notes will be .5% over
the prime rate. The Company expects to finalize this agreement with
Chittenden Bank in the near future.
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 course actual results to differ materially from
historical earnings and those presently anticipated or projected. 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 occuring after the date of such statements.
Results of Operations
Sales - Sales for the first six months of fiscal year 1997 were $6,531,677, an
increase of $2,946,556 or 82% over the $3,585,121 reported for the corresponding
period last year. Sales for the quarter ending April 26, 1997 were $4,216,262,
an increase of $1,901,172 or 82% over the second 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 six months and second quarter of fiscal 1997
were 52% and 56% over the respective corresponding periods last year. Total
sales for the new division were $1,085,604 and $604,923 for the six months and
three months ending April 26, 1997, respectively.
Sales for retail-size products increased $1,739,944, or 62%, for the first six
months of fiscal year 1997 and $1,256,065, or 67%, for the first three months of
fiscal year 1997, compared to the respective periods a year ago. This increase
was a result of volume increases related to the introduction of new sizes of
products and continued growth of secondary labels. Average selling price was
substantially unchanged from the previous year. The total increase in sales, by
respective percentages for the six month and three month periods, was made up of
the following factors: 53% and 73% attributable to new product sizes, 22% and 6%
attributable to traditional Vermont Pure sizes, 15% and 14% attributable to
Hidden Spring, and 10% and 7% attributable to private labels.
Sales for the Vermont home and office division increased $144,624, or 20%, for
the first six months fiscal year 1997 and $64,630, or 16%, for the second
quarter of fiscal year 1997 compared to the respective periods for the prior
year.
Cost of Goods Sold - For the first six months, Cost of Goods Sold increased from
$2,117,717 in fiscal year 1996 to $3,089,297 in fiscal year 1997 resulting in
gross profits of $1,467,404 or 41% of sales for the first six months of fiscal
year 1996, and $3,442,380, or 53% of sales for the first six months of fiscal
year 1997. The increase in gross profit was due to a considerable increase in
sales volume and a decrease in raw material pricing. During the quarter, 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 six months of fiscal year 1997 compared to
the corresponding
10
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period in fiscal year of fiscal year 1996, total operating expenses were
$3,895,230 and $2,632,745, respectively, an increase of $1,262,485 or 48%. For
the second quarter of fiscal year 1997 compared to the second quarter of 1996
operating expenses were $2,202,489 and $1,419,894, respectively, an increase of
$782,595, or 55%. Selling, general and administrative expenses increased by
$902,055 for the first six months and $450,725 for the second quarter of fiscal
year 1997. The increase in these costs was due to conversion and operating costs
associated with the two acquisitions made in western New York in the previous 12
months. The two businesses have been combined into one operating division. Total
selling, general, and administrative expenses associated with this division were
$672,450 for the first six months of fiscal year 1997 and $378,284 for the
second quarter of fiscal year 1997. Exclusive of these amounts, selling,
general, and administrative expenses increased 14% for the six month period and
7% for the three month period as a result of increased sales volume. Advertising
expenses increased by $323,729, or 34%, for the six month period and $306,917,
or 57% 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. For the first six months and second quarter
of fiscal year 1997 amortization increased significantly from the corresponding
periods in fiscal year 1996 as a result of increased goodwill from the
acquisition of assets in western New York.
Given the 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.
Loss From Operations - Loss from Operations for the first six months of fiscal
year 1997 was $452,850, as compared to $1,165,341 for the same period last year,
an improvement of $712,491 or 61%. Profit from operations for the quarter ending
April 26, 1997 was $155,371 compared to a loss of $431,286 for the corresponding
period of the prior fiscal year, an improvement of $586,657. The decline in the
loss for the six months and the improvement for 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.
Net Loss - The Company's net loss for the first six months of fiscal year 1997
was $602,585 compared to $1,215,988 for the corresponding period last year, an
improvement of $613,403 or 50%. Net profit for the second quarter of fiscal year
1997 was $67,656 compared to a net loss of $458,829 for the second quarter of
the previous year. Net interest expense was $151,871 and $78,880 for the first
six months and three months of fiscal year 1997, respectively, compared to
$53,847 and $31,578 for the same 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 acquisition of assets
in western New York.
11
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Liquidity and Capital Resources
As of April 26, 1997, the Company had a working capital deficit of $305,962
compared to positive working capital of $318,642 at the end of its fiscal year
on October 26, 1996. Largely as a result of reduction of the net loss for the
first six months of the fiscal year, cash flow from operations showed an
improvement for the six month period as compared to the corresponding period in
fiscal year 1996. The net cash inflow improved to $239,074 from an outflow of
$606,158, for those respective periods. The Company's primary requirements
for capital continue to be for the marketing and promotional activities
needed to effec market penetration and expand sales and acquire operating
assets needed to accommodate the growth of the business. These requirements
will result in continued net cash outflows until sales increase sufficiently
to offset the Company's operating costs.
The decrease in working capital of $624,604 reflects the use of cash to fund the
operating loss and purchase equipment as well as scheduled debt repayment. As of
April 26, 1997 the Company had borrowed $552,616 on its line of credit compared
to $441,811 at the beginning of the fiscal year. The maximum amount available to
borrow as of that date was $1,238,658, 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 1.50%, which was 10.00% per
annum on June 6, 1997. The loan facility is secured by all the inventory,
receivables and intangible assets of the Company and expires July 1, 1997. The
Company has received a commitment from the Chittenden Bank to renew this
facility for two more years under the same terms with a maximum credit limit of
$1,500,000 and interest rate of prime rate plus .5% and expects to formally
accept this commitment in June 1997. In addition, the Chittenden Bank's
commitment included availability of $2,500,000 to finance acquisitions under the
same terms and interest rate.
The Company borrowed $325,000 from Chittenden Bank for the acquisition of assets
from GRS by increasing the amount owed to Chittenden Bank by the Company
pursuant to an acquisition note issued in May of 1996 and maturing in May of
1999. In addition to the note, the Company issued a note payable to GRS for
$75,000, payable in March 1998, without interest discounted 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 seek
additional sources of working capital in the future. If this 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.
12
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PART II - Other Information
Item 1 - Legal Proceedings
In February 1996, the Company commenced an action against Robert
Beattie and John Maguire, two former employees of the Company, in
Orange Superior Court in the State of Vermont (Vermont Pure Springs,
Inc. v. Robert Beattie and John Maguire, Docket No. S-33-2-96 Occv.).
The Company alleged that the defendants breached their contractual and
common law obligations concerning unfair competition and preservation
of Company trade secrets. The Company sought damages and injunctive
relief. On April 1, 1996 the Orange Superior Court entered a
preliminary injunction against both defendants prohibiting their
participation in a competing venture known as Montpelier Springs or
disclosing any confidential information of the Company to a third
party. The Court denied the Company's request for a writ of attachment.
Mr. Maguire filed a counterclaim and a third party complaint against
the Company and the Company's President seeking compensatory damages
and punitive damages of not less than $250,000 and attorneys' fees for
alleged breach of contract and unfair trade competition. Mr. Beattie
also filed a counterclaim seeking unspecified damages and attorneys'
fees. The action, with respect to Mr. Maguire, is still in the
discovery phase and it is unclear when it will proceed to trial on the
merits. The Company does not believe that Mr. Maguire's counterclaims
have any merit and intends to pursue the litigation and defend itself
vigorously.
On February 24, 1997, the Company reached a settlement with Mr.
Beattie. 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) On March 10, 1997 the Company issued 38,095 shares of its Common Stock
to Greatwater Refreshment Services, Inc. In connection with the
acquisition of certain assets of such company pursuant to an Asset
Purchase Agreement dated February 19, 1997 between the Company and
Greatwater Refreshment Services.
The issuance was made in reliance upon the exemption from registration
set forth in Section 4(2) of the Securities Act, relating to sales by
an issuer not involving any public offering.
Item 3 - Defaults upon Senior Securities
None
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Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
Exhibit # Description
10.1 Asset Purchase Agreement between Vermont Pure Springs, Inc. and
Greatwater Refreshment Services, Inc. dated February 19, 1997
14
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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: June 6, 1997
Randolph, Vermont
VERMONT PURE HOLDINGS, LTD.
By:/s/Bruce S. MacDonald
Bruce S. MacDonald
Vice President, Chief Financial Officer
(Principal Accounting Officer and Principal
Financial Officer)
15
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EXHIBIT INDEX
Exhibit # Description
10.1 Asset Purchase Agreement between Vermont Pure Springs, Inc. and
Greatwater Refreshment Services, Inc. dated February 19, 1997
16
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into on this 19th day of
February, 1997, by and between VERMONT PURE SPRINGS, INC. (VPS) a Delaware
corporation with its principal place of business in Randolph, Vermont ("BUYER")
and GREATWATER REFRESHMENT SERVICES, INC. (GRS), a Delaware corporation with its
principal place of business in 3545 John Glenn Boulevard, Syracuse, New York
13209 ("SELLER").
RECITALS
WHEREAS, VPS is a company engaged in the bottling and sale of natural
spring water with its manufacturing facility and principal place of business in
Randolph Center, VT and
WHEREAS, GRS is a company, engaged in the sale and distribution of
bottled water and coffee, and the rental of cooler/dispenser equipment for home
and office customers with its principal place of business in Syracuse, NY, and
WHEREAS, both Parties desire to enter into agreements by which VPS
shall (i) purchase the business of GRS related to bottled water, certain coffee
accounts, and the rental of cooler/dispenser equipment for home and office
customers.
NOW THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
I. ASSETS
A. Asset Purchase and Sale. Seller and Buyer mutually agree for the
Seller to sell, convey, transfer, assign and deliver to Buyer and Buyer to
purchase substantially all of the property of Seller, wherever located, tangible
and intangible, consisting of the following assets: vehicles, purchase orders,
telephone numbers, customer lists, and goodwill. (The assets being purchased and
sold hereunder are sometimes referred collectively as "Assets" and are
identified in Exhibit "A"). Assets of Seller not on the list are being retained
by Seller.
B. Liabilities. Buyer agrees to assume only those certain
operating labilities as set forth in Schedule "B".
C. Bill of Sale. Title to the Assets will be conveyed to Buyer by
Seller pursuant to a Bill of Sale, free and clear of all liens and encumbrances
except purchase money financing liens as described in Paragraph II. The form of
the Bill of Sale shall be approved by Buyer's counsel prior to the closing Date
(as hereinafter defined).
<PAGE>
II. PURCHASE PRICE
Purchase Price $580,000, provided that:
(i) $15,000 cash deposit at the signing of this Asset Purchase
Agreement, which deposit is refundable in the event that (a) this transaction
does not close on or before March 10, 1997 or (b) due diligence reveals a
material adverse variation in the projections, profit and loss, and cash flow,
(material" is defined to mean an adverse variation of at least 5% in the 1996
EBITDA and Cash Flow) or if the conditions precedent hereinafter defined are not
met prior to settlement; provided however, if the transaction does not close
because Buyer does not obtain financing, after using best efforts to obtain
financing, Buyer shall forfeit its $15,000 deposit. If the deposit is forfeited
to the SELLER pursuant to the terms of this paragraph II(i) herein, then the
remedies of the SELLER are limited to the forfeited monies and SELLER is
entitled to no further payments hereunder or for the failure to close the
transaction contemplated herein.
(ii) $305,000 of the Purchase Price to be paid in cash at
closing.
(iii) the assumption of liabilities in the amount of
$85,000 set forth in Exhibit "B";
(iv) the issuance of a Note by Buyer to Seller in the amount
of $75,000 and restricted stock in the amount of $100,000. If the gross revenues
of the Greatwater Refreshment Company Division of Buyer (to be defined as the
business acquired by this Asset Purchase Agreement) for the time period March
10, 1997 through March 9, 1998 do not equal $700,000, then the Note for the
restricted stock will be reduced or increased proportionately in an amount equal
to the minus/plus difference between the gross revenues of the Greatwater
Refreshment Company Division of Buyer for the time period March 10, 1997 through
March 9, 1998 and $700,000. The restricted securities shall be held in escrow by
Seller's attorney to facilitate the possible downward adjustment in the number
of shares. The Note shall be payable one year after Closing, subject to the
aforementioned adjustment and shall be in a form mutually agreeable by the
parties hereto and shall be secured by UCC filings and a security agreement on
the assets listed on attached Exhibit "C".
III. EXCLUDED SECURITIES AND LIABILITIES
It is agreed and understood that this is a purchase and sale of assets
(with limited assumption of certain operating liabilities). The securities of
the Seller are expressly excluded from this transaction. All liabilities not
enumerated in Schedule B, including without limitation, Utility, Taxing
Authority and Employment Claims are expressly excluded.
2
<PAGE>
IV. CONDUCT OF BUSINESS AND CONDITION OF PREMISES
PENDING SETTLEMENT
Prior to the Settlement:
A. The business of Seller will be conducted only in the ordinary
course, in accordance with all laws and regulations of the township, state, and
federal governments, and Seller shall not violate the terms of any existing
leases or contracts.
B. Seller will continue to operate the business in the manner
heretofore operated by Seller. Until Settlement date, a representative of the
Buyer shall have the right, during normal business hours, to visit the Seller's
place of business to examine Seller's books and records and to observe the
operation of the business.
C. Seller will keep all of the assets and the Premises fully
insured against any loss, either by fire, other casualty or theft.
D. GRS will use their best efforts to preserve GRS's organization. to
keep available the services of employees, and to preserve friendly relations
with its customers and trade creditor. Company shall make no representation or
promises with employees about future employment but Buyer will consider existing
employees for resumption of duties as appropriate.
E. In the event that prior to the date of Closing, the Assets shall be
totally or substantially lost or damages by fire or any other casualty, the
Buyer shall have the option to terminate this agreement or waive the diminution
in value and close under this Agreement buying the Assets "as is", in which
latter event it shall be entitled to treat the proceeds of any insurance paid to
Seller by reason of such loss or damage (excepting insurance for lost profits,
if any), as a payment on the purchase price or the Buyer shall have the right to
all insurance proceeds to apply the funds to repair and/or to reconstruct the
Assets.
V. SETTLEMENT
A. ("Settlement") shall take place on or before March 10,
1997 and on the date and time set forth by written notice from the
Buyer to the Seller at least ten (10) days in advance thereto.
B. Settlement shall be held in Syracuse, NY or such other
local place as Seller and Buyer shall agree.
C. Time shall be of the essence of this Agreement.
D. Any closing adjustments shall be apportioned pro rata as
3
<PAGE>
of the date of Settlement.
VI. BULK SALES ACT.
A. Buyer and Seller waive compliance with the applicable
Bulk Sales Act. Seller and its majority shareholder shall
indemnify and hold Buyer harmless for any loss to Buyer arising out
of such non-compliance . Mr. David Palmer will sign and deliver,
at c losing, an indemnification agreement in accordance with this
Paragraph.
VII. SELLER'S WARRANTIES.
A. The Seller represents and warrants to Buyer that as of
the date of this Agreement and as of the date of the Settlement,
that:
(i) The Seller is a corporation duly organized and existing in
good standing under the laws of the State of Delaware with the corporate power
to own its assets and carry on its business as is now being conducted.
(ii) Seller has good and marketable title and the right of
sole possession and control of all the assets being sold pursuant to this
Agreement, and that such assets at the time of Settlement will not be subject to
any mortgages, pledges, liens, encumbrances, security interest, or charges,
except as described in Paragraph II (iv).
B. The Seller represents that to the best of the Seller's
knowledge, information and belief:
(i) The Seller is in compliance with all applicable laws,
ordinances, rules, regulations, and requirements of all governmental authorities
having jurisdiction thereof, and that Seller has complied with all laws,
municipal ordinances, and regulations of all governmental authorities having
jurisdiction thereof, and that Seller has complied with all laws, municipal
ordinances, and regulations applicable to Seller and in the ownership of the
assets and the business hereunder.
(ii) There are no actions, suits, or proceedings pending or
threatened against Sellers, either at law or in equity, brought by any federal,
state, or municipal or other governmental agency, department, board, bureau, or
other instrumentality.
(iii) All federal, state, and local tax returns required to be
filed have been filed, all deficiencies proposed have either been paid or
settled or are included in an account for accrued taxes; all withholding,
unemployment, social security, excise interest have been paid or will be paid by
Seller after
4
<PAGE>
Settlement from funds set aside at Settlement.
(iv) All financial information provided to the Buyer is
accurate and in accordance with the books and records of the Company, and fairly
represents the financial condition, assets and liabilities of the Company.
(v) Neither Seller nor any direct or indirect shareholder
thereof has made any agreement or taken any action which might cause anyone to
become entitled to a broker's fee or commission.
C. If Seller obtains any knowledge or information between the date
hereof and Settlement, making or indicating that any of the aforesaid warranties
or representations are no longer true, or indication that any of the
representations and conditions set forth in this Section VII hereof are not true
and cannot be made true by the Seller by the time of Settlement, or will no
longer be true as of the date of Settlement, Seller will promptly notify Buyer
of such change in circumstances.
VIII. CONDITIONS PRECEDENT
All obligations of the Buyer under this Agreement are subject to fulfillment,
prior to or at Settlement, of each of the following conditions:
A. Due Diligence. Buyer has been afforded the opportunity
to conduct due diligence on the business and operations of the
Seller and is satisfied, in its reasonable discretion, that the
business is as represented to VPS prior to entering into this Asset
Purchase Agreement.
B. Representation and Warranties. The representations and
warranties of Seller contained in this Agreement being true at the
time of Settlement as though such representations and warranties
were made at such time.
C. Compliance with Agreement. Seller shall have performed
and complied with all agreements and conditions required by this
Agreement to be performed or complied with by prior to or at
closing.
D. Opinion of counsel. Seller shall have delivered to
Buyer, in form and content satisfactory to Buyer's counsel, an
opinion of its counsel issued to Buyer to the effect that:
(i) Seller has been duly incorporated and is existing as
a corporation in good standing under the laws of the State of
Delaware.
(ii) This transaction and its terms do not violate any
5
<PAGE>
provisions of Seller's Articles of Incorporation or Bylaws;
(iii) Seller has taken all shareholder, director and
other actions necessary to authorize the transactions contemplated
by the parties hereto;
(iv) Seller has the authority to carry on the business
presently being conducted by Company;
(v) Seller has full power and authority to sell, assign
and transfer the Assets sold pursuant to this Agreement.
E. Documentation. Negotiation and preparation of
definitive documents, including all collateral documents, governing
the transactions contemplated herein under terms and conditions
acceptable to Buyer's and Seller's counsel.
F. Financing. Buyer obtains financing for the purchase
of assets herein described on terms acceptable to the Buyer.
G. Seller's Shareholder Approval. Seller shall have
obtained the necessary Shareholder approval for this transaction.
H. Non-Compete Agreement. Buyer and David Palmer shal
execute and deliver at Closing the Non-Compete Agreement attached
as Exhibit "D".
IX. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
A. Seller and its directors, shall not, during the term of this
Agreement or at any time for a period of two years following closing, unless
authorized to do so in writing by the Buyer, directly or indirectly disclose or
permit to be known to, or used for the benefit of, any person, corporation or
other entity (outside of the employ of the Company), or itself, any confidential
information. For the purposes of this Section IX, the term confidential
information shall include, but not be limited to, confidential or proprietary
knowledge or information with respect to the conduct or details of the Seller's
business including, but not limited to, lists of customers of the Buyer's
business, pricing strategies, or marketing methods. Confidential information
does not include matters which are generally known outside of the Buyer, public
knowledge or in the public domain.
B. All confidential information described in Section IX (A) shall be
the exclusive property of the Buyer, and Seller shall use its best efforts to
prevent any publication or disclosure thereof.
C. The provisions of this Section IX shall survive the
closing and shall continue for a period of two years.
6
<PAGE>
X.RESTRICTIVE COVENANT
In order to protect the Buyer in its full beneficial use and
enjoyment of the goodwill, assets, business relationships, marketing techniques
and other know-how acquired as a result of this Agreement, for a period of two
(2) years after the closing of this Agreement, Seller, including its officers
and directors will not, within the United States of America, directly or
indirectly compete with the Buyer in the home/office distribution of distilled
water, spring or carbonated water, or coffee/tea products and will not either
(i) solicit any persons or entities known to be customers of the Buyer to
purchase any of the aforementioned products; or (ii) solicit or induce any
employee of the Buyer to leave such employment to take a position with Seller or
with any company for which any officer or director then works. During the
aforesaid period, Seller shall not make any statements or commit any acts
(including contacting any of the Buyer's customers that would in any way be
tortiously injurious or detrimental to the Company's image, business or customer
relations. The provisions of this Section X shall survive the termination, for
any reason, of this Agreement and shall continue for the two year period
contemplated by this Section X.
XI. GOVERNING LAW
This Agreement shall be construed, interpreted and enforced in
accordance with the laws of the State of New York.
XII. TERMS SEVERABLE
In the event that any term or provision hereof or the
application thereof to persons or circumstances shall to any extent be invalid
or unenforceable, then the remainder of this Agreement shall not be affected
thereby and each term or provision hereof shall be valid and enforced to the
fullest extent permitted by law.
XIII. SURVIVAL OF TERMS
The terms of this Agreement, including but not limited to the
warranties, representations and covenants made by the parties hereto, shall
survive for a period of one (1) year from the Closing Date and the Seller shall
remain liable for any deficiency arising from any breach of the same.
XIV. FORCE MAJEURE
The failure of or delay in compliance with any of the terms
and conditions of this Agreement by either party shall be excused if said
failure or delay is due to an Act of God, fire, flood, strike, labor dispute,
accident, act of government or any similar cause beyond the reasonable control
of said party.
7
<PAGE>
XV. ENTIRE AGREEMENT
This Agreement, including the Preambles, and any other
document or exhibit incorporated herein by reference sets forth the entire
understanding of the parties. It shall not be changed or terminated orally. This
Agreement may be executed in one or more counterparts each of which shall be
deemed an original but all of which together shall constitute one and the same
document.
XVI. NOTICE
Notices required under this Agreement shall be in writing sent
by certified mail and facsimile to the representatives of the parties as
follows:
Vermont Pure Springs, Inc.
Route 66
Randolph Center, VT 05061
Attn: Timothy G. Fallon
Facsimile (802) 728-4814
With Copy to:
Kevin F. Berry, Esquire
Ledgewood Law Firm
1521 Locust Street
Philadelphia, PA 19102
Facsimile: (215) 735-2513
To Seller:
Great Water Refreshment Services, Inc.
3545 John Glenn Boulevard
Syracuse, NY 13209
Att: David G. Palmer
Facsimile: (315) 457-4504
With Copy to:
Lowell A. Seifter, Esquire
Green & Seifter
One Lincoln Center
Syracuse, NY 13202
Facsimile: (315) 422-3549
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day, month and year first written above.
WITNESS: VERMONT PURE SPRINGS, INC.
______________________ By:_____________________________
Name:___________________________
Title:__________________________
GREATWATER REFRESHMENT
SERVICES, INC.
WITNESS:
_______________________ By:___________________________
Name:_________________________
Title:________________________
9
<PAGE>
Exhibit A
See Attached
<PAGE>
Exhibit B
A. Assumption of existing debt to customers for bottle
and cooler deposits in the amount of $85,000.
<PAGE>
Exhibit C
1. 1990 Ford Truck VIN #FDXR82AXLVA14418
2. 1993 Ford Van VIN #1FTFE24H7PHB81939
3. 1993 Ford Van VIN #1FTFE24H1PHB83279
4. 1994 International VIN #1HTSDPPN1RH566600
5. 1990 Isuzu VIN #JALC5B1U6L300I523
<PAGE>
Exhibit D
Non-Compete Agreement
<TABLE> <S> <C>
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<CIK> 0000885040
<NAME> VERMONT PURE HOLDINGS, LTD
<MULTIPLIER> 1
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-START> OCT-27-1996
<PERIOD-END> APR-26-1997
<EXCHANGE-RATE> 1
<CASH> 540,825
<SECURITIES> 0
<RECEIVABLES> 1,972,293
<ALLOWANCES> 261,163
<INVENTORY> 554,981
<CURRENT-ASSETS> 2,967,137
<PP&E> 7,734,524
<DEPRECIATION> (2,084,639)
<TOTAL-ASSETS> 10,475,319
<CURRENT-LIABILITIES> 3,273,099
<BONDS> 3,178,311
0
0
<COMMON> 9,716
<OTHER-SE> 4,014,193
<TOTAL-LIABILITY-AND-EQUITY> 10,475,379
<SALES> 6,531,677
<TOTAL-REVENUES> 6,531,677
<CGS> 3,089,297
<TOTAL-COSTS> 3,089,287
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 52,808
<INTEREST-EXPENSE> 151,871
<INCOME-PRETAX> (602,585)
<INCOME-TAX> 0
<INCOME-CONTINUING> (602,585)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (602,585)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
