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 January 25, 1997
Commision File No. 0-25686
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 March 7, 1997
Common Stock, $.001 Par Value 9,678,268
<PAGE>
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet as at
January 25, 1997 (unaudited) and
October 26, 1996 3
Consolidated Statement of Operations
(unaudited) for the Three Months
ended January 25, 1997 and January 27, 1996 4
Consolidated Statement of Cash Flows
(unaudited) for the Three Months Months ended
January 25, 1997 and January 27, 1996 5
Notes to Consolidated Financial Statements
(unaudited) 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 9
Part II - Other Information 10
Item 1. Legal Proceedings
Item 2. Changes in Securities 10-11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
Exhibit Index 13
10.1 Consulting Agreement between the Company and Corporate
Investors Network, Inc. dated December 1, 1996
10.2 Warrant Agreement between the Company and Eugene F. Malone
dated December 1, 1996
27 Financial Data Schedule
</TABLE>
<PAGE>
PART I - Item 1
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
January 25, October 26,
1997 1996
----------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 706,976 $ 783,081
Accounts receivable 997,384 1,159,806
Inventory 799,202 783,156
Other current assets 201,754 159,145
----------- -----------
TOTAL CURRENT ASSETS 2,705,316 2,885,188
----------- -----------
PROPERTY AND EQUIPMENT - net of accumulated depreciation 5,563,243 5,536,185
----------- -----------
OTHER ASSETS:
Intangible assets - net of accumulated amortization 1,282,483 1,317,082
Other assets 109,584 232,939
----------- -----------
1,392,067 1,550,021
----------- -----------
$ 9,660,626 $ 9,971,394
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 719,417 $ 879,669
Customer deposits 419,767 421,137
Accrued expenses 622,107 446,507
Line of credit 797,127 441,811
Current portion of long term debt 197,239 197,239
Current portion of obligations under capital lease 180,183 180,183
----------- -----------
TOTAL CURRENT LIABILITIES 2,935,840 2,566,546
Long term debt 2,769,587 2,779,408
Obligations under capital lease 98,945 98,945
----------- -----------
TOTAL LIABILITIES 5,804,372 5,444,899
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - $.001 par value, 20,000,000 9,678 9,678
authorized shares, 9,678,268 issued and outstanding
shares at October 26, 1996 and January 25, 1997
Paid in capital 21,399,420 21,399,420
Accumulated deficit (17,552,844) (16,882,603)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,856,254 4,526,495
------------ ------------
$ 9,660,626 $ 9,971,394
============ ============
</TABLE>
3
See notes to financial statements
<PAGE>
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
------------------
January 25, January 27,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
SALES $ 2,315,415 $ 1,270,031
COST OF GOODS SOLD 1,230,895 791,235
----------- -----------
GROSS PROFIT 1,084,520 478,796
----------- -----------
OPERATING EXPENSES:
Selling, general and administrative expense 1,237,486 786,156
Advertising expenses 420,656 403,844
Amortization 34,599 22,851
----------- -----------
TOTAL OPERATING EXPENSES 1,692,741 1,212,851
----------- -----------
PROFIT (LOSS) FROM OPERATIONS (608,221) (734,055)
----------- -----------
OTHER INCOME (EXPENSE):
Interest - net (72,991) (22,269)
Miscellaneous 10,971 (835)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (62,020) (23,104)
----------- -----------
NET PROFIT (LOSS) $ (670,241) $ (757,159)
=========== ===========
NET PROFIT (LOSS) PER SHARE ($0.07) ($0.08)
=========== ===========
Weighted Average Shares Used in Computation 9,678,268 9,678,268
=========== ===========
</TABLE>
4
See notes to financial statements
<PAGE>
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
------------------
January 25, January 27,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (670,241) $ (757,159)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation 175,734 135,153
Amortization 34,599 22,851
(Gain) loss on disposal of property and equipment (10,248) 0
----------- -----------
(470,156) (599,155)
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable 162,422 112,561
(Increase) Decrease in inventory (16,046) 79,990
(Increase) Decrease in other current assets (42,609) 75,633
(Increase) Decrease in other assets 123,355 545
(Decrease) Increase in accounts payable (160,252) (26,489)
(Decrease) Increase in customer deposits (1,370) 1,204
(Decrease) Increase in accrued expenses 175,600 (161,774)
----------- -----------
CASH USED IN OPERATING ACTIVITIES (229,056) (517,485)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (209,180) (65,858)
Proceeds from sale of fixed assets 16,636 1,074
----------- -----------
CASH USED IN INVESTING ACTIVITIES (192,544) (64,784)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 355,316 255,858
Proceeds from debt 110,725 0
Principal payments of debt (120,546) (98,363)
----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES 345,495 157,495
----------- -----------
NET INCREASE (DECREASE) IN CASH (76,105) (424,774)
CASH - Beginning of period 783,081 1,543,260
----------- -----------
CASH - End of period $ 706,976 $ 1,118,486
=========== ===========
Cash paid for interest $ 87,410 $ 16,835
=========== ===========
</TABLE>
5
See notes to financial statements
<PAGE>
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS FOR 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. LONG TERM DEBT
The Company acquired additional manufacturing equipment during the
first quarter of fiscal year 1997 with an estimated value of $170,000.
Approximately $110,000 of this was financed by CFX Bank for a term of
three years at an annual percentage rate of 9.86%.
3. 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.
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 them from pursuing ventures competitive to the
6
<PAGE>
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.
4. SUBSEQUENT EVENTS
A. Asset Purchase
On February 19, 1997 the Company entered into an Asset Purchase
Agreement to purchase certain assets associated with the distribution
of water to homes and offices. The purchase price of these assets is
$580,000. Chittenden Bank has approved financing of up to $325,000 for
the purchase as an extension of the Company's existing loan for a 1996
acquisition. After the new borrowing, the principal balance of the note
is estimated to be $1,520,000. It matures on May 1, 1999 when a lump
sum payment of approximately $1,150,000 is due. 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.
B. Litigation Settlement
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.
7
<PAGE>
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.
Results of Operations
Sales - Sales for the first quarter of fiscal year 1997 were $2,315,415, an
increase of $1,045,384 or 82% over the $1,270,031 reported for the corresponding
period last year. Excluding sales attributable to the western New York division
that was acquired on May 1, 1996, first quarter sales were $1,834,734, an
increase of $564,703 or 44% over the corresponding period last year. Total sales
for the new division for the quarter were $480,681. In addition to the sales
attributable to the new division, sales of retail-sized products and home and
office deliveries in Vermont and New Hampshire increased 53% and 25%,
respectively.
Cost of Goods Sold - For the first quarter, Cost of Goods Sold increased from
$791,235 in fiscal year 1996 to $1,230,895 in fiscal year 1997 resulting in
gross profits of $478,796, or 38% of sales, and $1,084,520, or 47% of sales for
the respective periods. The increase in gross profit of $605,724 was due to an
increase in sales volume and a considerable decrease in raw material pricing.
During the quarter, the Company entered into a bottle supply agreement to source
all of its PETE bottles for the next three years. Although the contract
significantly lowers the base price of the bottles, 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 quarter of fiscal year 1997 compared to the
corresponding period in fiscal year 1996, total operating expenses were
$1,692,741 and $1,212,851, respectively, an increase of $479,890, or 40%.
Excluding operating expenses attributable to the western New York division
acquired in May, 1996, total operating expenses increased by 15% for the
quarter. Selling, general and administrative expenses increased by $451,330 for
the first quarter of fiscal year 1997. The increase in these costs was due to
the operation of the new division. In addition to ongoing selling and
administration expenses, there were startup and conversion costs for the
organization of the division. Total selling, general, and administrative
expenses associated with this division were $294,166, for the first quarter.
Exclusive of this amount, selling, general, and administrative expenses
increased 20% for the quarter as a result of increased sales volume. Advertising
expenses increased by $16,812, or 4%, for the quarter compared to the
corresponding period of fiscal 1996. Reduced event sponsorship costs accounted
for a significant decrease in costs for the period while promotional costs
related to increased volume were responsible for increased costs for the
quarter.
8
<PAGE>
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 quarter of fiscal year
1997 was $608,221, as compared to $734,055 for the same period last year, a
decrease of $125,834 or 17%. The decrease in the loss 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 higher margin, less cyclical business. No
assurance can be given that this plan will be successful.
Net Loss - The Company's net loss for the first three quarter of fiscal year
1997 was $670,240 compared to $757,159 for the corresponding period last year,
an improvement of $86,919 or 11%. Net interest expense increased to $72,991 from
$22,269 for the corresponding quarter of the prior fiscal year as a result of
increased borrowing to fund operations through a bank line of credit and finance
the acquisition of assets in western New York.
Liquidity and Capital Resources
As of January 25, 1997, the Company had a working capital deficit of $230,524
compared to positive working capital of $318,642 at the end of its fiscal year
on October 26, 1996. Largely as a result of the reduction in the net loss for
the quarter, cash flow from operations showed an improvement for the first
quarter as compared to the corresponding period in 1996. The net cash outflow
improved to $76,105 from $424,774, 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 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 $549,166 reflects the use of cash to fund the
operating loss and purchase equipment as well as scheduled debt repayment. As of
January 25, 1997 the Company had borrowed $797,127 on its line of credit
compared to $441,811 at the beginning of the fiscal year. The maximum available
to borrow as of that date was $883,601, 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 1.75%, which was 10.00% per
annum on March 7, 1997. The loan facility is secured by all the inventory,
receivables and intangible assets of the Company. It was renewed on April 26,
1996 under the terms of the original agreement and expires June 1, 1997.
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 later in 1997. 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.
9
<PAGE>
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 December 1, 1996, the Company granted a warrant covering 20,000
shares of its Common Stock to the president of an investor relations
firm, in connection with consulting services to be provided by the
investor relations firm pursuant to a consulting agreement with the
Company dated as of December 1, 1996.
The warrant is exercisable (i) with respect to 5,000 shares of Common
Stock, for $2.00 per share at such time as the Company's Common Stock
has a last sale price, as reported by the NASDAQ Stock Market, Inc. or
any national exchange on which the Common Stock is traded, equal to or
in excess of $2.00 for five consecutive trading days at any time prior
to December 1, 1999, (ii) with respect to an additional 5,000 shares of
Common Stock, for $3.00 per share at such time as the Company's Common
Stock has a last sale price equal to or in excess of $3.00 for five
consecutive trading days prior to December 1, 1999 (iii) with
10
<PAGE>
respect to an additional 5,000 shares of Common Stock, for $4.00 per
share at such time as the Company's Common Stock has a last sale price
equal to or in excess of $4.00 for five consecutive trading days prior
to December 1, 1999 and (iv) with respect to the remaining 5,000 shares
of Common Stock, for $5.00 per share at such time as the Company's
Common Stock has a last sale price equal to or in excess of $5.00 for
five consecutive trading days prior to December 1, 1999. If none of the
shares of Common Stock become purchasable under the warrant prior to
December 1, 1999, then the warrant shall terminate in full. Otherwise,
shares subject to the warrant may be purchased for a period of five
years from the date that the shares of Common Stock first become
purchasable.
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
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 No. Description
10.1 Consulting Agreement between the Company and Corporate Investors
Network, Inc. dated December 1, 1996
10.2 Warrant Agreement between the Company and Eugene F. Malone dated
December 1, 1996
27 Financial Data Schedule
11
<PAGE>
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: March 7, 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)
12
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
10.1 Consulting Agreement between the Company and Corporate
Investors Network, Inc. dated December 1, 1996
10.2 Warrant Agreement between the Company and Eugene F. Malone
dated December 1, 1996
27 Financial Data Schedule
<PAGE>
Exhibit 10.1
CONSULTING AGREEMENT
THIS AGREEMENT is made as of the 1 st day of December, 1996, by and between
VERMONT PURE HOLDINGS, LTD., a Delaware corporation ("Company") located at P.O.
Box C, Randolph, Vermont 05060 and CORPORATE INVESTORS NETWORK, INC., a New York
corporation ("Network") having offices at 26 Broadway, Suite 1640, New York, New
York 10004.
WITNESSETH:
WHEREAS, the Company desires to secure the services of Network as
consultant and Network desires to provide such services to the Company.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1 . Network hereby agrees that it will render financial public relations
and consulting services to the Company for the purpose of helping the Company
better communicate with the financial community, the media and its shareholders.
The services shall include the introduction of the Company to the financial
community and to the business and financial media as well as acting as the
liaison between the Company and these audiences; develop and implement a program
of targeting analysts, portfolio managers and brokers from both "buy" and
sell" side investment firms; facilitate logistics of visits to marketing areas;
and the preparation and dissemination of press releases relating to important
business developments.
Network will devote such time as is reasonably necessary to perform these
services for the Company consistent with and specifically recognizing Network's
commitments and obligations to other businesses for which it performs consulting
services. Network is to provide services on a non-exclusive basis.
2. The term of this Agreement will commence on the date first written above
and continue for a period of six-months thereafter. Unless terminated as
provided herein, this Agreement will be renewed for five successive six-month
terms and will terminate on the third anniversary of the date first written
above.
3. For the services to be rendered and performed by Network under this
agreement, the Company will pay to Network in advance $5,000 on each three month
anniversary of the date first written above ($20,000 per annum) during the term
of this Agreement, of which $5,000 is payable upon the signing of this
Agreement. In addition, the Company will issue a Warrant to Eugene F. Malone,
President of Network, to purchase a total of twenty thousand shares of common
stock of the Company ("Common Stock"), exercisable as follows, (i) 5,000 shares
will be exercisable at $2.00 per share at such time as the Company's Common
Stock has a last sale price for five consecutive trading days equal to or in
excess of $2.00 at any time prior to December 1, 1999, (ii) 5,000 additional
shares will be exercisable at $3.00 per share at such time as the Company's
Common Stock has a last sale price for five consecutive trading days equal to or
in excess of $3.00 at any time prior to December 1, 1999, (iii) 5,000 additional
shares will be exercisable at $4.00 per share at such time as the Company's
Common Stock has a last sale price for five consecutive trading days equal to or
in excess of $4.00 at any time prior to time as the Company's Common Stock has a
last sale price for five consecutive trading days equal to or in excess of $5.00
at any time prior to December 1, 1999. The last sale price will be as reported
by The Nasdaq Stock Market or any other national exchange on which the Company's
Common Stock as traded. The issuance of the Warrant is subject to the terms
thereof being approved by the board of directors of the Company, in their sole
discretion. [If the board of directors fails to approve the Warrant, this
Agreement shall terminate and Network shall be entitled to retain any amount
already paid to it. ]
1
<PAGE>
The Company shall reimburse Network for Network's reasonable and necessary
out-of-pocket expenses incurred in the performance of its duties, provided that
expenses for special projects will be approved in advance in writing and
out-of-pocket expenses will not exceed $500 per month unless approved in advance
in writing. All such expenses will be paid upon presentation of evidence
supporting the expense and as otherwise reasonably requested by the Company.
4. Network agrees that neither it nor its employees or agents will during
the term of this Agreement or at any time thereafter disclose or divulge or use,
directly or indirectly, for its own benefit or that of others, any confidential
information, data, trade secrets, etc., relating to the business of the Company
learned in connection with its work for the Company. The provisions of this
paragraph shall survive the termination of this Agreement and shall continue
until such information, data, trade secrets, etc., becomes public knowledge
through no fault of Network or any of its employees or agents. Upon termination
of this Agreement, Network will immediately return to the Company all papers,
materials and copies of such provided by or on behalf of the Company to Network.
5. As a consultant for the Company, Network may rely upon the information
supplied to Network by the Company's authorized officers and directors as to
accuracy and completeness. Network agrees to indemnify, hold harmless and defend
the Company from any suit or proceeding which may arise out of or be due to any
inaccuracy, incompleteness or omission of information regarding the Company
(other than such information which was provided by the Company to Network) given
or distributed by any of Network's employees or agents.
6. This Agreement may be terminated, except as otherwise provided in
Section 4 hereof, at any time upon 15 days prior written notice from the Company
to Network. Upon termination of this Agreement, Network shall be entitled to
retain any amount previously paid to it, but shall not be entitled to any future
payments that were contemplated hereunder. Such written notice may be given by
hand, regular mail or by fax, effective upon the giving of notice. Upon any
termination, the Warrant shall terminate as to any unvested shares of Common
Stock.
7. This Agreement will be deemed to have been made and delivered in New
York City and will be governed as to validity, interpretation, construction,
effect and in all other respects by the internal laws of the State of New York.
The Company and Network each hereby (i) agrees that any legal suit, action or
proceeding arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (ii) waives
any objection to the venue of any such suit, action, proceeding and the right to
assert that such forum is not a convenient forum for such suit, action or
proceeding, (iii) irrevocably consents to the jurisdiction of the New York State
Supreme Court, County of New York, and the United States District Court for the
2
<PAGE>
Southern District of New York in any such suit, action or proceeding and (iv)
agrees to accept and acknowledge service or any and all process which may be
served in any such suit, action or proceeding in New York State Supreme Court,
County of New York or in the United States District Court for the Southern
District of New York and agrees that service of process upon it mailed by
certified mail to its address shall be deemed in every respect effective service
of process upon in any suit, action or proceeding.
8. This agreement is not assignable by Network without the prior written
consent of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
this 1 st day of December, 1996.
CORPORATE INVESTORS NETWORK, INC. VERMONT PURE HOLDINGS, LTD.
By: \ S \ EUGENE F. MALONE By: \ S \ TIMOTHY G. FALLON
- -------------------------- ---------------------------
Eugene F. Malone Timothy G. Fallon, President
3
<PAGE>
Exhibit 10.2
WARRANT AGREEMENT
AGREEMENT, dated as of the 1st day of December, 1996, by and between
VERMONT PURE HOLDINGS, LTD. ("Company") and EUGENE F. MALONE ("Holder") the
president of Corporate Investors Network, Inc. ("Network").
WHEREAS, on December 1, 1996 ("Date of Grant"), the Company agreed to issue
a warrant to Holder, [subject to approval of the Board of Directors of the
Company,] to purchase up to 20,000 shares of the common stock, $.001 par value
("Common Stock"), said warrant being issued in respect of Network's services to
the Company pursuant to that certain Consulting Agreement entered into between
Network and the Company as of December 1, 1996 (the "Consulting Agreement")
pursuant to which Network will render financial public relations and consulting
services to the Company for a period of up to three years until November 30,
1999.
NOW THEREFORE, in consideration of the covenants herein contained, the
parties hereto hereby agree as follows:
1 . Issuance. The Company, subject to approval of the Board of Directors of
the Company, hereby issues to the Holder the right to purchase up to an
aggregate of 20,000 shares of Common Stock on the terms and conditions herein
set forth (such right being referred to as the "Warrant").
2. Vesting and Purchaser Price. The Holder shall have the right to purchase
the Common Stock subject to this Warrant as follows: (I) 5,000 shares will be
exercisable at $2.00 per share at such time as the Company's Common Stock has a
last sale price for five consecutive trading days equal to or in excess of $2.00
at any time prior to December 1, 1999, (ii) 5,000 additional shares will be
exercisable at $3.00 per share at such time as the Company's Common Stock has a
last sale price for five consecutive trading days equal to or in excess of $3.00
at any time prior to December 1, 1999, (iii) 5,000 additional shares will be
exercisable at $4.00 per share at such time as the Company's Common Stock has a
last sale price for five consecutive trading days equal to or in excess of $4.00
at any time prior to December 1, 1999 and (iv) 5,000 additional shares will be
exercisable at $5.00 per share at such time as the Company's Common Stock has a
last sale price for five consecutive trading days equal to or in excess of $5.00
at any time prior to December 1, 1999. The last sale price will be as reported
by The Nasdaq Stock Market or any other national exchange on which the Company's
Common Stock is traded.
3. Exercise and Term. The Holder has the right to purchase the shares of
Common Stock subject to this Warrant for a period of five years from the date
that the shares of Common Stock become purchasable hereunder. If none of the
shares of Common Stock become purchasable prior to December 1, 1999, then this
Warrant shall terminate in full. In addition, if the Consulting Agreement shall
be terminated prior to December 1, 1999, for any reason, this Warrant will
terminate as to any shares of Common Stock that are not purchasable hereunder on
such date of termination.
4. Payment of Exercise Price. The purchase price for the shares of Common
Stock pursuant to which the Warrant is exercised, will be paid in full at the
time of exercise, in cash by certified check or wire transfer, unless other wise
agreed to in writing by the Company. Exercise of any Warrant hereunder shall be
by written notice to the Company at its principal place of business, specifying
the number of shares of Common Stock being purchased and accompanied by payment
of the purchase price and any withholding tax obligations imposed on the Company
by reason of the exercise of the Warrant. In the event that the tax obligation,
if any, is not paid, the Company will be permitted to treat as payment of any
withholding tax amount due, the exercise of that number of whole shares of
Common Stock equal to the amount of the tax due divided by the fair market value
of the Common Stock as of the date the Warrant is exercised, and the Company
will be permitted to deduct such number of shares of Common Stock from the total
number being exercised. Certificates representing the shares as to which the
Warrant shall have been exercised shall be registered in the name of the person
exercising the Warrant.
1
<PAGE>
5. Rights of Stockholder. The Holder shall not have any of the rights of a
stockholder with respect to the Common Stock covered by the Warrant until the
date of the issuance of a stock certificate for shares of Common Stock purchased
hereunder.
6. Transferability. Unless consented to in writing by the Company, this
Warrant and the rights conferred may not be transferred, assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this Warrant or
any right conferred hereby, or upon the levy of any attachment or similar
process on the rights conferred hereby, without the written consent of the
Company, this Warrant and the rights conferred hereby shall immediately become
null and void. Before the Company consents to any transfer, assignment, pledge
or hypothecation of this Warrant, the transferee, assignee or pledgee of the
Warrant shall agree to be bound by the terms of this Warrant and deliver such
other certificates and agreements as the Company reasonably requests.
7. Restricted Nature of Securities. This Warrant and the shares of Common
Stock receivable on the exercise of the Warrant are not registered under the
Securities Act of 1933, as amended (the "Act"). As a condition to the sale of
Common Stock on the exercise of the Warrant, the person exercising the Warrant
may be required by the Company to give it such documents, including such
appropriate investment representations as may be required by Counsel for the
Company and such additional agreements as the Counsel for the Company may
determine, as a condition to the acceptance of the exercise of any Warrant
hereunder.
The Holder represents that it has received and carefully reviewed the
Company's Annual Report on Form lo-KSB for the fiscal year ended October 28,
1995, Quarterly Reports on Form 10-QSB for the quarters ended in January, April
and July, 1996, and Report to Stockholders and related proxy materials for the
Company's Annual Meeting, held on September 6, 1996, and has been granted the
opportunity to obtain any additional, publicly available information relating to
the Company and ask questions of executives of the Company that it deems
necessary to verify the accuracy and completeness of the information provided to
it. Holder represents that it is acquiring this Warrant and will acquire the
Common Stock on its exercise solely for its own account, for the purpose of
investment and not with a view to or for resale in connection with any
distribution thereof, except in compliance with the Act, any applicable state
securities laws and the rules and regulations thereunder. Holder represents that
its knowledge and experience in financial and business matters is such that it
is capable of evaluating an investment in the Warrant and that its financial
condition is such that it can bear the economic risks of acquiring and holding
this Warrant.
2
<PAGE>
8. Sales Under Securities Act. Anything in this Agreement to the contrary
notwithstanding, the Holder hereby agrees that it shall not sell, transfer by
any means or otherwise dispose of this Warrant or the shares of Common Stock
acquired by him upon exercise of the Warrant hereunder without registration
under the Act, or in the event that they are not so registered, unless (a) an
exemption from the Act is available thereunder, and (b) the Holder has furnished
the Company with notice of such proposed transfer, and the Counsel -for the
Company, in its reasonable opinion, shall deem such proposed transfer to be so
exempt, or the Holder has furnished the Company with notice of such proposed
transfer, together with an opinion of legal counsel reasonably satisfactory to
the Counsel for the Company, that in such counsel's opinion such proposed
transfer shall be so exempt.
9. Stop Transfer: Legend.
(a) The Company may place stop transfer orders with its transfer agent
against the transfer of the shares of Common Stock issuable under the Warrant
hereof in the absence of registration under the Act or an exemption therefrom
provided herein.
(b) The certificates evidencing shares of Stock to be issued upon the
exercise of the Warrant may bear the following legends:
"The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of 1933,
as amended. The shares may not be sold or transferred in the absence of
such registration or an exemption therefrom under said Act."
"The shares represented by this certificate have been acquired
pursuant to an warrant agreement dated December 1, 1996, a copy of which is
on file with the Company, and may not be transferred, pledged or disposed
or exempt in accordance with the terms and conditions thereof."
10. Adjustment to Number of Securities.
(a) If the outstanding shares of Common Stock of the Company are increased,
decreased, changed into or exchanged for a different number or kind of stock or
securities of the Company through stock dividend, stock split or reverse stock
split, or stock of a different par value or without par value through amendment
to the Company's Certificate of Incorporation, an appropriate and proportionate
adjustment shall be made in the number and/or kind of securities allocated to
this Warrant, without change in the aggregate purchase price applicable to the
unexercised portion of the outstanding portion of this Warrant, but with a
corresponding adjustment in the price for each share of Common Stock or other
unit of any security remaining covered by this Warrant.
(b) Adjustments under this paragraph shall be made by the Board of
Directors, whose determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive. No fractional shares of
Stock shall be issued under any such adjustment.
3
<PAGE>
11. Miscellaneous Provisions.
(a) Applicable Law. This Agreement will be deemed to have been made and
delivered in New York City and will be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company and the Holder each hereby (I) agrees that any legal
suit, action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York, (ii)
waives any objection to the venue of any such suit, action or proceeding and the
right to assert that such forum is not a convenient forum for such suit, action
or proceeding, (iii) irrevocably consents to the jurisdiction of the New York
State Supreme Court, County of New York, and the United States District Court
for the Southern District of New York in any such suit, action or proceeding and
(iv) agrees to accept and acknowledge service or any and all process which may
be served in any such suit, action or proceeding in New York State Supreme
Court, County of New York or in the United States District Court for the
Southern District of New York and agrees that service of process upon it mailed
by certified mail to its address shall be deemed in every respect effective
service of process upon in any suit, action or proceeding.
(b) Amendment. This Agreement may only be amended by a written instrument
executed by the Company and by the Holder.
(C) Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
(d) Execution in Counterparts. 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.
(e) Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand or mailed by registered or certified mail, postage prepaid, return receipt
requested, as follows:
If to the Holder, to: Eugene F. Malone
c/o Corporate Investors Network, Inc.
26 Broadway - Suite 1640
New York, New York 10004
If to Company, to: Vermont Pure Holdings, Ltd.
Route 66
Catamount Industrial Park
Randolph, Vermont 08060
Attention: Chief Financial Officer
(f) Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
4
<PAGE>
(g) Severagility. Any provision of this Agreement which is held by a court
of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
(h) Gender. Unless the context otherwise requires, all personal pronouns
used in this Agreement, whether in the masculine, feminine or neuter gender,
shall include all other genders.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
VERMONT PURE HOLDINGS, LTD.
By: \ S \ TIMOTHY G. FALLON
---------------------------
Timothy G. Fallon, President
By: \ S \ EUGENE F. MALONE
--------------------------
Eugene F. Malone, Managing Director
5
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-26-1997
<PERIOD-START> OCT-27-1996
<PERIOD-END> JAN-25-1997
<EXCHANGE-RATE> 1
<CASH> 706,976
<SECURITIES> 0
<RECEIVABLES> 1,235,682
<ALLOWANCES> (238,298)
<INVENTORY> 799,202
<CURRENT-ASSETS> 2,705,316
<PP&E> 7,555,289
<DEPRECIATION> (1,992,046)
<TOTAL-ASSETS> 9,660,626
<CURRENT-LIABILITIES> 2,935,840
<BONDS> 2,868,532
0
0
<COMMON> 9,678
<OTHER-SE> 3,846,576
<TOTAL-LIABILITY-AND-EQUITY> 9,660,626
<SALES> 2,315,415
<TOTAL-REVENUES> 2,315,415
<CGS> 1,230,895
<TOTAL-COSTS> 1,230,895
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 23,459
<INTEREST-EXPENSE> 72,991
<INCOME-PRETAX> (670,241)
<INCOME-TAX> 0
<INCOME-CONTINUING> (670,241)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (670,241)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
