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 25, 1998
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 May 29, 1998
Common Stock, $.001 Par Value 10,287,187
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
INDEX
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Page Number
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
April 25, 1998 (unaudited) and
October 25, 1997 4
Consolidated Statements of Operations (unaudited)
for the Six Months and Three Months ended
April 25, 1998 and April 26, 1997 5
Consolidated Statements of Cash Flows
(unaudited) for the Six Months ended
April 25, 1998 and April 26, 1997 6
Notes to Consolidated Financial Statements
(unaudited) 7 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operation 12 - 15
Part II - Other Information 16 - 17
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 18
2
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Page Number
Exhibit Index 19
Exhibit # Description
Asset Purchase Agreement between Vermont Pure Holding, Ltd. and Sagamon
Springs, Inc. relating to the purchase certain assets and liabilities
dated January 31, 1998.
Agreement and Collateral Assignment of Lease between Vermont Pure
Holding, Ltd. and Sagamon Springs, Inc. dated January 30, 1998.
Security Agreement between Vermont Pure Holding, Ltd. And Sagamon
Springs, Inc. dated January 6, 1998.
Term Note for $65,000 between Vermont Pure Holding, Ltd. And Sagamon
Springs, Inc. dated January 6, 1998.
Non Compete Agreement of Fred Beauchamp and Jim Creed between Vermont
Pure Holding, Inc, and Sagamon Springs, Inc. dated January 6, 1998.
Loan and Security Agreement Between Vermont Pure Springs, Inc. and
CoreStates Bank, N.A. dated April 8, 1998
3
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PART I - Item 1
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
April 25, October 25,
1998 1997
------------------------- -------------------------
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash $ 300,544 $ 93,808
Accounts receivable 2,752,338 1,974,765
Inventory 1,233,642 978,473
Current portion of deferred tax asset 326,000 326,000
Other current assets 195,752 288,627
------------------------- -------------------------
TOTAL CURRENT ASSETS 4,808,276 3,661,673
------------------------- -------------------------
PROPERTY AND EQUIPMENT - net of accumulated depreciation 7,940,100 7,332,912
------------------------- -------------------------
OTHER ASSETS:
Intangible assets - net of accumulated amortization 7,056,369 5,216,300
Deferred tax asset 218,000 218,000
Other assets 86,343 117,881
------------------------- -------------------------
TOTAL OTHER ASSETS 7,360,712 5,552,181
------------------------- -------------------------
TOTAL ASSETS $ 20,109,088 $ 16,546,766
========================= =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,127,167 $ 1,099,094
Current portion of customer deposits 55,195 49,534
Accrued expenses 728,580 986,961
Line of credit 238,021
Current portion of long term debt 348,062 885,748
Current portion of obligations under capital lease 72,081 144,944
------------------------- -------------------------
TOTAL CURRENT LIABILITIES 3,331,085 3,404,302
Long term debt 1,765,617 5,435,292
Long term obligations under capital lease 330,923 304,597
Line of credit 6,942,605 -
Long term portion of customer deposits 864,727 760,559
------------------------- -------------------------
TOTAL LIABILITIES 13,234,957 9,904,750
------------------------- -------------------------
STOCKHOLDERS' EQUITY:
Common stock - $.001 par value, 20,000,000 10,280 10,132
authorized shares, 10,131,980 issued and outstanding
shares at October 25, 1997 and 10,279,540 issued and
outstanding shares at April 25, 1998
Paid in capital 23,035,946 22,447,092
Accumulated deficit (16,172,095) (15,815,208)
------------------------- -------------------------
TOTAL STOCKHOLDERS' EQUITY 6,874,131 6,642,016
------------------------- -------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,109,088 $ 16,546,766
========================= =========================
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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 25, April 26, April 25, April 26,
1998 1997 1998 1997
------------------ ------------------ ---------------------- -----------------------
------------------ ------------------ ---------------------- -----------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
SALES $ 10,562,013 $ 6,531,677 $ 6,154,927 $ 4,216,262
COST OF GOODS SOLD 4,460,310 3,089,297 2,518,156 1,858,402
------------------ ------------------ ---------------------- ----------------------
GROSS PROFIT 6,101,703 3,442,380 3,636,771 2,357,860
------------------ ------------------ ---------------------- ----------------------
OPERATING EXPENSES:
Selling, general and
administrative expense 4,371,473 2,547,797 2,354,373 1,310,311
Advertising expenses 1,480,180 1,265,030 839,283 844,374
Amortization 262,681 82,403 141,975 47,804
------------------ ------------------ ---------------------- ----------------------
TOTAL OPERATING EXPENSES 6,114,334 3,895,230 3,335,631 2,202,489
------------------ ------------------ ---------------------- ----------------------
PROFIT (LOSS) FROM OPERATIONS (12,631) (452,850) 301,140 155,371
------------------ ------------------ ---------------------- ----------------------
OTHER INCOME (EXPENSE):
Interest - net (345,780) (151,871) (194,496) (78,880)
Miscellaneous 1,524 2,136 1,121 (8,835)
------------------ ------------------ ---------------------- -----------------------
TOTAL OTHER INCOME (EXPENSE) (344,256) (149,735) (193,375) (87,715)
------------------ ------------------ ---------------------- -----------------------
NET INCOME (LOSS) $ (356,887) $ (602,585) $ 107,765 $ 67,656
================== ================== ====================== =======================
NET INCOME (LOSS) PER SHARE - BASIC $ (0.03) $ (0.06) $ 0.01 $ 0.01
================== ================== ====================== =======================
Weighted Average Shares Used
in Computation 10,220,923 9,687,792 10,279,540 9,697,316
================== ================== ====================== =======================
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
----------------------------------------------------
April 25, April 26,
1998 1997
------------------------ ------------------------
------------------------ ------------------------
(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (356,887) $ (602,585)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation 554,222 268,327
Amortization 262,681 82,403
(Gain) loss on disposal of property and equipment 71 194
Changes in assets and liabilities (net of effect
of acquisitions):
(Increase) Decrease in accounts receivable (669,424) (462,746)
(Increase) Decrease in inventory (214,684) 249,175
(Increase) Decrease in other current assets 132,875 (1,056)
(Increase) Decrease in other assets (110,370) 193,126
(Decrease) Increase in accounts payable 895,828 437,439
(Decrease) Increase in customer deposits 63,153 14,015
(Decrease) Increase in accrued expenses (258,381) 60,782
------------------------ ------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 299,084 239,074
------------------------ ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (878,115) (293,720)
Proceeds from sale of fixed assets - 40,500
Cash used in acquistion (1,566,169) (383,295)
------------------------ ------------------------
CASH USED IN INVESTING ACTIVITIES (2,444,284) (636,515)
------------------------ ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 1,511,979 110,805
Proceeds from debt 8,302,705 435,725
Principal payments of debt (7,473,698) (391,345)
Sale of common stock 10,950 0
------------------------ ------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 2,351,936 155,185
------------------------ ------------------------
NET INCREASE (DECREASE) IN CASH 206,736 (242,256)
CASH - Beginning of period 93,808 783,081
------------------------ ------------------------
CASH - End of period $ 300,544 $ 540,825
======================== ========================
Cash paid for interest $ 345,780 $ 183,772
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
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 25, 1997.
Certain information and footnote disclosures normally included in
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 25, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
In February 1997, the Financial Accounting Standards Board issued
Statement on Financial Accounting Standards No. 128, "Earnings Per
Share" (FAS No. 128) which became effective for both interim and annual
financial statements for periods ending after December 15, 1997. FAS
No. 128 requires a presentation of "Basic" and (where applicable)
"Diluted" earnings per share. Generally Basic earnings per share are
computed on only the weighted average number of common shares actually
outstanding during the period and the Diluted computation considers
potential shares issuable upon exercise or conversion of other
outstanding instruments where dilution would result. Furthermore, FAS
No. 128 requires the restatement of prior period reported earnings to
conform to the new standard.
The Basic loss per share was $.03 and $.06 for the six months and $.01
for both of the quarters ended April 25, 1998 and April 26, 1997,
respectively. On these dates, the Company had other potentially
dilutive securities consisting of options and warrants of 2,127,187 and
1,775,000 for the respective years. Since the Company incurred a loss
in the first six months of both 1998 and 1997, inclusion the these
securities in the earnings per share calculation would be antidilutive.
Consequently, diluted earnings per share has not been presented for
that period. For the quarters ended April 25, 1998 and April 26, 1997
inclusion of dilutive securities in earnings per share calculation
resulted in no change from the basic earnings per share. Therefore
diluted earning per share was not presented.
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3. ACQUISITIONS
A. Akva - On December 9, 1997 the Company entered into a packing and
distribution rights agreement and a distribution rights agreement with
Akva, Hf. The purpose of the agreements is to allow the Company to
distribute Akva, an Icelandic spring water, on an exclusive basis. The
rights were acquired for 25,000 shares of the Company's common stock
and 50% of the profits resulting from the sale of Akva products from
January 1, 1999 through December 31, 2004 to a maximum of $500,000. The
Company pays a packing fee to Akva for bottling the product and charges
a marketing/administration fee as outlined in the agreements. The
agreements are cancelable by the Company with 90 days written notice.
B. Vermont Coffee Time - On January 5, 1998, the Company completed the
purchase of substantially all of the assets of Vermont Coffee Time,
Inc., a company operating distribution routes for water and coffee to
homes and offices and commercial vending services, primarily in
Northern Vermont. The purchase price of the assets was $1,431,564.
Chittenden Bank financed $1,000,000 of the purchase from the
acquisition credit facility that was provided by the loan agreement
dated June 20, 1997. The balance of the purchase price was settled by
the issuance of a note to the seller of $250,000 and by the issuance of
$181,564 worth of the Company's common stock. The note was subsequently
paid off on April 8, 1998 as part of the CoreStates line of credit
agreement.
C. Sagamon Springs Water of Vermont, Inc. - On January 30, 1998 the
Company purchased certain assets of Sagamon Springs Water Company of
Rutland, Vermont. The assets included a five gallon water bottle filler
and ancillary equipment, exclusive water rights to a spring located in
Tinmouth, Vermont, and exclusive use of the Sagamon trade name. The
spring site and bottling equipment from this acquisition are
geographically located close to the Company's New York operations to
help them meet their increased demands for product. The purchase price
of the assets was $275,000. Of this amount $170,000 was paid with cash
and the remaining balance financed with notes from the sellers.
4. LONG TERM DEBT
A. Vermont Coffee Time, Inc.- The Company gave a note to Vermont Coffee
Time, Inc. on January 5, 1998 in conjunction with the purchase of
certain assets from that Company. The term of the note is five years.
It is payable in equal monthly installments based on a ten year
amortization at 8.5% interest. There is a lump sum of $154,179 due on
January 5, 2003. The loan is secured by all tangible and intangible
assets pertaining to the Asset Purchase agreement governing this
transaction. As noted in item 4B above this note has been paid off.
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B. CoreStates Banks N.A. - The Company entered into a five (5) year
revolving credit line with CoreStates Banks N.A. on April 18, 1998. The
purpose of the loan is for permitted acquisitions and capital
expenditures, working capital and to refinance existing term debt. The
Company is entitled to borrow up to $15 million under the terms and
conditions of the agreement. Of this amount $2 million is allowed for
working capital with the balance available for acquisitions. As of May
29,1998 $6,942,605 had been borrowed against this facility. The
facility was used to repay working capital and acquisition debt from
the Chittenden bank, the acquisition debt of Happy Ice and Vermont
Coffee Time, Inc. as well as the mortgage note to Randolph National
Bank which was secured by the Company's principal facility. Under the
agreement the Company is required to pay interest monthly at a rate of
LIBOR plus 2.5%, currently approximately 8.2%. The interest rate can
decrease during the term based on certain performance parameters
outlined in the agreement. The line of credit is contingent upon the
Company continuing to meet certain loan covenants. The covenants
pertain to certain financial ratios as well as affirmative and negative
covenants that are standard for credit facilities of this type.
5. LINE OF CREDIT
On April 25, 1998 the Company had borrowed $1,752,000 from the
working capital portion of its line of credit with CoreStates
Banks. The Company was eligible to borrow $2,000,000 as of that date.
6. INTANGIBLE ASSETS
The value of the distribution rights obtained from Akva, Hf. in
exchange for the Company's stock will be amortized over six years. The
price of the Company's stock was $4.3125 per share at the time of the
closing. Based on the issuance of 25,000 shares, distribution rights at
the time of the sale were valued at $107,812.
Goodwill that resulted from the acquisition of the assets of Vermont
Coffee Time, Inc. and Sagamon Spring Water of Vermont, Inc. will be
amortized over 30 years and was calculated, in the aggregate, as
follows:
Purchase Price $1,706,564
Acquisition Costs 81,169
Fair Value of Tangible and Identifiable
Intangible Assets (607,910)
Liabilities Assumed 248,618
----------
Total $1,418,441
==========
In conjunction with the acquisition during the quarter, the Company
entered into non-competition, employment and consulting agreements with
the owner of Vermont Coffee Time, Inc. The assets acquired consisted
primarily of coolers, brewers, vehicles, and customer
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lists.
In conjunction with the acquisition during the quarter, the
Company has entered into a non-competition agreement with the owners
of Sagamon Spring Water of Vermont, Inc.
7. COMMITMENTS
A. Leased Space - The Company entered into a lease for 18,000 square
feet of space in Halfmoon, New York. The space will be used as a
bottling, warehouse, and distribution plant for the Company's upstate
New York Home and Office operations. This space replaces the former
headquarters of Excelsior Spring Water, in Saratoga, NY which the
Company currently leases on a month to month basis. The lease will
commence approximately April 1, 1998 and the term of the new lease is
10 years. The monthly lease payments are approximately $7,500 per
month. The Company has subsequently leased an additional 4,500 square
feet from this landlord.
B. Production Capacity - In order to increase production capacity, the
Company has leased new production equipment. The equipment includes a
five gallon filling line and associated equipment for installation in
the Albany, New York area. Additionally, the Company is replacing its
filling and packaging machinery in its PET bottling facility in
Randolph, VT. The acquisition of this equipment for an aggregate amount
of $764,132 is being financed by an operating lease with KeyCorp
Leasing. The lease is for seven years with a market value buy out of
the equipment after that term.
8. STOCK ISSUE
In conjunction with acquisitions during the year the Company issued
142,560 shares of its common stock valued at $578,053 with share prices
ranging from $4.0 to $4.3125.
On April 8, 1998, in connection with the financing arrangement with
CoreStates Bank, the Company issued warrants to the bank to purchase
shares of its common stock. The exercise price was below the stock's
market price on the issuance date. The Company will amortize the value
of the warrants over the five year term of the agreement.
9. STOCK OPTION PLAN
On April 2, 1998, the Company's shareholders approved the 1998
Incentive and Non- Statutory Stock Option Plan. The plan provides for
issuance of up to 500,000 options to purchase the Company's common
stock under the administration of the Board of Directors. The intent of
the plan is to award options to officers, employees, directors, and
other individuals providing services to the Company. Through May 29,
1998, no options had been issued under the plan.
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9. CONTINGENCIES
Former Employees
On March 1, 1996, the Company brought suits against two former
employees alleging that they had breached their agreements with the
Company. The suits seek permanent injunctive relief and damages. On
April 1, 1996 the Company was granted a preliminary injunction in
Vermont Superior Court that prevented the former employees from
pursuing ventures competitive to the Company. A future hearing will
address the permanency of the injunction. Subsequently, both employees
filed counterclaims against the Company seeking monetary damages. The
Company has certain defenses arising out of its claims against the
employees that it will assert when necessary.
On February 24, 1997 the Company reached a settlement with one of the
two former employees involved in ongoing litigation with the Company.
The settlement had no material financial impact on the Company and both
parties agreed to release their claims against each other.
The Company does not anticipate that the outcome of the remaining suit
will have a material financial impact on the Company.
10. SUBSEQUENT EVENTS
A. Vermont Natural's - On May 15, 1998 the Company purchased the assets
of Vermont Naturals based in Clifton Park, New York. In addition to
customers, the Company acquired trucks, bottles, coolers and product
inventory. The approximate purchase price was $200,000
B. Perrier Group of America - On May 29, 1998 the Company acquired the
Poland Spring and Deer Park home and office customers in the Albany,
New York market from the Perrier Group of America. In addition to
customers, the Company has acquired trucks, bottles, coolers, product
inventory and office furniture. The approximate purchase price was $2.6
million. The Company borrowed $2.6 million from CoreStates under its
line of credit for the transaction.
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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 25, 1997.
Forward-Looking Statements
When used in the Form 10-QSB and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result"
and "the Company expects," "will continue," "is anticipated," "estimated,"
"project," or "outlook" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, each of which speak
only as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Among these
risks are water supply and bottling capacity constraints in the face of
significant growth, dependence on outside distributors, and reliance on
commodity price fluctuations as they influence raw material pricing. The Company
has no obligation to publicly release the result of any revisions which may be
made to any forward- looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.
Results of Operations
Sales - Sales for the first six months of fiscal year 1998 were $10,562,013, an
increase of $4,030,336 or 62% over sales of $6,531,677 for the corresponding
period last year. Sales for the second quarter of fiscal year 1998 were
$6,154,927, an increase of $1,938,665 or 46% over sales of $4,216,262 for the
corresponding period last year. Excluding sales attributable to the acquisitions
in the six and three months ending April 25, 1998, sales increased approximately
29% and 16%, respectively, over the corresponding periods last year.
Sales for retail-size products increased $1,284,252, or 28%, for the first six
months of fiscal year 1998 compared to the corresponding period a year ago.
Sales for these products increased $446,170, or 14%, for the second quarter of
fiscal year 1998 compared to the corresponding period a year ago The increase
was a result of volume increases related to the continued growth of both the
Vermont Pure brand and secondary labels. Increased promotional expense was
incurred to enhance brand awareness. This, as well as increased market
penetration and development of new markets, were
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responsible for the sales growth. Average selling prices for the six and three
months ending April 25, 1998 were down 1% and 4%, respectively from the
corresponding period the previous year reflecting increased volume of private
and secondary labels. The total 28% increase for the year to date was accounted
for in the following distribution channels: 15% attributable to Vermont Pure
sizes, 7% attributable to secondary labels, and 6% attributable to private
labels. The Akva brand had no material impact on sales for either period
reported.
Sales for the home and office division increased $2,723,905, or 140%, for the
first six months of fiscal year 1998 compared to the corresponding period of the
prior year. Sales for the division increased $1,497,526, or 151%, for the second
quarter of fiscal year 1998 compared to the corresponding period of the prior
year. A substantial portion of the increase in sales for this division can be
attributed to acquisitions. Exclusive of acquisitions, sales of home and office
related products increased approximately 11% and 15% for the first half and
second quarter of fiscal 1998, respectively.
Cost of Goods Sold - For the first six months of fiscal 1998, Cost of Goods Sold
was $4,460,310 compared to $2,518,156 in fiscal year 1997 resulting in gross
profits of $6,101,703, or 58% of sales, and $3,442,380, or 53% of sales,
respectively. For the second quarter, Cost of Goods Sold was $2,518,156 in 1998
compared to $1,858,402 in 1997 resulting in gross profits of $3,636,771, or 59%
of sales, and $2,357,860, or 56% of sales, respectively. The increase in gross
profit for the respective six and three month periods was due to a considerable
increase in sales volume which resulted in a lower cost per unit. In addition,
the Company's sales continued, through acquisition, to become more heavily
skewed toward higher margin home and office sales. Raw material pricing remained
stable throughout the first half of 1998. However, the Company's PETE bottle
prices are dependant on the market costs of resin, and 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 1998 compared to
the corresponding period in fiscal year 1997, total operating expenses were
$6,114,334 and $3,895,230, respectively, an increase of $2,219,104 or 57%. For
the second quarter, operating expenses were $3,335,631 in 1998 compared to
$2,202,489 in 1997, an increase of 51%. Selling, general and administrative
expenses increased by $1,823,676 or 72%, for the first six months of fiscal 1998
and $1,044,062 or 80% for the second quarter of fiscal 1998. The increase in
these costs was primarily due to the addition of the operating costs of the
acquired companies and the conversion costs to integrate these companies.
The Company anticipates that it will continue to pursue acquisitions in the
future and that a key part of this growth strategy will be maximizing the
operating efficiencies of the acquired companies. However, no assurance can be
given that this effort will yield savings and profit. Advertising expenses
increased by $215,150 or 17%, and decreased $5,091 for the six and three month
periods, respectively, in 1998 compared to the corresponding period of fiscal
1997. The decreased advertising expense for the quarter is reflective of no
slotting charges for the period coupled with characteristically low advertising
expenses for the acquired businesses. The increase in advertising expenses for
the year to date was due to higher promotional expenses in the first quarter
associated with increased market penetration and brand awareness. 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
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market penetration. For the first half and second quarter of fiscal year 1998
amortization increased $180,278 and $94,171, respectively, from the same periods
a year ago as a result of increased goodwill from new acquisitions.
Profit/Loss From Operations - Loss from operations for the first six months of
fiscal 1998 was $12,631 as compared to $452,850 for the corresponding period
last year, an improvement of $440,219. Profit from operations for the second
quarter of fiscal 1998 was $301,140 as compared to $155,371 for the
corresponding period last year, an increase of $145,769. The improvement is
attributable to the increase in sales combined with a decrease in raw material
costs and production and distribution volume efficiencies. The Company plans to
continue to create greater consumer awareness and to find alternate distribution
channels for its retail product and expand its home and office distribution
which is a less cyclical business. No assurance can be given that this plan will
be successful.
Other Income/Expense - Net interest expense increased $193,909 or 128% and
$115,616 or 147%, for the first six months and second quarter of fiscal year
1998, respectively, compared to the corresponding periods in fiscal year 1997.
The increase in interest expense was a result of increased borrowing to finance
the recent acquisitions and fund operations through a bank line of credit.
Net Profit/Loss - The Company's net loss for the first six months of fiscal year
1998 was $356,887 compared to $602,585 for the corresponding period last year,
an improvement of $245,698 or 41%. The profit for the second quarter of fiscal
1998 was $107,765 compared to $67,656 for the same quarter in 1997, an
improvement of $40,109, or 59%. The decrease in loss and increase in profit for
the first half and second quarter, respectively are indicative of the
improvement in results of operations more than offsetting increased interest
changes to finance growth through acquisitions.
Liquidity and Capital Resources
Largely as a result of a reduction of the net loss, cash flow from operations
showed an improvement for the first six months of fiscal year 1998 as compared
to the corresponding period in fiscal year 1997. The net cash inflow from
operations improved to $299,084 from $239,074, for those respective periods, an
improvement of 25%. The Company's primary requirements for cash continues to be
for the marketing and promotional activities needed to effect market penetration
and expand sales, acquiring operating assets needed to accommodate the growth of
the business, and scheduled debt repayments. These requirements may result in
future net cash outflows on a seasonal basis.
As of April 25, 1998, the Company had working capital of $1,477,191 compared
$257,371 on October 25, 1997, the end of the last fiscal year. The increase in
working capital of $1,219,820 reflects, primarily, the refinancing of the
Company's operating line of credit with CoreStates bank. Scheduled debt
repayment and to finance acquisitions and resulting integration costs and
capital expansion continues to be a significant use of cash for the Company. As
of May 29, 1998 the Company had borrowed $1,752,000 from the working capital
portion of its line of credit compared to a $238,021 balance at the beginning of
the fiscal year. The maximum amount available to borrow under this facility is
$2,000,000. The Company pays interest on any outstanding principal at the
14
<PAGE>
London Interbank Offered Rate (LIBOR) plus 2.50%, which was approximately 8.2%
per annum on May 29, 1998. The loan facility is secured by all the inventory,
receivables and intangible assets of the Company and expires April 2003.
At October 25, 1997, the Company had recorded a deferred tax asset of $544,000.
No adjustments were made to this amount during the first quarter of 1998.
Further recognition is dependant on future earnings.
In addition to the working capital line of credit, the Company refinanced its
existing acquisition debt with CoreStates Bank. The total acquisition debt
refinanced with CoreStates was about $5.2 million. Subsequently, on May 29,
1998, the Company borrowed an additional $2.5 million for the acquisition of
Perrier customers in the Albany, New York market leaving about $5.3 million,
subject to certain acquisition criteria, available under the agreement for
future acquisitions.
The Company has reduced its cash usage over the last year and anticipates that
its working capital position will improve in future quarters and is adequate to
fund operations when supplemented by its operating line of credit. Future sales
growth and acquisitions may require significant capital additions. The Company
anticipates that it will be able to use its own resources and obtain financing
for this expansion although no assurance can be given that this financing will
be available. The Company is continuing to pursue an active program of
evaluating acquisition options. To complete any acquisitions, the Company
anticipates using its capital resources and the CoreStates facility described
above.
15
<PAGE>
PART II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
(a) None
(b) None
(c) In conjunction with the CoreStates Bank line of credit agreement
detailed in the Company's footnotes to the financial statements for the
period ending April 25, 1998, it entered into a Warrant Agreement with
the bank on April 8, 1998. The agreement grants 23,773 warrants to
CoreStates Bank to purchase Vermont Pure Holdings, Ltd. common stock at
an exercise price of $3.00 per share for a term of six years from the
date of the Agreement. The warrants were issued in lieu of cash for
bank fees as consideration for closing the agreement with the bank
pursuant to Section 4(2) of the Securities Act of 1933 as transactions
by an issuer not involving a public offering.
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
On April 2, 1998, the Company held its annual shareholders meeting at
1:30 PM at the Sheraton Conference Center in South Burlington, Vermont.
There were two matters of business requiring shareholder vote, election
of directors and adoption of the 1998 Incentive and Non-Statutory Stock
Option Plan.
Concerning the election of directors, a total of votes were cast and
the following directors were elected to one year terms with the
corresponding vote tally:
"For" "Withheld"
Frank G. McDougall 7,942,341 107,595
Timothy G. Fallon 7,953,441 96,495
Robert C. Getchell 8,025,610 24,326
David R. Preston 8,025,610 24,326
Norman E. Rickard 8,025,610 24,326
Beat Schlagenhauf 8,025,610 24,326
Richard Worth 8,025,610 24,326
Concerning the approval and adoption of the 1998 Incentive and
Non-Statutory Stock Option Plan, 7,619,693 shares were voted "for",
347,163 "against", and 83,080 abstained.
16
<PAGE>
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
Exhibit # Description
10.1 Asset Purchase Agreement between Vermont Pure Holding, Ltd. and Sagamon
Springs, Inc. relating to the purchase certain assets and liabilities
dated January 31, 1998.
10.2 Agreement and Collateral Assignment of Lease between Vermont Pure
Holding, Ltd. And Sagamon Springs, Inc. dated January 30, 1998.
10.3 Security Agreement between Vermont Pure Holding, Ltd. And Sagamon
Springs, Inc. dated January 6, 1998.
10.4 Term Note for $65,000 between Vermont Pure Holding, Ltd. And Sagamon
Springs, Inc. dated January 6, 1998.
10.5 Non Compete Agreement of Fred Beauchamp and Jim Creed between Vermont
Pure Holding, Inc, and Sagamon Springs, Inc. dated January 6, 1998.
10.6 Loan and Security Agreement Between Vermont Pure Springs, Inc. and
CoreStates Bank, N.A. dated April 8, 1998
17
<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: June 9, 1998
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)
18
<PAGE>
EXHIBIT INDEX
Exhibit # Description
10.1 Asset Purchase Agreement between Vermont Pure Holding, Ltd. and Sagamon
Springs, Inc. relating to the purchase certain assets and liabilities
dated January 31, 1998.
10.2 Agreement and Collateral Assignment of Lease between Vermont Pure
Holding, Ltd. And Sagamon Springs, Inc. dated January 30, 1998.
10.3 Security Agreement between Vermont Pure Holding, Ltd. And Sagamon
Springs, Inc. dated January 6, 1998.
10.4 Term Note for $65,000 between Vermont Pure Holding, Ltd. And Sagamon
Springs, Inc. dated January 6, 1998.
10.5 Non Compete Agreement of Fred Beauchamp and Jim Creed between Vermont
Pure Holding, Inc, and Sagamon Springs, Inc. dated January 6, 1998.
10.6 Loan and Security Agreement Between Vermont Pure Springs, Inc. and
CoreStates Bank, N.A. dated April 8, 1998
19
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into on this ____ day of
January, 1998, by and between VERMONT PURE SPRINGS, INC. (VPS) a Delaware
corporation with its principal place of business in Randolph, Vermont ("BUYER")
and SAGAMON SPRING WATER OF VERMONT, INC. (SSW), a Vermont corporation with its
principal place of business Rutland, Vermont ("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, SSW is a company, engaged in the bottling and sale of water
with its principal place of business in Rutland, VT, and
WHEREAS, both Parties desire to enter into agreements by which VPS
shall (I) purchase the business of SSW related to bottled water, bottling
equipments and springwater development, springwater withdrawal rights and other
assets listed on Exhibit A.
NOW THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
1. ASSETS
1.1. 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, bottling
equipment, spring properties, trademarks and other intellectual property,
purchase orders, 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.
1.2. 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 2. The form of
the Bill of Sale shall be approved by Buyer's counsel prior to the closing Date
(as hereinafter defined).
<PAGE>
2. PURCHASE PRICE
2.1 Purchase Price: $275,000, provided that:
(I) $170,000.00 of the Purchase Price to be paid in cash at
closing.
(ii) Buyer will pay Seller compensation for goodwill of the
Company of $8000.00 per year for five (5) years with the first payment due on
the signing of this agreement;
(iii) the issuance of a Note by Buyer to Seller in the amount
of $65,000.00 for a term of five (5) years at the prime rate of interest as
amended from time to time by Chase Manhattan, N.A. with equal payments of
principal and interest based on a 5 year amortization schedule. The Note will be
secured by a grant of a security interest in the assets acquired including
equipment, contract rights, inventory, accounts receivable, insurance proceeds,
and all tangible and intangible property and any replacement of said assets that
is the subject of this Agreement and a collateral assignment of the lease for
mineral rights currently granted by Glen W. Merrill and Glen D. Merrill to
Seller, which leasehold interest is being transferred to Buyer in accordance
with the terms and conditions of this agreement;
(iv) Fred Beauchamp and Jim Creed, officers and employees of
Seller, shall enter into with the Company (I) a non-compete agreement for five
(5) years.
3. EXCLUDED SECURITIES AND LIABILITIES
3.1 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.
4. CONDUCT OF BUSINESS AND CONDITION OF PREMISES
PENDING SETTLEMENT
4.1 Prior to the Settlement:
4.1.1. 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.
4.1.2. 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.
2
<PAGE>
4.1.3. Seller will keep all of the assets and the Premises
fully insured against any loss, either by fire, other casualty or theft until
the time of settlement.
4.1.4. SSW will use their best efforts to preserve SSW'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.
4.1.5 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.
5. SETTLEMENT
5.1 ("Settlement") shall take place on or before June 30, 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.
5.2 Settlement shall be held in Rutland, VT or such other local place
as Seller and Buyer shall agree.
5.3 Time shall be of the essence of this Agreement.
5.4 Any closing adjustments shall be apportioned pro rata as of
the date of Settlement.
6. BULK SALES ACT.
6.1 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 . Seller will execute
and deliver, at closing, an indemnification agreement in accordance with this
Paragraph.
7. SELLER'S WARRANTIES.
7.1 The Seller represents and warrants to Buyer that as of the date of
this Agreement and as of the date of the Settlement, that:
3
<PAGE>
7.1.1 The Seller is a corporation duly organized and existing
in good standing under the laws of the State of Vermont with the corporate power
to own its assets and carry on its business as is now being conducted.
7.1.2 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).
7.2 The Seller represents that to the best of the Seller's
knowledge, information and belief:
7.2.1 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.
7.2.2 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.
7.2.3 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 Settlement from funds set aside at Settlement.
7.2.4 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.
7.2.5 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.
7.3 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.
4
<PAGE>
8. 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:
8.1 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.
8.2 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.
8.3 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.
8.4 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:
8.4.1 Seller has been duly incorporated and is existing as a
corporation in good standing under the laws of the State of Vermont.
8.4.2 This transaction and its terms do not violate any
provisions of Seller's Articles of Incorporation or Bylaws;
8.4.3 Seller has taken all shareholder, director and other
actions necessary to authorize the transactions contemplated by the parties
hereto;
8.4.4 Seller has the authority to carry on the business
presently being conducted by Company;
8.4.5 Seller has full power and authority to sell, assign and
transfer the Assets sold pursuant to this Agreement.
8.5 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.
8.6 Financing. Buyer obtains financing for the purchase of assets
herein described on terms acceptable to the Buyer.
8.7 Seller's Shareholder Approval. Seller shall have obtained the
necessary Shareholder
5
<PAGE>
approval for this transaction.
8.8 Non-Compete Agreement. Fred Beauchamp and Jim Creed shall
execute and deliver at Closing the Non-Compete Agreements attached as Exhibits
"C"and "D".
8.9 Water Rights. Successful negotiation and preparation of definitive
documents, including all collateral documents, governing the transfer and
renegotiation of water withdrawal rights contained in an agreement by and
between Seller and Glenn W. Merrill under terms and conditions acceptable to
Buyer and Buyer's counsel.
9. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
9.1 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.
9.2 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.
9.3 The provisions of this Section IX shall survive the closing and
shall continue for a period of two years.
10. 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 five (5) 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 bottling of home/office water, 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
6
<PAGE>
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.
11. GOVERNING LAW
This Agreement shall be construed, interpreted and enforced in
accordance with the laws of the State of Vermont.
12. 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.
12. 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.
13. 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.
14. 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.
15. NOTICE
Notices required under this Agreement shall be in writing sent by certified mail
and facsimile to the representatives of the parties as follows:
7
<PAGE>
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:
Sagamon Spring Water of Vermont
P.O. Box 907
Rutland, VT 05701
Attention: Fred Beauchamp and Jim Creed
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:__________________________
SAGAMON SPRING WATER
OF VERMONT, INC
WITNESS:
_______________________ By:___________________________
Name:_________________________
Title:________________________
8
<PAGE>
Exhibit A
List of Assets
Exhibit B
Liabilities assumed
Exhibit C
Non-compete of Fred Beauchamp
Exhibit D
Non-compete of Jim Creed
9
AGREEMENT AND COLLATERAL
ASSIGNMENT OF LEASE
This Agreement and Collateral Assignment is made this ____ day
of January, 1998, by and between VERMONT PURE SPRINGS, INC. (VPS) a Delaware
corporation with its principal place of business in Randolph, Vermont
("ASSIGNOR" or "BUYER") and SAGAMON SPRING WATER OF VERMONT, INC. (SSW), a
Vermont corporation with its principal place of business Rutland, Vermont
("ASSIGNEE" or "SELLER").
BACKGROUND
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, SSW is a company, engaged in the bottling and sale of
water with its principal place of business in Rutland, VT, and
WHEREAS, both Parties have entered into an Asset Purchase
Agreement by which VPS shall purchased the business of SSW related to bottled
water, bottling equipments and spring water development, spring water withdrawal
rights and other assets listed on Exhibit A of said Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing, the
promises made herein and for other good and valuable consideration received, the
parties hereto agree as follows:
Assignment. To secure the payment of all sums due
ASSIGNEE from ASSIGNOR pursuant to Paragraph 2.1(ii) and (iii) of the Asset
Purchase Agreement, Assignor
<PAGE>
does hereby grant, transfer and assign to Assignee, Assignor's interest in (but
not their obligations under) Lease Agreement for Mineral Rights ("Lease")
attached hereto as Exhibit "A" to the extent provided in paragraph
2. Lease Rights. Prior to receiving any notice of default under the Note
referenced in paragraph 2.1(iii) of the Asset Purchase Agreement ("Note") from
Assignee, Assignor shall continue to enjoy its rights under the Lease pursuant
to its terms. In the event of a default under the Note, Assignee shall send
notice of default setting forth the amount of the default (ignoring any right of
acceleration contained in the Note) to Assignor by certified mail, return
receipt requested. In the event the default is not cured by the Assignor within
thirty (30) days as of the date of the aforementioned notice, Assignor's rights
in the Lease shall terminate and revert to the Assignee.
The Buyer shall not make any material modifications to or
terminate the Lease without the prior, express written consent of the Seller. If
a modification is made to the Lease, the modified Lease shall also be
collaterally assigned pursuant to the terms of this Assignment herein. Failure
of the Buyer to abide by the provisions of the paragraph shall constitute an
Event of Default.
Termination. This Assignment shall be null and void
at such time as all amounts due to Assignee under the Note have been paid.
Other Agreements Unaffected. No exercise of rights by the Assignee pursuant to
the terms of this Agreement and Collateral Assignment shall affect its
obligations to
-2-
<PAGE>
Assignor pursuant to that certain Asset Purchase Agreement by and between
Assignor and Assignee.
Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed to be properly given when sent by
certified, postage prepaid, properly addressed to the party in time to receive
such notice at the address stated below:
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: Sagamon Spring Water of Vermont
P.O. Box 907
Rutland, VT 05701
Attention: Fred Beauchamp and Jim Creed
6. GOVERNING LAW. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Vermont
without regard to its conflicts of law.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement and Collateral Assignment as of the day, month and year first written
above.
WITNESS: VERMONT PURE SPRINGS, INC.
______________________ By:
Name:
Title:
SAGAMON SPRING WATER
OF VERMONT, INC
WITNESS:
By:
_______________________ Name:
Title:
-4-
SECURITY AGREEMENT
This Security Agreement, dated as of January 6, 1998, is
granted by Vermont Pure Springs, Inc., a Delaware corporation, ("Debtor"), to
Sagamon Spring Water of Vermont, Inc., Inc., a Vermont corporation ("Creditor").
1. Security Interest.
1.1 Debtor hereby grants to Creditor a security
interest in all of the assets described on Schedule A annexed hereto and any
proceeds thereof (collectively, the "Collateral") as security for the
payment of all debts, liabilities and obligations of Debtor to Creditor under
a Promissory Note of even date herewith issued by Debtor to Creditor in the
face amount of $65,000.00 and any and all renewals or extensions thereof, and
arising under this Agreement (collectively, the "Secured Obligations"). Debtor
further agrees that the Collateral secures the payment of any amounts
received by Creditor for payment of any of the Secured Obligations which
are repaid by Creditor or recovered from Creditor in any bankruptcy or
insolvency proceedings, whether by court order or any agreement, and the
Collateral shall remain as security for such amounts to the same extent as if
Creditor had never received such amounts.
1.2 This Agreement is in addition to and without
limitation of any right of Creditor under the Note.
1.3 Subject to Section 1.4, this Agreement is
absolute and without any conditions, and Creditor can enforce its rights in the
Collateral immediately upon an Event of Default as defined herein without
having first to attempt any collection from Debtor.
1.4 This Agreement is subordinated to the lien
of Chittenden Bank,
<PAGE>
Vermont Economic Development Authority, and the town of Randolph, Randolph
National Bank, (the "Senior Lenders") in the Collateral as of the date hereof.
2. Representation, Warranties and Covenants.
2.1 Debtor represents and warrants that, except
for the security interest granted to the Senior Lenders and purchase money
security interest, Debtor has granted no currently effective security
interests in the Collateral to any person other than to Creditor, and no
financing statement in favor of any such other person as a secured party
covering any of the Collateral or any proceeds thereof is on file in any public
office, and the Collateral is free and clear of any charge or encumbrance,
except pursuant to and under this Agreement.
2.2 Debtor agrees that Creditor may examine and
inspect the Collateral at any reasonable time and wherever located. Debtor
agrees not to relocate all or any portion of the Collateral except in the
ordinary course of business without Creditor's prior written consent which shall
not be unreasonably withheld.
2.3 Debtor will from time to time upon demand,
and within reasonable period of time, furnish to Creditor such further
information and will execute, acknowledge and deliver to Creditor such financing
statements and assignments and other papers and will do such other acts and
things as Creditor shall reasonably request and may be necessary or appropriate
to establish, perfect and maintain a valid security interest in the Collateral
as security for the Secured Obligations. Debtor will use its best efforts to
cause all persons or entities in possession of any of the Collateral to execute
and deliver such documents or take such other action as is necessary to perfect
Creditor's security interest in the Collateral.
2
<PAGE>
3. Events of Default.
3.1 An "Event of Default" means: (i) any event,
condition or act which constitutes a default or an event of default in the
Notes, and (ii) any breach by Debtor of any of its obligations under this
Agreement which is not cured within thirty (30) days of notice thereof by
Creditor.
3.2 Upon the occurrence of an Event of Default,
subject to the terms of the Lender Agreement, Creditor shall have all of the
rights, powers and remedies set forth in the Notes and this Agreement, together
with the rights and remedies of a secured party under the Uniform Commercial
Code, as amended and adapted in Vermont from time to time (the "UCC"),
including without limitation, the right to sell, lease or otherwise dispose of
any or all of the Collateral, and to take possession of the Collateral, and for
that purpose Creditor may enter peaceably any premises on which the Collateral
or any part thereof may be situated and remove the same therefrom and Debtor
will not resist or interfere with such action. Creditor may require Debtor
to assemble the Collateral and make it available to Creditor at a place
to be designated by Creditor which is reasonably convenient to both parties.
Debtor hereby agrees that the place or places of location of the Collateral are
places reasonably convenient to it to assumable the Collateral. Creditor will
send Debtor reasonable notice of the time and place of any public sale or
reasonable notice of the time after which any private sale or any other
disposition thereof is to be made. The requirement of sending reasonable notice
shall be met if such notice is mailed, postage prepaid, to Debtor at least
ten (10) days before the time of the sale or disposition.
3.3 Upon demand by Creditor after an Event of
Default, Debtor will
3
<PAGE>
immediately deliver to Creditor all proceeds of Collateral, including without
limitation, all checks, drafts, cash and other remittances, notes, trade
acceptances or other instruments or contracts for the payment of money,
appropriately endorsed to Creditor's order and, regardless of the of such
endorsement, Debtor hereby waives presentment, demand, notice of dishonor,
protest and notice of protest and all other notices with respect thereof; and
Debtor hereby appoints Creditor, effective upon occurrence of an Event of
Default and for such period of time s such Event of Default remains uncured, as
Debtor's agent and attorney-in-fact to make such endorsement on behalf of and in
the name of Debtor upon ten (10) days prior notice Creditor to Debtor. Pending
such deposit, Debtor agrees that it will not commingle any such checks, drafts,
cash and other remittances with any of the Debtor's funds or property, but will
hold them separate and apart therefrom and upon an express trust for Creditor
until delivery thereof is made to Creditor.
3.4 Creditor may exercise its rights with
respect to Collateral without resorting to or regard to other collateral or
sources of reimbursement for the Secured Obligations.
4. Severability. The invalidity, illegality or
unenforceability or any provision of this Agreement shall not render invalid,
illegal or unenforceable any other provision hereof.
5. Costs of Collection. Debtor agrees to pay all
reasonable out-of- pocket expenses of Creditor (including reasonable fees of its
counsel) in connection with the
4
<PAGE>
enforcement of any provision of this Agreement (including this Section 5).
6. No Waiver of Remedies. No failure or delay on the part of
Creditor in the exercise of any power or right in this Agreement shall operate
as a waiver thereof, and no exercise or waiver of any single power or right, or
the partial exercise thereof, shall affect Creditor's rights with respect to any
and all other rights and powers.
7. Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
given when delivered in the manner described in the Asset Purchase Agreement of
even date herewith among Debtor and Creditor.
8. Successors and Assigns. This Agreement shall inure to
the benefit of Creditor and its successors and assigns.
9. Headings and Captions. Any headings or captions
preceding the text of the separate sections hereof are intended solely for
convenience of reference and shall not constitute a part of this Agreement, nor
shall they affect its meaning, construction or effect.
10. Governing Law. This Agreement shall be governed by
the laws of the State of Vermont without reference to its principles of
conflicts of law.
5
<PAGE>
IN WITNESS WHEREOF, Debtor has caused this Agreement to be
executed by its duly authorized officer or representative as of the date and
year first above written.
VERMONT PURE SPRINGS, INC.
By:
Timothy G. Fallon, President and
Chief Executive Officer
ACCEPTED:
SAGAMON SPRING WATER
OF VERMONT, INC..
By:
Name:
Title:
6
$65,000.00 January 6, 1998
TERM NOTE
For value received and intending to be legally bound, VERMONT
PURE SPRINGS, INC., a Delaware corporation having a business address in
Randolph, Vermont ("Maker"), hereby promises to pay to the order of SAGAMON
SPRING WATER OF VERMONT, INC, P.O. Box 907, Rutland, VT 05701 ("Payee"), after
date, the principal sum of Sixty Five Thousand Dollars ($65,000.00), together
with interest thereon upon the terms and conditions hereinafter set forth.
Term and Interest Rate. This Note shall be for a
term of five (5) years or until January 5, 2003, shall be fully amortizing,
and interest shall accrue on the outstanding principal balance hereof at a per
annum rate equal to the prime rate as established from time to time by Chase
Manhattan Bank, N.A. Interest shall be calculated on a three hundred sixty
five (365) day year for the actual number of days elapsed in each calendar year.
Payments.
Interest. Interest that accrues on the
outstanding principal balance hereof at the rate set forth above shall be due
and payable in equal montly installments commencing on February 5, 1998.
Principal Balance. The principal balance of
this Note shall be payable (I) in equal and consecutive monthly based on a
five (5) year amortization of principal installments commencing on January 5,
1998 and one final payment, on January 5, 2003, of the entire outstanding
principal balance hereof and all accrued interest and all other sums due and
owing hereunder.
Prepayment. Maker shall have the right to prepay,
without premium or penalty, the principal sum hereof, in whole or in part, at
any time, provided that such repayment is accompanied by the payment of all
interest accrued hereunder to the date of prepayment and all other fees
and charges due hereunder.
Place of Payment. Principal and interest hereunder
shall be payable to Fred Beauchamp and Jim Creed c/o Sagamon Spring Water of
Vermont, Inc, P.O. Box 907, Rutland, VT 05701.
Default; Acceleration; Remedies. Should there occur
an event of default hereunder, and if such default is not cured by Maker within
thirty (30) business days after receipt by Maker of written notice from Payee,
detail such default, then Payee, at option, may declare in writing immediately
due and payable the entire unpaid balance of principal and all other sums due
by Maker hereunder, together with interest accrued thereon at the applicable
rate specified herein to the date of default and thereafter at the Default Rate.
Upon such a declaration of all such sums becoming due and payable by reason of
such event of default, payment thereof may be enforced
<PAGE>
and recovered in whole or in part at any time by one or more of the remedies
provided to Payee in this Note.
Severability. If any provision of this Note is held
to be invalid or enforceable by a court of competent jurisdiction, the other
provisions of this Note remain in full force and effect and shall be liberally
construed in favor of Payee in order to effect the provisions of this Note.
Limitation of Interest to Maximum Lawful Rate. In no
event shall the rate of interest payable hereunder exceed the maximum rate of
interest permitted to be charged by applicable law (including the choice
of law rules) and any interest paid in excess of the permitted rate shall be
refunded to Maker. Such refund shall be made by application of the excessive
amount of interest paid against any sums outstanding and shall be applied in
such order as Payee may determine. If the excessive amount of interest
paid exceeds the sums outstanding, the portion exceeding the said sums
outstanding shall be refunded in cash to Maker by Payee. Any such crediting or
refund shall not cure or waive any default by Maker hereunder.
Applicable Law. This instrument shall be governed by
and construed according to the laws of the State of Vermont.
Captions. The option or headings of the paragraphs
in this Note are for convenience only and shall not control or affect the
meaning or construction of any of the terms or provisions of this Note.
Construction. Whenever used, the singular number
shall include the plural, the plural the singular and the use of any gender
shall be applicable to all genders. The words "Payee" and "Maker" shall be
deemed to include the respective heirs, personal representatives, successors and
assigns of Payee and Maker.
2
<PAGE>
IN WITNESS WHEREOF, Maker, intending to be legally bound
hereby, has caused this Note to be duly executed the day and year first above
written.
VERMONT PURE SPRINGS, INC.
By:___________________________
Title:________________________
ATTEST:
By:_________________________
Title:______________________
3
NON COMPETE AGREEMENT
THIS AGREEMENT is made as of January 6, 1998 between Fred Beauchamp and
Jim Creed, individuals who maintain a business at Sagamon Spring Water of
Vermont, Inc.("SSW") P.O. Box 907, Rutland, VT 05701 ("Sellers") and Vermont
Pure Springs, Inc., a corporation with its principal place of business on Route
66, Randolph, VT 05060, (the "Company").
Background
A. The Company 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
B. SSW is a company, engaged in the sale of natural spring water
with its principal place of business in Rutland, VT, and
C. The Company and SSW, of which Fred Beauchamp and Jim Creed are
principals, are parties to an existing Asset Purchase Agreement whereby the
Company is purchasing substantially all of the assets of SSW. Fred Beauchamp and
Jim Creed have had considerable experience in the business of producing and
marketing natural spring water, and are familiar with operations similar to
those to be conducted by the Company.
D. The Company requires that Fred Beauchamp and Jim Creed enter
this Non Compete as a condition to closing on the aforementioned Asset Purchase
Agreement.
Terms
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties agree as follows:
1. Term. Subject to Section 9 of this agreement, the term of
this Agreement shall be from January 6, 1998 through January 6, 2003.
2. Compensation. As compensation and consideration for Seller's
agreement and consent to the terms of this Agreement and his assumption of the
responsibilities under this Agreement, the Company agrees to pay Fred Beauchamp
and Jim Creed and they agree to accept the following compensation:
2.1 The Company will pay Fred Beauchamp and Jim Creed an
annual fee of $8,000 commencing on January 5, 1998 and ending on January 5, 2002
(5 payments totaling $40,000).
<PAGE>
3. Applicable Law. This Agreement shall be construed in
accordance with the laws of the State of Vermont, without giving effect to
principles of conflict of law.
4. Nondisclosure of Confidential Information.
4.1 Fred Beauchamp and Jim Creed shall not, during the term of
this Agreement or at any time for a period of five (5) years following closing,
unless authorized to do so in writing by the Company, 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 4, 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.
4.2 All confidential information described in Section 4 shall
be the exclusive property of the Company, and Fred Beauchamp and Jim Creed shall
use their best efforts to prevent any publication or disclosure thereof.
5. Restrictive Covenant. In order to protect the Company in its full
beneficial use and enjoyment of the goodwill, assets, business relationships,
marketing techniques and other know-how acquired as a result of an Asset
Purchase Agreement between the Company and SSW, for a period of five (5) years
after the closing of this Agreement, Fred Beauchamp and Jim Creed will not,
within the States of New York, Vermont, New Hampshire, Maine, Connecticut,
Massachusetts, and/or Rhode Island, directly or indirectly compete with the
Company in the home/office distribution of: distilled water, spring or
carbonated water, 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 Fred Beauchamp and Jim Creed or with any company for which
Fred Beauchamp and Jim Creed then works. During the aforesaid period, Fred
Beauchamp and Jim Creed 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 5 shall survive the termination, for
any reason, of this Agreement and shall continue for the five year period
contemplated by this Section 5.
6. Remedies. Fred Beauchamp and Jim Creed acknowledges that their
promises with respect to the agreement not to compete and to maintain the
confidentiality of information in accordance with this agreement are promises of
a special, unique, unusual, extraordinary and intellectual character, which give
them peculiar value the loss of which cannot be reasonably or adequately
compensated in an action of law, and that, in the event there is a breach hereof
by Fred
2
<PAGE>
Beauchamp and/or Jim Creed, the Company may suffer irreparable harm, the amount
of which will be impossible to ascertain. Accordingly, the Company shall be
entitled, if it so elects, to institute and prosecute proceedings in any court
of competent jurisdiction, either at law or in equity, to obtain damages for any
breach or to enforce specific performance of the provisions or to enjoin Palmer
form committing any such act in breach of this Agreement. The remedies granted
to the Company in this Agreement are cumulative and are in addition to remedies
otherwise available to the Company at law or in equity. If the Company is
obliged to resort to the courts for the enforcement of a covenant of Fred
Beauchamp and Jim Creed contained in Section 4 or 5, such covenant shall be
extended for a period of time equal to the period of such breach which extension
shall commence on the later of (I) the date on which the original (unextended)
term of such covenant is scheduled to terminate or (ii) the date of the final
court order (without further right of appeal) enforcing such covenant.
7. Waiver of Breach. The waiver by the Company or Fred Beauchamp
and Jim Creed of a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any other or subsequent breach of
such or any other provision.
8 Notices. Any notice required or permitted to be given under this
agreement shall be in writing and shall be delivered by hand or sent by
certified mail addressed to Fred Beauchamp and Jim Creed at the address set
forth in the first paragraph of this Agreement (or such subsequent address as is
noted on Company's records), with a copy to William O Rourke, III, Esq. at Ryan
Smith & Carbine, Ltd., P.O. Box 310, Rutland, VT, 05702-0310 and to the Company
at Route 66, Randolph, VT 05060, with a copy to Kevin F. Berry, Esq., Ledgewood
Law Firm, 1521 Locust Street, Philadelphia, Pennsylvania 19102, or to such other
address as either of such parties may designate in a written notice served upon
the other party in the manner provided herein. Any such notice shall become
effective upon receipt.
9. Severability. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to any extent, be held
invalid or unenforceable by a court of competent jurisdiction, the remainder of
this Agreement or the application of any such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this Agreement
shall be valid and enforceable to the fullest extent permitted by law. If any of
the provisions contained in this Agreement shall for any reason be held to be
excessively broad as to duration, scope, activity or subject, it shall be
construed by limiting and reducing it, so as to be valid and enforceable to the
extent compatible with the applicable law or the determination by a court of
competent jurisdiction.
10. Binding Effect and Assignability. The rights and obligations of
both parties under this Agreement shall inure to the benefit of and shall be
binding upon their heirs, successors and assigns, but it shall not be assigned
without the written consent of both parties.
3
<PAGE>
11. Entire Agreement. This instrument constitutes the entire agreement
with respect to the subject matter hereof between the parties hereto and
replaces and supersedes as of the date hereof any and all prior oral or written
agreements and understandings between the parties hereto. This Agreement may
only be modified by an agreement in writing executed by Fred Beauchamp, Jim
Creed and the Company.
IN WITNESS WHEREOF, the undersigned have executed this Agreement the
date and year written above.
Vermont Pure Springs Company
By: /S/ Timothy G. Fallon /S/ Fred Beauchamp
Timothy G. Fallon Fred Beauchamp
President & CEO
/s/ Jim Creed
Jim Creed
4
LOAN AND SECURITY AGREEMENT
between
VERMONT PURE HOLDINGS, LTD., as Co-Borrower
and
VERMONT PURE SPRINGS, INC., as Co-Borrower
and
CORESTATES BANK, N.A., as Lender
April 8, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms............................................... 1
SECTION 1.02. Accounting Terms..................................................... 10
ARTICLE II
THE WORKING CAPITAL LINE OF CREDIT FACILITY
SECTION 2.01. Working Capital Line of Credit...................................... 10
SECTION 2.02. Borrowing Limits.................................................... 11
SECTION 2.03. Interest, Fees and Charges.......................................... 11
SECTION 2.04. Payment of the Working Capital Line of
Credit.............................................................. 12
SECTION 2.05. Working Capital Note................................................ 13
SECTION 2.06. Termination of the Working Capital Line
of Credit........................................................... 13
SECTION 2.07. Use and Disbursement of Proceeds.................................... 13
SECTION 2.08. Prepayments......................................................... 14
ARTICLE III
THE ACQUISITION FACILITY
SECTION 3.01. The Acquisition Facility............................................ 14
SECTION 3.02. Borrowing Conditions and Limits..................................... 14
SECTION 3.03. Interest............................................................ 16
SECTION 3.04. Repayment of the Acquisition Facility............................... 17
SECTION 3.05. Use of Proceeds of the Acquisition
Facility............................................................ 17
SECTION 3.06. Termination of the Acquisition Facility............................. 17
SECTION 3.07. Prepayments......................................................... 18
SECTION 3.08. Unused Facility Fee................................................. 18
ARTICLE IV
COLLATERAL
SECTION 4.01. Security Interests.................................................. 18
SECTION 4.02. Financing Statements and Other
Documents........................................................... 19
SECTION 4.03. Landlords' Waivers; Mortgagees'
Disclaimers......................................................... 19
SECTION 4.04. Insurance........................................................... 20
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 4.05. Places of Business; Location of
Collateral.......................................................... 20
SECTION 4.06. Equipment and Inventory............................................. 20
SECTION 4.07. Patents, Copyrights and Trademarks.................................. 21
SECTION 4.08. Records and Reports................................................. 21
SECTION 4.09. Trade and Fictitious Names.......................................... 21
SECTION 4.10. Certain of the Bank's Rights........................................ 21
SECTION 4.11. Power of Attorney................................................... 21
SECTION 4.12. Notices............................................................. 21
SECTION 4.13. Insurance; Discharge of Taxes, etc.................................. 21
SECTION 4.14. Certain Waivers and Releases by the
Borrowers........................................................... 22
ARTICLE V
CONDITIONS OF LENDING
SECTION 5.01. Conditions Precedent to Funding..................................... 22
SECTION 5.02. Additional Conditions Precedent..................................... 23
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Existence........................................................... 24
SECTION 6.02. Authorization....................................................... 24
SECTION 6.03. Validity............................................................ 24
SECTION 6.04. Financial Statements................................................ 24
SECTION 6.05. Litigation.......................................................... 25
SECTION 6.06. Agreements and Orders............................................... 25
SECTION 6.07. Contingent Liabilities.............................................. 25
SECTION 6.08. Taxes............................................................... 25
SECTION 6.09. Ownership and Encumbrances.......................................... 25
SECTION 6.10. Consents............................................................ 25
SECTION 6.11. ERISA............................................................... 26
SECTION 6.12. Operation of Business............................................... 26
SECTION 6.13. Disclosure.......................................................... 26
SECTION 6.14. Environmental Laws.................................................. 27
SECTION 6.15. Margin Stock........................................................ 27
SECTION 6.16. Securities Laws..................................................... 27
SECTION 6.17. Other Agreements.................................................... 27
SECTION 6.18. Labor Disputes and Casualties....................................... 27
SECTION 6.19. Representations Concerning Sureties................................. 27
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE VII
COVENANTS
SECTION 7.01. Financial and Other Information..................................... 28
SECTION 7.02. Insurance........................................................... 29
SECTION 7.03. Taxes and Other Claims.............................................. 29
SECTION 7.04. Encumbrances........................................................ 29
SECTION 7.05. Indebtedness........................................................ 30
SECTION 7.06. Loans and Investments............................................... 30
SECTION 7.07. Maintenance of Existence............................................ 30
SECTION 7.08. Compliance With Laws................................................ 30
SECTION 7.09. Maintenance of Property............................................. 31
SECTION 7.10. Inspection by the Bank.............................................. 31
SECTION 7.11. Reports............................................................. 31
SECTION 7.12. ERISA............................................................... 32
SECTION 7.13. Merger or Consolidation............................................. 32
SECTION 7.14. Disposal of Assets.................................................. 32
SECTION 7.15. Nature of Business.................................................. 32
SECTION 7.16. Environmental Laws.................................................. 32
SECTION 7.17. Ownership of Stock/Maintenance of
Management.......................................................... 32
SECTION 7.18. Funded Debt to Cash Flow............................................ 33
SECTION 7.19. Cash Flow Coverage.................................................. 33
SECTION 7.20. Funded Debt to Capitalization....................................... 33
SECTION 7.21 Interest Coverage................................................... 33
SECTION 7.22 Methodology for Calculation......................................... 33
SECTION 7.23. Capital Expenditures................................................ 33
SECTION 7.24. Deposit Accounts.................................................... 33
SECTION 7.25. Dividends, Capital Stock............................................ 34
ARTICLE VIII
DEFAULT
SECTION 8.01. Events of Default................................................... 34
SECTION 8.02 Cure of Default..................................................... 36
SECTION 8.03. Acceleration........................................................ 37
SECTION 8.04. Remedies Upon Default............................................... 37
<PAGE>
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. No Waiver; Cumulative Remedies...................................... 38
SECTION 9.02. Amendments and Waivers.............................................. 38
SECTION 9.03. Notices............................................................. 38
SECTION 9.04. Costs and Expenses.................................................. 39
SECTION 9.05. Miscellaneous Payment Provisions.................................... 39
SECTION 9.06. Participation....................................................... 40
SECTION 9.07. Liability of Bank................................................... 40
SECTION 9.08. Governing Law....................................................... 40
SECTION 9.09. Headings............................................................ 41
SECTION 9.10. Continuing Representations.......................................... 41
SECTION 9.11. Binding Effect...................................................... 41
SECTION 9.12. Records............................................................. 41
SECTION 9.13. Indemnity........................................................... 41
SECTION 9.14. Waiver of Jury Trial................................................ 42
SECTION 9.15. Consent to Jurisdiction............................................. 42
SECTION 9.16. Regulatory Changes.................................................. 42
SECTION 9.17. Illegality.......................................................... 43
SECTION 9.18. Interpretation/Additional Borrowers................................. 43
SECTION 9.19. Integration......................................................... 43
</TABLE>
<PAGE>
EXHIBITS
EXHIBIT 1.01 - FORM OF SUBORDINATION AGREEMENT
EXHIBIT 4.05 - PLACES OF BUSINESS, LOCATIONS OF
COLLATERAL
EXHIBIT 4.07 - PATENTS, TRADEMARKS, COPYRIGHTS, ETC.
EXHIBIT 4.09 - TRADE OR FICTITIOUS NAMES
EXHIBIT 6.01 - AFFILIATES AND TRADENAMES
EXHIBIT 6.05 - LITIGATION
EXHIBIT 6.07 - CONTINGENT LIABILITIES
EXHIBIT 6.09 - EXISTING LIENS AND ENCUMBRANCES
EXHIBIT 6.11 - ERISA MATTERS
EXHIBIT 7.01 - COMPLIANCE CERTIFICATE
EXHIBIT 7.02 - EXISTING INSURANCE COVERAGE
EXHIBIT 7.05 - EXISTING INDEBTEDNESS
EXHIBIT 9.18 - JOINDER AND CONSENT
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT is made this 8th day of April, 1998, by and between
VERMONT PURE HOLDINGS, LTD., a Delaware business corporation with its chief
executive offices at Route 66, Catamount Industrial Park, Randolph, Vermont
05060 ("VPHL"), and VERMONT PURE SPRINGS, INC., a Delaware business corporation
with its chief executive offices at Route 66, Catamount Industrial Park,
Randolph, Vermont 05060 ("VPSI") (jointly and severally, the "Borrowers"), and
CORESTATES BANK, N.A., a national banking association with offices at 1339
Chestnut Street, Philadelphia, Pennsylvania 19101- 7618 (the "Bank").
BACKGROUND
A. VPHL is a Delaware business corporation whose shares of stock are
publicly traded on the NASD small cap stock exchange, and whose sole asset
consists of one hundred percent (100%) of the issued and outstanding shares of
VPSI. VPSI is a Delaware business corporation that bottles, markets and
distributes natural spring water under the registered trademarks "Vermont Pure"
and "Hidden Spring" to retail consumer and home office markets, and whose
current market consists primarily of the New England, Mid-Atlantic and
Mid-Western states. The Borrowers are beverage companies that are involved in,
directly or indirectly, the manufacturing, packaging and distribution of spring
water and other beverages to homes and offices, and retail and wholesale
outlets.
B. VPSI also owns 100% of the issued and outstanding shares
of stock of Excelsior Springs Water Company, Inc., a New York
Corporation ("Excelsior") and A. M. Fridays, Inc., a New Hampshire
corporation ("AMF").
C. The Borrowers have requested that the Bank make available to them
certain credit facilities in the nature of a line of credit for (i) refinancing
a portion of their existing current funded debt, (ii) working capital purposes
and letters of credit, (iii) permitted acquisitions capital expenditures and to
refinance existing debt. Subject to all of the terms and conditions of this
Agreement and the other Loan Documents (as defined below), the Bank has agreed
to make these credit facilities available to the Borrowers only for the purposes
set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and intending to be
legally bound, the parties agree:
<PAGE>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. In addition to other terms defined
elsewhere in this Agreement and the Background to this Agreement, the following
terms as used in this Agreement shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
Accounts has the meaning given to that term in the Uniform Commercial
Code, and includes Contract Rights and customer deposits.
Affiliate means any Person which directly or indirectly controls, is
controlled by or is under common control with any of the Borrowers or any
Subsidiary. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise. The term Affiliate includes Excelsior and AMF.
Acquisition means the purchase by the Borrowers for cash and/or
Permitted Seller Notes of assets or stock pursuant to any Permitted Acquisition.
Acquisition Documents means, in connection with any Permitted
Acquisition, any asset purchase agreement, stock purchase agreement or similar
agreement, and all other agreements, documents or instruments entered into or
delivered in connection with any Permitted Acquisition.
Acquisition Facility has the meaning given to that term in Section
3.01.
Acquisition Facility Note has the meaning given to that term in Section
3.01.
Adjusted Cash Flow means four (4) consecutive fiscal quarters of Cash
Flow, plus all owners salaries, bonuses, withdrawals and all other non recurring
expenses of any seller in connection with any Permitted Acquisitions.
Agreement means this Loan and Security Agreement, as the same may be
amended, modified, restated or supplemented from time to time.
Base Rate means the greater of (i) the Prime Rate, or (ii) the Federal
Fund Rate plus one-half of one percent (0.5%).
2
<PAGE>
Business Day means a day other than a Saturday, Sunday or other day on
which commercial banks are authorized or required to close under the laws of the
Commonwealth of Pennsylvania.
Calculated Number of Warrant Shares means that number which results
from (i) 50,000, divided by (ii) the average closing price of the common stock
of VPHL for the ten (10) trading days immediately prior to closing, less $3.00
per share.
Capital Expenditures means expenditures for any fixed assets or
improvements, replacements, substitutions or additions thereto which have a
useful life of more than one year, including assets acquired pursuant to a
Capital Lease.
Capitalization means book net worth of the Borrowers, computed in
accordance with GAAP, minus all Investments and all existing loans and advances
to, and guaranties of, the indebtedness of shareholders plus Subordinated Debt
and any Permitted Sellers Notes.
Capital Lease means any lease for property (real, personal or mixed)
under which such Person is the lessee and which, in accordance with GAAP, is or
should be capitalized on the books of such Person.
Cash Flow means, on a rolling four (4) quarter basis, all net income
before taxes, plus the sum of (i) interest expense, and (ii) depreciation and
amortization, and then plus or minus any and all extraordinary gains or losses,
and non-cash income or expenses, as the case may be, all as determined in
accordance with GAAP.
Cash Flow Coverage means, on a rolling four (4) quarter basis, the
ratio of Cash Flow to Fixed Charges.
Change of Control means the occurrence of an event such that, or
entering into an agreement whereby, any Person (or two or more Persons acting in
concert) shall have acquired beneficial ownership (including within the meaning
of Rules 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of more than forty-nine percent (49%) of the fully diluted
common stock of the applicable Borrower.
Chattel Paper has the meaning given to that term in the Uniform
Commercial Code.
Collateral means all of the property and assets of the Borrowers and
the Sureties described or referred to in Article IV, or in any of the Loan
Documents.
Contract Right means any right to payment under a contract not yet
earned by performance and not evidenced by an Instrument or Chattel Paper.
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Credit Obligation means any obligation for the payment of borrowed
money (other than monies borrowed from the Bank), or the deferred purchase price
of property.
Current Assets means, at any date of determination, all assets which
would be classified as current assets in accordance with GAAP.
Current Liabilities means, at any date of determination, all
liabilities (including deferred charges and provisions for income taxes) which
would be classified as current liabilities in accordance with GAAP.
Current Maturities means that portion of Funded Debt which is
outstanding as of the applicable date, which matures on demand or within one
year from such date, as may or may not directly be renewed, extended or
refinanced, so as to be outstanding more than one year after such date.
Direct Loans has the meaning given to that term in Section 2.01.
Documents has the meaning given to that term in the Uniform Commercial
Code.
Environmental Laws means all current and future federal, state county,
regional, and local laws, statutes and ordinances, and all rules and regulations
thereunder, concerning protection of health or the environment, including, but
not limited to the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. ss.9601 et seq., the Resource Conservation
and Recovery Act, as amended, 42 U.S.C. ss.6901 et seq., the Toxic Substances
Control Act, as amended is 15 U.S.C. ss.2601 et seq., and the Pennsylvania
Hazardous Sites Cleanup Act, 35 P.S. 6020.101 et seq.
Equipment has the meaning given to that term in the Uniform Commercial
Code.
ERISA means the Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time, and the regulations and published
interpretations thereof.
ERISA Affiliate means any trade or business, whether or not
incorporated, which together with the Borrowers would be treated as a single
employer under Section 4001 of ERISA.
Eurocurrency Reserve Requirement means, for any LIBOR Loan for any
Interest Period therefor, the daily average of the stated maximum rate
(expressed as a decimal) at which reserves (including any marginal, supplemental
or emergency reserves) are required to be maintained during such Interest Period
under Regulation D by the Bank against "Eurocurrency Liabilities" (as such term
is used in
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Regulation D) but without benefit or credit of proration, exemptions, or offsets
that might otherwise be available to the Bank from time to time under Regulation
D. Without limiting the effect of the foregoing, the Eurocurrency Reserve
Requirement shall reflect any other reserves required to be maintained by the
Bank against (1) any category of liabilities that includes deposits by reference
to which the LIBOR Interest Rate for LIBOR Loans is to be determined, or (2) any
category of extension of credit or other assets that include LIBOR Loans.
Event of Default has the meaning given to that term in Section 8.01.
Excess Cash Flow means the excess of Cash Flow over Fixed Charges,
calculated annually at the end of each Borrower's fiscal year.
Federal Funds Rate means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/16th of one percent) equal to the
weighted average of the rates of overnight federal funds transactions of members
of the Federal Reserve System arranged by a federal funds brokers, as published
for such day (or, if such day is not a Business Day, for the next preceding
Business Day) by the Federal Reserve Bank of Philadelphia; provided, however,
that if such rate is not so published for any day which is any Business Day, the
average of the quotations for such day and such transactions received by the
Bank from three (3) federal funds brokers recognized and selected by the Bank to
be used to determine the Federal Funds Rate.
Fixed Charges means the sum of Total Debt Service, plus taxes paid in
cash and non-financed Capital Expenditures.
Funded Debt means all Indebtedness and all Credit Obligations of the
Borrowers and all other liabilities of the Borrowers having a final maturity
date more than one year after the date thereof (or which is renewable or
extendible at the option of the Borrowers to a date more than one year from said
date of creation), including all final and serial maturities, prepayments and
sinking fund payments required to be made one year or less after the date of
determination thereof, notwithstanding the fact that any amount thereof is at
the time also included in Current Liabilities.
GAAP means generally accepted accounting principles in the United
States, applied on a consistent basis.
General Intangibles has the meaning given to that term in the Uniform
Commercial Code, and includes those items identified in the Security Agreement.
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Guaranties means the guaranty agreements of even date pursuant to which
Excelsior and AMF each guaranty, and become sureties for, the full and final
payment of all Indebtedness.
Hazardous Substances means "hazardous substances" (as defined in the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
ss.9601 et seq., and the Pennsylvania Hazardous Sites Cleanup Act, 35 P.S.
6020.101 et seq.), "hazardous wastes" (as defined in the Resource Conservation
and Recovery Act, 42 U.S.C. ss.6901 et seq.), "toxic substances" (as defined in
the Toxic Substances Control Act, 15 U.S.C. ss.2601 et seq.), and all other
pollutants and contaminants regulated or controlled by, or required to be
removed or remediated under any Environmental Law.
Indebtedness means and includes (i) all loans and other extensions of
credit by the Bank to any one or more of the Borrowers under the Working Capital
Line of Credit and the Acquisition Facility, and all interest and fees accrued
thereon or in connection therewith, (ii) all other indebtedness and other
obligations or undertakings now or hereafter owing by any one or more of the
Borrowers or their Affiliates to the Bank under this Agreement or the other Loan
Documents to which they are a party, and (iii) all other liabilities and
obligations of any one or more of the Borrowers or their Affiliates to the Bank
(including any past, present or future advances, readvances, substitutions,
extensions, renewals, interest, late charges, penalties, and fees of any and all
types) whether primary or secondary, absolute or contingent, direct or indirect,
joint, several, or independent, voluntary or involuntary, similar or dissimilar,
related or unrelated (including overdrafts), now or hereafter existing, due or
to become due, or held or to be held by the Bank for its own account or as agent
for others, whether created directly or acquired by negotiation, assignment or
otherwise.
Instruments has the meaning given to that term in the Uniform
Commercial Code.
Interest Coverage means the ratio of Cash Flow to Borrower's interest
expense for the twelve (12) consecutive month period immediately preceding the
date of determination.
Interest Period means, whenever any Indebtedness bears interest on the
basis of the LIBOR Interest Rate, a period of one, two, three or six calendar
months (in each case commencing on the first day of the first month of such
period) as selected by the Borrowers requesting the advance pursuant to this
Agreement.
Internal Revenue Code means the Internal Revenue Code of 1986, as the
same may be amended from time to time, and the regulations and published
interpretations thereof.
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Inventory has the meaning given to that term in the Uniform Commercial
Code.
Investment means any loan or advance to (or purchase or acquisition of
the securities or obligations of) any Person, or the assumption of any liability
of any other Person which, in each of the foregoing cases, does not arise from
sales to such Person in the ordinary course of the Borrowers' business.
Investment Property has the meaning given to that term in the Uniform
Commercial Code.
Letter of Credit Agreement has the meaning given to that term in
Section 2.01.
Letters of Credit has the meaning given to that term in Section 2.01.
LIBOR Interest Rate means, for any Interest Period, the rate per annum
(rounded upward, if necessary, to the nearest 1/16 of one percent) determined by
the Bank to be equal to the quotient of (i) the London Interbank Offered Rate
for such Interest Period, divided by (ii) a number equal to 1.00 minus the
Eurocurrency Reserve Requirement for such Interest Period.
LIBOR Loan means any Loan when and to the extent that the interest rate
is determined by reference to the LIBOR Interest Rate.
Loans means all advances under the Working Capital Line of Credit and
the Acquisition Facility.
Loan Documents means this Agreement, the Notes, the Security
Agreements, the Stock Pledge Agreements, the Letter of Credit Agreement, the
Guaranties and any other agreements, documents or instruments now or hereafter
delivered to the Bank with respect to the Collateral and the Indebtedness by the
Borrowers or their Affiliates, or by any other person or entity now or hereafter
liable, directly or indirectly, for the Indebtedness.
London Interbank Offered Rate means, for any Interest Period, the rate
per annum determined in good faith by the Bank in accordance with its usual
procedures (which determination shall be conclusive) to be the average of the
rate per annum for deposits, in U.S. dollars, in the amount of $250,000 for a
period comparable to the Interest Period, offered to leading banks in the London
interbank market at approximately 11:00 a.m. London time, two Business Days
prior to the first day of the Interest Period.
Multiemployer Plan means a Plan described in Section 4001(a) (3) of
ERISA which covers employees of the Borrowers or an ERISA Affiliate.
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Northeastern United States means the States of Pennsylvania,
New Jersey, New York, Connecticut, Massachusetts, Rhode Island,
Vermont, New Hampshire and Maine.
Notes means Acquisition Facility Note and the Working Capital Note,
together with any extensions, modifications, renewals, replacements, or
refinancing thereof, in whole or in part.
PBGC means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
Permitted Acquisitions means the acquisition by any one or more of the
Borrowers of assets constituting an entire business, or a division of any
Person, or the capital stock of any Person; provided, however, that any such
acquisition shall only be a Permitted Acquisition if (i) the consideration paid
consists solely of cash, Permitted Seller Notes and the Borrowers' common stock,
(ii) the assets acquired shall be in the same business lines in which the
Borrowers are already engaged, (iii) the assets acquired shall be for an entire
business, or division of such Person, and (iv) the total consideration paid or
to be paid in cash, Permitted Seller Notes and common stock does not exceed six
(6) times the seller's most recent two (2) fiscal year average Adjusted Cash
Flow.
Permitted Assumed Liabilities means those liabilities which would, in
accordance with GAAP, be classified as liabilities, and may also include
liabilities relating to bottling deposit liabilities, and payments to be made
for rent as required in connection with operating leases transferred in
connection with any Permitted Acquisition; provided, however, that the sum of
Permitted Assumed Liabilities (when added to the total consideration paid or to
be paid for a Permitted Acquisition), does not exceed six (6) times the Adjusted
Cash Flow of the seller.
Permitted Seller Notes means notes issued to sellers in connection with
any Permitted Acquisition and issued in accordance to conditions thereof, which
notes shall be unsecured and subordinated to the Indebtedness substantially in
the form of subordination agreement attached as Exhibit 1.01 to this Agreement.
Person means an individual, partnership, corporation, business trust,
estate joint stock company, trust, an incorporated association, joint venture,
governmental authority or any other person or entity of any nature whatsoever.
Plan means any plan established, maintained, or to which contributions
have been made, by any of the Borrowers or by an ERISA Affiliate.
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Potential Default means any event or condition which with notice or the
passage of time (or both) would constitute an Event of Default.
Prime Rate means the floating annual rate of interest that is
designated from time to time by the Bank as its Prime Rate and used by the Bank
as a reference base with respect to different interest rates charged to
borrowers, it being understood that such rate may not be the lowest rate of
interest at which the Bank makes loans to other borrowers.
Prohibited Transaction means any transaction set forth in Section 406
of ERISA or Section 4975 of the Internal Revenue Code.
Real Property means the real property, appurtenances and improvements
thereto and all other rights (including mineral rights) arising out of or
relating to the real property owned by VPSI, located at and commonly known as
(i) Hedding Drive, Village of Randolph, Vermont, consisting of approximately 2
acres, and (ii) the Route 66 Factory, Village of Randolph, Vermont, consisting
of approximately 7.23 acres, and (iii) Chase Road, Village of Randolph, Vermont,
consisting of approximately 65.7 acres and (iv) North Randolph Road, Village of
Randolph, Vermont, consisting of approximately 21.2 acres.
Reportable Event means any of the events set forth in Section 4043 of
ERISA.
Security Agreements means those Security Agreements and Trademark
Assignment Agreements of even date executed by each of the Borrowers and the
Sureties to the Bank, pursuant to which the Bank shall be granted a first
priority security interest in, lien on, and assignment of the Borrowers' and the
Sureties present and future assets of any nature, whether real, personal or
mixed.
Senior Management means, with respect to each Borrower, offices or
executive positions classified as the Chairman of the Board of Directors,
President, Chief Executive Officer, Chief Operating Officer or Chief Financial
Officer or individuals holding other offices but bearing responsibilities
ordinarily assumed by those with offices with the preceding titles.
Stock Pledge Agreements mean the agreements of even date pursuant to
which the Bank is granted a first priority security interest in, lien on and
assignment of all right, title and interest in all of the issued and outstanding
stock of any nature or type of VPSI, Excelsior and AMF.
Subsidiary means a corporation of which shares of stock having ordinary
voting power (other than stock having voting power only by reason of the
happening of a contingency) to elect a majority of the board of directors or
other managers of such corporation are at
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the time owned, or the management of which is otherwise controlled, directly or
indirectly thorough one or more intermediaries, by the Borrowers. The term
Subsidiary includes each of Excelsior and AMF, which are wholly owned
subsidiaries of VPSI.
Subordinated Debt means all indebtedness, Credit Obligations or other
liabilities of any nature of any one or more of the Borrowers to parties other
than the Bank, the terms and conditions of which have been subordinated in all
respects, in a form and substance satisfactory to the Bank, to the Indebtedness.
Sureties means, jointly and severally, Excelsior and AMF.
Total Debt Service means all interest expense for the year of
calculation, plus all payments of principal made during the year of calculation
with respect to obligations under notes, Capital Leases and other contractual
indebtedness.
Working Capital Line of Credit has the meaning given to that term in
Section 2.01.
Working Capital Note has the meaning given to that term in Section
2.05.
Uniform Commercial Code means the Uniform Commercial Code of
Pennsylvania, as the same may be amended from time to time, and any successor
statute.
SECTION 1.02. Accounting Terms. All accounting terms not specifically
defined in this Agreement shall be construed, and all calculations with respect
to accounting or financial matters shall be computed, in accordance with GAAP,
applied in a manner consistent with the application of the principles in the
preparation of the financial statements mentioned in Section 6.04.
ARTICLE II
THE WORKING CAPITAL LINE OF CREDIT FACILITY
SECTION 2.01. Working Capital Line of Credit.
Subject to the terms and conditions of this Agreement and the Loan Documents,
and in reliance upon the representations, warranties, covenants,
projections and other matters set forth in this Agreement and in
each of the Loan Documents, the Bank shall, provided that no Event
of Default or Potential Default has occurred and is continuing
uncured to the satisfaction of the Bank (i) make revolving loans
(the "Direct Loans") to the Borrowers for the purposes provided for
in Section 2.07(a) of this Agreement, in the maximum principal
amount of up to Two Million Dollars ($2,000,000), and (ii) within
the Two Million Dollars ($2,000,000) limit, but at no time
exceeding the Two Million Dollars ($2,000,000) in the aggregate,
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issue commercial or standby letters of credit for the account of the Borrowers
("Letters of Credit") (collectively, the "Working Capital Line of Credit"). The
terms and conditions under which the Bank will agree to issue Letters of Credit
are also set forth in a Master Letter of Credit Agreement, dated of even date,
executed and delivered by the Borrowers to the Bank (the "Letter of Credit
Agreement").
SECTION 2.02. Borrowing Limits. The maximum amount outstanding under
the Working Capital Line of Credit shall at no time exceed Two Millon Dollars
($2,000,000). The Borrowers covenant and agree that, in the event that the
outstanding balance of the Direct Loans or any portion thereof should exceed, at
any time and for any reason the sum of Two Millon Dollars ($2,000,000) , or if
the face amount of Letters of Credit, together with the Direct Loans or any
portion thereof, should exceed, at any time and for any reason the sum of Two
Millon Dollars ($2,000,000), the full amount of such excess, together with any
interest and fees accrued and unpaid thereon or in connection therewith, shall
be immediately due and payable without demand or notice of any kind. Subject to
the foregoing and all other terms and conditions of this Agreement and the Loan
Documents, the Working Capital Line of Credit shall be available for borrowing,
repayment and reborrowing by the Borrowers. For all purposes under this
Agreement and the Loan Documents, the outstanding balance of the Working Capital
Line of Credit shall include not only the amount of the Direct Loans advanced,
but also all amounts available to be drawn or otherwise paid under Letters of
Credit, and the amounts of any unreimbursed drawings or the payments under
Letters of Credit.
SECTION 2.03. Interest, Fees and Charges.
(a) Each advance under the Working Capital Line of Credit with
respect to Direct Loans shall bear interest on the principal balance from time
to time outstanding at an annual rate based on one of the following interest
rate options, as selected by the Borrower requesting the advance:
(i) Base Rate Option: Interest shall accrue at
an annual rate equal to the Base Rate; or
(ii) LIBOR Rate Option: Interest shall accrue at
an annual rate equal to the LIBOR Interest Rate (for the Interest Period
selected by the Borrower requesting the advance) plus the applicable margin set
forth below, based upon the Borrowers' compliance with the financial covenants
set forth below:
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Maximum Funded
Debt to Cash Flow Ratio Applicable Libor Margin
Less than 1.00 to 1.00 1.00%
Between 1.00 and 1.49 to 1.00 1.50%
Between 1.50 and 2.49 to 1.00 2.00%
Equal to or greater than 2.50 2.50%
to 1.00
(b) Interest shall be computed on the basis of the actual
number of days in the calendar year divided by 360, and the rate of interest
shall be adjusted (i) automatically and simultaneously with each change in the
Base Rate (in the case of the Base Rate Option) or (ii) on the first day of each
Interest Period, with such rate, as adjusted, to remain fixed for the duration
of the Interest Period (in the case of the LIBOR Rate Option).
(c) If the Borrowers wish an advance under the Working Capital
Line of Credit to be based on the LIBOR Rate Option, they shall give the Bank
not less than two (2) Business Days prior notice of such request.
(d) Letters of Credit shall be issued by the Bank and with
respect to each such Letter of Credit, the Bank shall charge to the Borrowers,
and the Borrowers shall pay upon issuance of such Letter of Credit, a commission
equal to the applicable percentage set forth below (based upon Borrowers'
compliance with the financial covenants set forth below) multiplied by the face
amount of such Letter of Credit on a per annum basis:
Maximum Funded Letter of Credit
Debt to Cash Flow Ratio Per Annum Percentage Fee
Less than 1.00 to 1.00 1.00%
Between 1.00 and 1.49 to 1.00 1.25%
Between 1.50 and 2.49 to 1.00 1.50%
Equal to or greater than 2.50 1.75%
to 1.00
With respect to each Letter of Credit, the Borrowers shall also pay to the Bank
all customary issuance, cable and other incidental charges issued from time by
the Bank.
SECTION 2.04. Payment of the Working Capital Line of Credit. Interest
on the amounts outstanding under the Working Capital Line of Credit shall be due
and payable on the first day of each month beginning May 1, 1998, continuing on
the first day of each month thereafter until all sums owing under the Working
Capital Line of Credit have been paid in full. Notwithstanding the
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foregoing, interest with respect to Loans accruing interest at the Libor
Interest Rate shall be payable at the end of the applicable period to which the
advance made under the Libor Rate Option applies as set forth in Section
2.03(ii), above. The outstanding principal balance of the Working Capital Line
of Credit, and all interest and fees accrued and unpaid thereon or in connection
therewith shall be payable in full at any time (i) upon acceleration of the
foregoing Indebtedness made after the occurrence and during the continuance,
uncured to the satisfaction of the Bank, of an Event of Default, or (ii) in the
absence of such acceleration, upon termination of the Working Capital Line of
Credit pursuant to Section 2.06.
SECTION 2.05. Working Capital Note. The obligation of the Borrowers to
pay the outstanding balance of the Working Capital Line of Credit, and interest
and fees accrued thereon or in connection therewith shall be evidenced by a
promissory note, in form and substance satisfactory to the Bank, issued by
Borrowers to the Bank in the principal amount of Two Million Dollars
($2,000,000) (the "Working Capital Note").
SECTION 2.06. Termination of the Working Capital Line of Credit. The
availability of advances under Working Capital Line of Credit shall terminate on
March 31, 2003, unless extended by the Bank at its sole discretion upon notice
to the Borrowers; provided, however, that the Bank may also terminate the
Working Capital Line of Credit at any time upon the occurrence and during the
continuance of an Event of Default. Termination of the Working Capital Line of
Credit shall not terminate any rights or remedies available to the Bank, unless
and until the Indebtedness has been repaid finally and in full.
SECTION 2.07. Use and Disbursement of Proceeds.
(a) The Borrowers shall use the proceeds of the Working
Capital Line of Credit solely for working capital purposes of the Borrowers, as
well as for Capital Expenditures and the refinancing of debt existing as of the
date of the this Agreement.
(b) Advances under the Working Capital Line of Credit shall be
made by the Bank to the Borrowers pursuant to the Corestates Funds Manager - End
of Day Fund Sweep Agreement (the "Sweep Agreement"), a copy of which has been
executed and delivered by the Borrowers to the Bank. At such time that the Sweep
Agreement is no longer in effect and unless otherwise agreed by the Bank, the
Borrowers shall give the Bank at least one (1) Business Day's prior notice of
each advance requested under the Working Capital Line of Credit, specifying the
Borrower requesting the advance, the date and amount thereof, the interest rate
option or options which the Borrowers have elected, and the outstanding balance
with respect to which those interest rate options are to apply, and providing
such additional information as the Bank may
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request. Notwithstanding the foregoing, the Borrowers must give the Bank not
less than two (2) Business Days prior notice with respect to borrowings that
will be based upon the LIBOR Rate Option. The Bank may disburse the proceeds of
any Direct Loans by crediting the amount thereof to one or more deposit accounts
of the Borrowers maintained with the Bank.
(c) The Bank shall not be obligated to disburse or have
outstanding at any one time under the Working Capital Line of Credit more than
three (3) Libor Loans.
SECTION 2.08. Prepayments. The Borrowers shall be entitled to prepay
the principal of the Working Capital Line of Credit, in whole or in part, at any
time and from time to time, but with interest accrued on the amount prepaid;
provided, however, that with respect to any portion of the Working Capital Line
of Credit for which the LIBOR Rate Option is applicable, the Borrowers shall pay
to the Bank any sums required under paragraph (b) of Section 9.13.
ARTICLE III
THE ACQUISITION LINE OF CREDIT
SECTION 3.01. The Acquisition Facility. Subject to the terms and
conditions of this Agreement and the Loan Documents, and in reliance upon the
representations, warranties, covenants, projections and other matters set forth
in this Agreement and in each of the Loan Documents, the Bank shall, provided
that no Event of Default or Potential Default has occurred and is continuing
uncured to the satisfaction of the Bank, make revolving loans to the Borrowers
in the maximum amount outstanding at any time of up to Fifteen Million Dollars
($15,000,000), reduced all times by all Indebtedness due and owing under or with
respect to the Working Capital Line of Credit (the "Acquisition Facility"). The
obligation of the Borrowers to repay extensions of credit in connection with the
Acquisition Facility shall be evidenced by the execution and delivery of a
promissory note, in the form and substance satisfactory to the Bank, issued by
the Borrowers to the Bank in the principal amount of Fifteen Million Dollars
($15,000,000) (the "Acquisition Facility Note").
SECTION 3.02. Borrowing Conditions and Limits. In addition to the
restrictions and conditions set forth in Section 3.01, above, the Bank shall
retain the right, at its sole reasonable discretion and based upon such
information as it may request with respect to prospective acquisition targets of
the Borrowers, to refuse or limit the amount of any advance under the
Acquisition Facility, unless:
(a) The aggregate amount of cash paid, Permitted Seller
Notes and VPHL's common stock issued by the Borrowers with respect
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to a Permitted Acquisition will not exceed six (6) times the seller's most
recent two (2) year average Adjusted Cash Flow, and the cash paid with respect
to a Permitted Acquisition will not exceed four (4) times the seller's two (2)
year average Adjusted Cash Flow and provided further that the business
operations with respect to all such Permitted Acquisition or Acquisitions are
located in the Northeastern United States; and
(b) No Potential Default or Event of Default is in existence
at the time of the consummation of such Permitted Acquisition, or would exist
after giving effect to such Permitted Acquisition; and
(c) The Borrowers shall have given the Bank at least
thirty (30) days prior written notice of any proposed Permitted
Acquisition; and
(d) The Bank shall be satisfied with the nature and type of
assets being acquired in connection with any Permitted Acquisition, and shall be
satisfied, in its reasonable discretion, with the Acquisition Documents
governing any Permitted Acquisition, which shall include the submission of a
Borrower prepared, Acquisition due diligence checklist in a form and content
reasonably satisfactory to the Bank; and
(e) The Bank shall be satisfied that no liabilities
(contingent or otherwise) are being acquired in connection with any Permitted
Acquisition, except Permitted Assumed Liabilities; and
(f) The Borrowers shall grant to the Bank first priority
perfected security interests in all stock, property and assets acquired, or to
be acquired, by Borrowers in connection with the proposed Permitted Acquisition;
and
(g) The Borrowers shall be able to grant to the Bank a
perfected, first priority security interest in all property or other assets of
any nature to be acquired in connection with the proposed Permitted Acquisition;
and
(h) No Acquisition may be effected unless recalculations
(using historical Adjusted Cash Flow of the proposed Permitted Acquisition), are
made by the Borrowers for compliance with the financial covenants set forth in
this Agreement for the fiscal quarter most recently ended prior to the date of
such proposed Permitted Acquisition, and for the four (4) quarters most recently
ended prior to the date of such proposed Permitted Acquisition on a pro forma
basis, as if the respective proposed Permitted Acquisition had occurred on the
first day of such period, and such recalculations shall show that all such
covenants would have been complied with if the proposed Permitted Acquisition
had occurred on the first day of such period; and
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(i) The Bank shall be satisfied, in its sole reasonable
discretion, with the amount of Cash Flow which results from the pro forma
recalculation of Cash Flow for the period of four (4) consecutive fiscal
quarters most recently ended prior to the date of such proposed Permitted
Acquisition, regardless of whether the Cash Flow Coverage covenant is complied
with; and
(j) The Borrowers believe, in their reasonable good faith,
that the financial covenants set forth in this Agreement will continue to be met
for the one (1) year period following the consummation of the proposed Permitted
Acquisition. The Borrowers shall provide to the Bank projections demonstrating
such compliance, and a certificate, signed by an officer of Senior Management,
certifying as to compliance with the requirements of preceding clauses.
Notwithstanding the foregoing, in the event that the Borrowers are in
compliance with the requirements of Sections 3.02(a), (b), (c) and (f), above,
they may consummate Permitted Acquisitions where the cash portion of the total
consideration paid is not in excess of One Million Dollars ($1,000,000), and the
aggregate cash consideration paid or to be paid for any such Permitted
Acquisition does not exceed Three Million Dollars ($3,000,000) during any twelve
(12) month fiscal period.
SECTION 3.03. Interest.
(a) Each advance under the Acquisition Facility shall bear
interest on the principal balance from time to time outstanding at an annual
rate based on one of the following interest rate options, as selected by the
Borrower requesting the advance:
(i) Base Rate Option: Interest shall accrue at
an annual rate equal to the Base Rate; or
(ii) LIBOR Rate Option: Interest shall accrue at
an annual rate equal to the LIBOR Interest Rate (for the Interest Period
selected by the Borrower requesting the advance) plus the amounts set forth
below, based upon the Borrowers' compliance with the financial covenants set
forth below:
Maximum Funded
Debt to Cash Flow Ratio Applicable Libor Margin
Less than 1.00 to 1.00 1.00%
Between 1.00 and 1.49 to 1.00 1.50%
Between 1.50 and 2.49 to 1.00 2.00%
Equal to or greater than 2.50 2.50%
to 1.00
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(b) Interest shall be computed on the basis of the actual
number of days in the calendar year divided by 360, and the rate of interest
shall be adjusted (i) automatically and simultaneously with each change in the
Base Rate (in the case of the Base Rate Option) or (ii) on the first day of each
Interest Period, with such rate, as adjusted, to remain fixed for the duration
of the Interest Period (in the case of the LIBOR Rate Option).
(c) If the Borrowers' wish an advance under the Acquisition
Facility to be based upon the LIBOR Rate Option, they shall give the Bank not
less than two (2) Business Days prior notice of such request.
SECTION 3.04. Repayment of the Acquisition Facility.
Interest on the amounts outstanding under the Acquisition Facility
shall be due and payable on the first day of each month beginning May 1, 1998,
and continuing on the first day of each month thereafter until all sums owing
under the Acquisition Facility have been paid in full. Notwithstanding the
foregoing, interest with respect to Loans accruing interest at the Libor
Interest Rate shall be payable at the end of the applicable period to which the
advance made under the Libor Rate Option applies as set forth in Section 3.03
(a)(ii), above. The outstanding principal balance of all advances under the
Acquisition Facility, and all interest and fees accrued and unpaid thereon or in
connection therewith shall be payable in full at any time (i) upon the
acceleration of the foregoing Indebtedness made after the occurrence and during
the continuance, uncured to the satisfaction of the Bank, of an Event of
Default, or (ii) in the absence of such acceleration, upon termination of the
Acquisition Facility pursuant to Section 3.06.
SECTION 3.05. Use of Proceeds of the Acquisition Facility. The proceeds
of any advance under the Acquisition Facility shall be used solely to fund, in
whole or in part, Permitted Acquisitions, as well as for Capital Expenditures
and the refinancing of debt existing as of the date of the this Agreement. The
Bank shall not be obligated to disburse or have outstanding at any one time
under the Acquisition Facility more than three (3) Libor Loans.
SECTION 3.06. Termination of the Acquisition Facility.
---------------------------------------
The availability of advances under the Acquisition Facility shall
terminate on March 31, 2003, unless extended by the Bank by written
notice to the Borrowers; provided, however, that the Bank may also
-------- -------
terminate the availability of advances under the Acquisition
Facility at any time upon the occurrence and during the continuance
of Event of Default. Termination of availability of advances under
the Acquisition Facility shall not terminate any other rights or
remedies of the Bank, unless and until the Indebtedness has been
repaid finally and in full.
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SECTION 3.07. Prepayments. The Borrowers shall be entitled to prepay
the principal of the Acquisition Facility, in whole or in part, at any time and
from time to time, but with interest accrued on the amount prepaid; provided,
however, that with respect to any portion of the Acquisition Facility for which
the LIBOR Rate Option is applicable, the Borrowers shall pay to the Bank any
sums required under paragraph (b) of Section 9.13.
SECTION 3.08. Unused Facility Fee. As and to the extent that the
availability under the Working Capital Line of Credit and the Acquisition
Facility is not used by the Borrowers during the term of its availability, the
Borrowers shall pay to the Bank a fee equal to 1/8 of one percent (0.125%) of
the amount of any such unused availability. This unused facility fee shall be
calculated, assessed and due and payable as of March 31, June 30, September 30,
and December 31 of each year, or the portion of any such year, during which
either the Working Capital Line of Credit or the Acquisition Facility is
available for use and borrowing by the Borrowers.
ARTICLE IV
COLLATERAL
SECTION 4.01. Security Interests. As security for the performance of
this Agreement, the Loan Documents and the repayment of the Indebtedness, the
Borrowers grant (or shall cause to be granted) to the Bank a first priority
(except as otherwise disclosed in the financial statements mentioned in Section
6.04 of this Agreement or set forth on the schedule attached as Exhibit 6.09 to
this Agreement) security interest in, lien on, and where appropriate, an
assignment of, all present and future Collateral, including:
(a) All of the Borrowers' and the Sureties' present and future
Accounts, Contract Rights, Instruments, Documents, Equipment (whether or not
constituting fixtures), General Intangibles, Chattel Paper Inventory and
Investment Property, whether now owned or hereafter acquired, as such property
may be more fully described in the Security Agreements dated of even date with
this Agreement and executed and delivered by the Borrowers and the Sureties to
the Bank; and
(b) Without limiting the general nature of Section 4.01(a),
above, all of the Borrowers' and the Sureties present and future customer lists,
supply information and records and related items, as well as the Borrowers' and
the Sureties right to enforce any present or future restrictive covenant,
covenant not to compete or related asset or right with any present or future
employee, officer, director, shareholder or other person affiliated with the
Borrowers and the Sureties; and
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(c) All of the Borrowers' and the Sureties files, books,
ledgers, ledger cards, records, bills, invoices, receipts, deeds, certificates
or documents of ownership, warranties, bills of sale and all other data and data
storage systems and media pertaining to any of the Collateral; and
(d) All of the Borrowers' and the Sureties property or
property in which they have an interest, now or at any time hereafter in the
possession of the Bank, or any of their Affiliates (other than shareholders of
VPHL) or Subsidiaries, in any capacity and for any reason whatsoever; and
(e) All shares of stock (whether common, preferred or
otherwise), of the Borrowers and their Affiliates (other than shareholders of
VPHL), except for Vermont Pure Holdings, Ltd.; and
(f) A mortgage lien on, and an assignment of leases and rents
regarding the Real Property, encumbering all of the ownership interests in such
property, (including mineral and water rights); and
(g) Without limiting the general nature of Section 4.01 (a),
above, a first priority security interest in and lien on all of the Borrowers'
and their Affiliates' and Subsidiaries' present and future trademarks,
servicemarks, trade names, copyrights, patents, licenses and other property
commonly known as or classified as intellectual property, including (i) all of
the Borrowers' right, title and interest to the registered trademarks "Vermont
Pure" and "Hidden Spring" and (ii) all of Excelsior's right, title and interest
to the registered trademark "Excelsior".
(h) All proceeds and products of the Collateral and the
property described in the foregoing subsections of this Section 4.01, including
insurance, and all replacements to the Collateral.
SECTION 4.02. Financing Statements and Other Documents. The Borrowers
shall join (and shall cause their Affiliates to join with the Bank in executing
such financing statements, continuation statements and other agreements or
instruments (in form satisfactory to the Bank) under the Uniform Commercial Code
as the Bank may specify, and shall pay the cost of filing the same in such
public offices as the Bank shall designate.
SECTION 4.03. Landlords' Waivers; Mortgagees' Disclaimers. The
Borrowers shall, unless otherwise agreed to by the Bank, cause the owners and
the mortgagees of all premises occupied by it to execute and deliver to the Bank
instruments (in a form reasonably satisfactory to the Bank) by which such owners
waive their right to distrain on, and such mortgagees disclaim any interest in,
all of the Collateral.
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SECTION 4.04. Insurance. The Borrowers shall maintain insurance, in
such amounts and with such insurance companies as are reasonably acceptable to
the Bank, insuring the Collateral against such risks as are specified by the
Bank. Each policy of insurance covering any of the Collateral shall (A) show the
Bank's security interest in such a manner that all payments for damage or loss
shall be paid directly to the Bank, including the designation of the Bank as
additional insured and loss payee, and (B) provide that it shall not be
terminated, reduced in amount or otherwise materially changed without at least
thirty (30) days' prior written notice to the Bank. Upon request by the Bank and
upon the execution of this Agreement, the Borrowers shall deliver to the Bank
satisfactory evidence of compliance with this Section.
SECTION 4.05. Places of Business; Location of Collateral.
(a) The Borrowers represent that the principal place of
business, chief executive office and the place where records are kept concerning
the Collateral is at Route 66, Catamount Industrial Park, Randolph, Vermont
05060, and that the Borrowers' Equipment and Inventory are kept at this
location, and at the other places of business listed in Exhibit 4.05.
(b) The Borrowers shall notify the Bank of (1) any change in
the location of any of their principal places of business or chief executive
offices, (2) any change in the places where they keep items of Equipment, or
Inventory or records concerning the Collateral, and (3) the establishment of any
new, or the discontinuance of any existing, place of business.
(c) The Borrowers shall not permit any of their Equipment to
be removed from the places mentioned in subsection (A) of this Section 4.05, or
any of their Inventory to be so removed, except in the ordinary course of
business.
SECTION 4.06. Equipment and Inventory.
(a) The Borrowers represent that they are the absolute owners
of their Inventory and Equipment, subject only to the security interests created
or referenced in this Agreement, and those liens referred to in Section 6.09 of
this Agreement.
(b) The Borrowers shall not dispose of any of their Equipment
(other than dispositions, in the ordinary course of business, of obsolete or
worn out Equipment, or sales or dispositions of vehicles during any fiscal year
in an aggregate amount of not greater than $75,000), or permit any Equipment
located at leased facilities to become a fixture or an accession to other goods.
(c) The Borrowers shall sell their Inventory only in the
ordinary course of business.
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SECTION 4.07. Patents, Copyrights and Trademarks. The Borrowers and
Excelsior own, or have other rights with respect to, all patents, copyrights,
trademarks, tradenames, service marks and other intellectual property rights
used by them in the operation of their businesses, with all of the foregoing
being identified on Exhibit 4.07 to this Agreement.
SECTION 4.08. Records and Reports. The Borrowers shall
keep accurate and complete records of the Collateral, and provide
to the Bank such information about the Collateral as the Bank may
reasonably request.
SECTION 4.09. Trade and Fictitious Names. The Borrowers and the
Sureties employ no trade or fictitious names, nor have they employed any trade
or fictitious names within the last six (6) years, other than as set forth on
Exhibit 4.09 to this Agreement.
SECTION 4.10. Certain of the Bank's Rights.
----------------------------
If requested by the Bank, the Borrowers shall: (1) deliver to the Bank a list
of its Accounts, showing the names, addresses and telephone numbers
of account debtors, and a person or persons with the account debtor
to contact concerning the outstanding Account and the amounts owed
by them, respectively; (2) deliver to the Bank a copy, with such
duplicate copies as the Bank may request, of the invoice applicable
to each Account, bearing a statement that the Account has been
assigned to the Bank.
SECTION 4.11. Power of Attorney. With respect to the execution and
delivery of such agreements, documents or instruments which may be necessary or
desirable to obtain, maintain or perfect the rights granted to the Bank in the
Collateral, the Borrowers and the Sureties irrevocably appoint the Bank as their
attorney-in-fact with full power and authority to sign or endorse the name of
the Borrowers as may be necessary to accomplish the foregoing purposes.
SECTION 4.12. Notices. If notice of the sale, disposition or other
intended action by the Bank with respect to the Collateral is required by the
Uniform Commercial Code or other applicable law, any notice thereof sent to the
Borrowers at the addresses specified in Section 9.03 of this Agreement (or such
other address of the Borrowers as may from time to time be shown on the records
of the Bank) at least ten (10) Business Days prior to such action, shall
constitute reasonable notice to the Borrowers.
SECTION 4.13. Insurance; Discharge of Taxes, etc.
----------------------------------
The Bank shall have the right at any time and from time to time, without
notice to the Borrowers to: (A) obtain insurance covering any of
the Collateral, if the Borrower fails to do so; (B) discharge
taxes, liens, security interests or other encumbrances at any time
levied or placed on any of the Collateral, if the Borrowers fail to
do so; and (C) pay for the maintenance and preservation of any of
the Collateral, if the Borrowers fail to do so. The Borrowers
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shall reimburse the Bank, on demand, for any payment made or any expense
incurred pursuant to this authorization. The Borrowers assign to the Bank all
right to receive the proceeds of insurance covering the Collateral, direct any
insurer to pay all such proceeds directly to the Bank and authorize the Bank to
endorse in the name of the Borrowers any draft for such proceeds.
SECTION 4.14. Certain Waivers and Releases by the Borrower. The
Borrowers (A) waive protest of all commercial paper at any time held by the Bank
on which they are in any way liable, notice of nonpayment at maturity of any and
all of its Accounts and, except where required hereby or by law, notice of
action taken by the Bank, and (B) release the Bank from all claims for loss or
damage caused by any failure to collect any Account or by any act or omission on
the part of the Bank or its officers, agents and employees, except gross
negligence or willful misconduct.
ARTICLE V
CONDITIONS OF LENDING
SECTION 5.01. Conditions Precedent to Funding. As conditions precedent
to the funding of the Working Capital Line of Credit and the Acquisition
Facility, the Borrowers shall deliver or cause to be delivered to the Bank,
contemporaneously with or promptly after the execution and delivery of this
Agreement, in a form and substance satisfactory to the Bank and its counsel:
(a) The Notes;
(b) The Loan Documents;
(c) Certified copies of the articles of incorporation and
bylaws of the Borrowers and the Sureties, and all amendments thereto, and a
certificate of good standing evidencing the good standing of the Borrowers and
the Sureties as a domestic corporation under the laws of their respective states
of incorporation;
(d) Certified copies of all corporate action taken by the
Borrowers and the Sureties (including resolutions adopted by the Board of
Directors of the Borrowers and the Sureties) authorizing the execution, delivery
and performance of this Agreement and the other Loan Documents to which the
Borrowers or the Sureties are a party;
(e) An (i) opinion of counsel for the Borrowers as to the
matters mentioned in Sections 6.01, 6.02, 6.03, 6.05, 6.10 and 6.16 of this
Agreement, and such other matters as may be requested by the Bank, (ii) an
opinion of an attorney authorized to practice law in the State of Vermont as to
the obtaining of such necessary
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permits and licenses as may be required to be obtained by the Borrowers under
Vermont law in connection with the operation of their business activities in the
State of Vermont;
(f) Warrants issued in favor of the Bank to purchase the
Calculated Number of Warrant Shares of common stock of VPHL;
(g) A fee in the amount of Eighteen Thousand Seven Hundred
Fifty Dollars ($18,750), ($9,375 of which has already been paid) in
consideration of the Bank making available the Loans and other credit facilities
provided for in this Agreement;
(h) Financial projections for the Borrowers operations
for the period ending not earlier than December 31, 2003;
(i) Satisfactory completion by the Bank of its due diligence
and other review of the Borrowers assets and properties (including review of the
Borrowers accountant prepared management letter, audits of the Collateral and
appraisals and environmental audits with respect to Real Property);
(j) Such other agreements, documents or instruments that the
Bank or its counsel may reasonably request.
SECTION 5.02. Additional Conditions Precedent.
As additional conditions precedent to the funding by the Bank of each Loan
and other extension of credit requested by the Borrowers under the
Working Capital Line of Credit and the Acquisition Facility
(including the funding of the initial Loan or any other extension
of credit):
(a) The representations and warranties made by the Borrowers
and the Sureties in this Agreement and the other Loan Documents shall be true
and correct on and as of the date of funding, with the same effect as though
made on and as of that date.
(b) No Event of Default or Potential Default shall have
occurred and be continuing or shall result from the funding of the disbursement.
(c) No material adverse change, as determined by the Bank in
its sole reasonable discretion, shall have occurred in the condition of the
Borrowers, financial or otherwise, since the date of this Agreement.
(d) The Bank shall have received such additional documents or
instruments and such additional approvals and opinions as the Bank may
reasonably request under the terms of this Agreement, the Loan Documents, or
otherwise.
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Each request by the Borrowers for a loan or other extension of credit
under this Agreement shall constitute a certification by the Borrowers, as of
the date of such request, that all of the conditions in this Section 5.02 have
been satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement, the Borrowers
represent and warrant to the Bank that:
SECTION 6.01. Existence. Each Borrower and each Surety is a corporation
duly incorporated, validly existing and in good standing under the laws of its
state of incorporation as referred to in the Background of this Agreement, has
all requisite power and authority, corporate or otherwise, to conduct its
business and to own and operate its properties, and is duly qualified as a
foreign corporation to do business in, and is in good standing in, all
jurisdictions in which failure to so qualify would have a material adverse
effect on that Borrower's business. The Borrowers have no Subsidiaries or
Affiliates, except as described in the schedule attached as Exhibit 6.01.
SECTION 6.02. Authorization. The Borrowers and the Sureties have all
requisite power and authority to execute, deliver and perform this Agreement and
the other Loan Documents to which they are a party. The execution, delivery and
performance by the Borrowers and the Sureties of this Agreement and the other
Loan Documents to which they are a party have been duly authorized by all
necessary corporate action and do not and will not violate any provision of law
or of the articles of incorporation or bylaws of any of the Borrowers or the
Sureties, or result in a breach or constitute a default under any agreement,
indenture or instrument to which the Borrowers or the Sureties are a party, or
by which their properties may be bound or affected.
SECTION 6.03. Validity. This Agreement and the Loan Documents to which
the Borrowers and the Sureties are parties are legal, valid and binding
obligations of the Borrowers and the Sureties, enforceable in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization and similar equitable laws
and principles as may effect the rights of creditors generally.
SECTION 6.04. Financial Statements. The financial statements of the
Borrowers as of and for the period ended October 25, 1997, previously furnished
to the Bank, were prepared in accordance with GAAP, are complete and correct,
and fairly present the financial position and the results of operations of the
Borrowers as of that date and for the period then ended. Since October 25, 1997,
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there has been no material adverse change in the financial position or results
of operations of the Borrowers from that set forth in the financial statements
as of that date and for the period then ending.
SECTION 6.05. Litigation. Except as disclosed in the schedule attached
as Exhibit 6.05, there are no actions or proceedings pending or, to the
knowledge of the Borrowers, threatened against or affecting any of the
Borrowers, or any of their properties, before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which are substantial in amount or which, if determined adversely,
would have a material adverse effect on the financial condition or business of
any Borrowers.
SECTION 6.06. Agreements and Orders. None of the Borrowers are in
default in the performance of any material agreement or instrument to which it
may be party or by which its properties may be bound or with respect to any
order, writ, injunction, or decree of any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign.
SECTION 6.07. Contingent Liabilities. The Borrowers have no material or
substantial contingent obligations or liabilities, for taxes or otherwise, that
are not disclosed by the financial statements mentioned in Section 6.04 or set
forth on the schedule attached as Exhibit 6.07.
SECTION 6.08. Taxes. The Borrowers have filed all tax returns and
reports (federal, state and local) required to be filed as of the date of this
Agreement and have paid all taxes, assessments and charges imposed upon them or
their operations or properties, or which they are required to withhold and pay
over (including payroll withholding taxes).
SECTION 6.09. Ownership and Encumbrances. The Borrowers and Excelsior
have title to, or valid leasehold interests in, all of their properties and
assets, real and personal, including the properties and assets reflected in the
financial statements mentioned in Section 6.04. None of the properties and
assets of any of the Borrowers are subject to any lien, encumbrance, security
interest or other claim of any nature, except liens and encumbrances in favor of
the Bank and existing liens and encumbrances disclosed by the financial
statements mentioned in Section 6.04, or set forth on the schedule attached as
Exhibit 6.09.
SECTION 6.10. Consents.
No authorization, consent, approval, license, exemption by or filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be
necessary to the valid execution, delivery or performance by the Borrowers and
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the Sureties of this Agreement or the other Loan Documents to which
they are a party.
SECTION 6.11. ERISA. The Borrowers are in compliance in all material
respects with all applicable provisions of ERISA. Neither a Reportable Event nor
a Prohibited Transaction has occurred and is continuing with respect to any
Plan; no notice of intent to terminate a Plan has been filed, nor has any Plan
been terminated except as set forth on Exhibit 6.11; no circumstances exist
which constitute grounds under Section 4042 of ERISA entitling the PBGC to
institute proceedings to terminate, or appoint a trustee to administrate, a
Plan, nor has the PBGC instituted any such proceedings; neither the Borrowers
nor any ERISA Affiliate has completely or partially withdrawn under Section 4201
or 4204 of ERISA from a Multiemployer Plan; the Borrowers and each ERISA
Affiliate has met its minimum funding requirements under ERISA with respect to
all of its Plans and the present value of all vested benefits under each Plan
exceeds the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA and the regulations thereunder for calculating the
potential liability of the Borrowers or any ERISA Affiliate to the PBGC or the
Plan under Title IV of ERISA; and neither the Borrowers nor any ERISA Affiliate
has incurred any liability to the PBGC under ERISA.
SECTION 6.12. Operation of Business. The Borrowers and Excelsior, as
applicable, possess (i) all material licenses, permits, certificates and other
governmental authorizations, and (ii) all franchises, trademarks, servicemarks,
trade names, copyrights and patents, or rights in any of the foregoing, adequate
for the conduct of their business as now conducted and presently proposed to be
conducted. To the best of the Borrower's knowledge, information and belief,
after reasonable inquiry, the Borrowers are also in compliance with all
statutes, laws, rules and regulations applicable to them in the operation of
their business, including all of the foregoing as may relate to their bottling
and labeling activities.
SECTION 6.13. Disclosure. No representation or warranty made by any of
the Borrowers or the Sureties in this Agreement or the other Loan Documents to
which they are a party is false or misleading in any material respect, or omits
to state any material fact necessary in order to make the statements in this
Agreement or the other Loan Documents not misleading. The Borrowers have
disclosed to the Bank in writing every fact that materially and adversely
affects their business or financial condition or their ability to perform their
obligations under this Agreement or the other Loan Documents to which they are a
party.
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SECTION 6.14. Environmental Laws. The Borrowers have received all
permits and filed all notifications necessary to carry on their businesses under
and in compliance with all applicable Environmental Laws. The Borrowers have no
knowledge of, and have not given any written or oral notice to the Environmental
Protection Agency or any state or local agency regarding, any actual or
imminently threatened removal, spill, release or discharge of any Hazardous
Substances on properties owned or leased by any of the Borrowers or in
connection with the conduct of their business and operations. The Borrowers have
no knowledge of, and have not received any notice that they are potentially
responsible for costs of clean-up of any actual or imminently threatened spill,
release or discharge of any Hazardous Substances.
SECTION 6.15. Margin Stock. The Borrowers are not engaged in, nor do
they have as one of their substantial activities, the business of extending or
obtaining credit for the purpose of purchasing or carrying "margin stock" (as
that term is defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no proceeds of any Loan under this Agreement will be used
for such purpose or for the purpose of purchasing or carrying any shares of
margin stock.
SECTION 6.16. Securities Laws.
All shares of capital stock and all other securities of the Borrowers have been
offered and sold in accordance with registration and other applicable
requirements of all applicable federal and state securities laws.
SECTION 6.17. Other Agreements. The Borrowers are not a party to any
indenture, loan, or credit agreement, or to any lease or other agreement or
instrument, or subject to any charter or corporate restriction, which could have
a material adverse effect on their businesses, properties, assets, or condition,
financial or otherwise, or their ability to perform their obligations under this
Agreement or the other Loan Documents to which they are a party.
SECTION 6.18. Labor Disputes and Casualties.
-----------------------------
The Barrowers are not affected by any fire, explosion, accident, strike,
lockout, or other labor dispute, drought, storm, hail, earthquake, embargo,
act of public enemy, or other casualty (whether or not covered by
insurance) which materially and adversely affects their business,
properties, assets, or condition, financial or otherwise, or their
ability to perform their obligations under this Agreement or the
other Loan Documents to which they are a party.
SECTION 6.19. Representations Concerning Sureties.
All of the representations and warranties contained in the Loan Documents
executed by the Sureties are true, correct and complete. Additionally, other
than the trademark registered with the United States Patent and Trademark Office
at No. 1,668,735 and known as "Excelsior Spring Water", neither of the Sureties
maintain any assets or have any liabilities of any nature, do not presently
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conduct business operations and are not currently contemplated by either the
Borrowers or the Sureties to conduct business operations in the future.
ARTICLE VII
COVENANTS
As long as any portion of the Indebtedness is or remains outstanding
and unpaid, or any of the Loans remain available for borrowing, the Borrowers
covenant and agree that, unless the Bank otherwise consents in writing:
SECTION 7.01. Financial and Other Information.
The Borrowers shall furnish or cause to be furnished to the Bank:
(a) within ninety (90) days after the close of each fiscal
year, (i) an income statement and statement of cash flow of the Borrowers for
such fiscal year, and a balance sheet of the Borrowers, on a consolidating
basis, as of the last day of such fiscal year, prepared in accordance with GAAP,
certified without qualification by independent certified public accountants
reasonably satisfactory to the Bank (it being understood that Feldman, Raden &
Co., is acceptable to the Bank), (ii) the management letter prepared by
Borrowers independent public accountants issued in connection with any interim
or year-end financial statement, and (iii) a revised, updated budget, prepared
by Senior Management of the Borrowers, for the next five (5) fiscal years, which
budget shall take into account the effect of any Permitted Acquisitions;
(b) within forty-five (45) days after the close of each fiscal
quarter, a certification (in the form attached as Exhibit 7.01) prepared under
the direction of, and signed by, the Borrowers' Chief Financial Officer or Chief
Executive Officer, certifying that, to the best of his or her knowledge,
information and belief, no Event of Default or Potential Default has occurred or
is continuing under this Agreement or any of the Loan Documents;
(c) within forty-five (45) days after the close of each fiscal
month, an income statement and balance sheet of the Borrowers, on a
consolidating basis, for such month, and prepared by management of the Borrower
in accordance with GAAP which financial statement shall compare the Borrowers'
results of actual operations with the projected results of operations;
(d) within fifteen (15) days of the close of each fiscal
month, a certification as to the Borrowers' accounts payable,
Accounts and other accounts receivable;
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(e) on or within five (5) days after filing, copies of the
Borrowers' 10K or 10Q reports filed with the Securities and Exchange Commission,
or any other filings from time to time by any one or more of the Borrowers with
the Securities and Exchange Commission; and
(f) with reasonable promptness, such other information
concerning the business, properties, and condition, financial or otherwise, of
the Borrowers as the Bank may from time to time reasonably request.
SECTION 7.02. Insurance. The Borrowers shall maintain insurance with
respect to their businesses and assets in such amounts, against such hazards,
and with such companies as is reasonable and customary and as may be
satisfactory to the Bank. All policies of insurance shall insure the Bank as its
interest may appear and shall bear a thirty (30) day notice of cancellation or
material change endorsements in favor of the Bank. Attached as Exhibit 7.02 are
details regarding all of the Borrower's current insurance coverage, and the
Borrowers further agree to provide to the Bank, as of or prior to each renewal
date with respect to such insurance policies, evidence of the existence of such
coverage, all of which shall be in a form and content reasonably satisfactory to
the Bank.
SECTION 7.03. Taxes and Other Claims. The Borrowers shall pay when due
all taxes, assessments and charges which are imposed upon them or their
operations or properties, or which they are required to withhold and pay over
(including, without limitation, payroll withholding taxes) and shall pay all
other claims which, if unpaid, might become liens or charges upon their
properties; provided, however, that the Borrowers shall not be required to pay
such taxes, assessments and charges so long as they (i) in good faith contest
the amount or validity and establish reserves against such taxes, assessments
and charges in kind and amount reasonably satisfactory to the Bank, and (ii)
cause any lien or other claim relating to any such taxes, assessments or charges
against the Borrowers to be subordinated to the Indebtedness, to the extent that
such lien or other claim would have a priority against any of the Collateral
that would be equal to, or higher than, the security interests and liens granted
to the Bank under this Agreement and the Loan Documents.
SECTION 7.04. Encumbrances. The Borrowers shall not create, incur,
assume or permit to exist any mortgage, pledge, charge, security interest, lien
or other encumbrance upon any of their properties or assets, whether now owned
or hereafter acquired, except: (i) liens for taxes or governmental claims which
are not yet due and payable or which are being contested in good faith and
subordinated as required by Section 7.03; (ii) existing liens and encumbrances
described in Section 6.09; (iii) liens and encumbrances in favor of the Bank.
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SECTION 7.05. Indebtedness. The Borrowers shall not create, assume,
incur, or otherwise become liable for any indebtedness or other Credit
Obligations to any person or entity for money borrowed or the deferred purchase
price for assets other than: (i) loans from the Bank to the Borrowers; (ii)
indebtedness to shareholders or affiliates of the Borrowers, provided that such
indebtedness does not cause or result in an Event of Default under this
Agreement; (iii) trade indebtedness for the purchase of supplies and services in
the ordinary course of business; (iv) existing indebtedness disclosed in the
financial statements mentioned in Section 6.04 or on the schedule attached as
Exhibit 7.05; (v) Permitted Seller Notes; and (vi) indebtedness incurred in
connection with Capital Expenditures.
SECTION 7.06. Loans and Investments. The Borrowers shall not make any
loan to, capital contribution to or investment in, or endorse, guarantee or
otherwise become liable for the payment or performance of any liabilities or
obligations of, any person or entity (including, without limitation, any
officer, employee, shareholder, or director of the Borrowers), except that the
Borrowers may make: (i) guaranties to the Bank; (ii) endorsements of negotiable
instruments for deposit or collection in the ordinary course of business; (iii)
investments in direct obligations of the United States or any agency thereof
with maturities of one year or less from the date of acquisition, or commercial
paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation
or "P-1" by Moody's Investors Service, Inc., or certificates of deposit with
maturities of one year or less from the date of acquisition issued by a
federally insured commercial bank; (iv) pledges or deposits under workmen's
compensation laws, unemployment insurance laws or similar laws; (v) good faith
deposits in connection with bids, tenders, sales contracts, leases, statutory
obligations, appeal and performance bonds and other similar obligations not
incurred in connection with the borrowing of money or the obtaining of advances
or the payment of deferred purchase price of property.
SECTION 7.07. Maintenance of Existence. The Borrowers shall preserve
and maintain their corporate existence and good standing in the jurisdiction of
their incorporation, and qualify and remain qualified as a foreign corporations
in each jurisdiction in which such qualification is required.
SECTION 7.08. Compliance With Laws. The Borrowers shall comply in all
respects with all statutes, laws, rules and regulations applicable to them in
the operation of their businesses (including the Fair Labor Standards Act, as
amended, and all statutes, laws, rules and regulations relating to the Borrowers
bottling and labeling activities) or with regard to their ownership of their
properties and assets.
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SECTION 7.09. Maintenance of Property. The Borrowers shall maintain all
of their properties and assets in good condition and repair and shall make all
reasonable and necessary repairs, replacements and improvements to their
properties and assets, so that their businesses may be properly conducted at all
times.
SECTION 7.10. Inspection by the Bank. The Borrowers shall permit the
Bank or its agents at any reasonable time to inspect during normal business
hours their properties and to examine their books and records and make copies or
extracts therefrom, and to discuss their affairs with their directors, officers,
employees, agents and accountants; provided, however, that the Bank's right to
inspect as set forth in this Section 7.10 shall exist at any time the Bank may
deem appropriate after the occurrence and during the continuance of an Event of
Default.
SECTION 7.11. Reports.
The Borrowers shall furnish to the Bank:
(a) as soon as possible, and in any event within two (2)
Business Days after any Borrower becomes aware of the occurrence of any Event of
Default or Potential Default, a written statement by the Borrowers' Chief
Executive Officer or Chief Financial Officer setting forth details of the Event
of Default or Potential Default and the action which is proposed to be taken
with respect thereto;
(b) as soon as possible, and in any event within five (5)
Business Days after receiving knowledge thereof, written notice of any action,
suit and proceeding before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, affecting any
Borrower which involves $200,000 or more or would materially adversely affect
the business, properties or condition, financial or otherwise, of any Borrower,
if adversely determined;
(c) as soon as possible, and in any event within five (5)
Business Days after any Borrower becomes aware of the occurrence of any event
that would cause any representation or warranty made by any Borrower in this
Agreement or the other Loan Documents to be untrue, a written statement by the
Borrowers' Chief Executive Officer or Chief Financial Officer setting forth the
details of such event and the action which is proposed to be taken with respect
thereto; and
(d) as soon as possible, and in any event within five (5)
Business Days after any Borrower becomes aware of the occurrence of a material
adverse change in their business, properties or condition, financial or
otherwise, a written statement by the Borrowers' Chief Executive Officer or
Chief Financial Officer, setting forth the details of such material adverse
change and the action which is proposed to be taken with respect thereto.
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SECTION 7.12. ERISA.
The Borrowers shall comply with all applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan.
SECTION 7.13. Merger or Consolidation. Except for those types of
acquisitions contemplated within the Acquisition Facility provided for by
Article III of this Agreement, the Borrowers shall not become a partner or
participant in any partnership or joint venture, or merge or consolidate with or
into any other corporation, or permit any other corporation to merge into any
Borrower, or acquire, in a transaction analogous in purpose or effect to a
merger or consolidation, all or substantially all of the assets or securities of
any other person, corporation, division, or business enterprise.
SECTION 7.14. Disposal of Assets. The Borrowers shall not sell, convey,
lease, assign, transfer or otherwise dispose of, voluntarily or involuntarily,
all or any portion of their assets, other than (i) the sale of Inventory in the
ordinary course of business, (ii) sales of coolers in the ordinary course of
business, and (iii) as permitted pursuant to Section 4.06(b) of this Agreement.
SECTION 7.15. Nature of Business. The Borrowers shall not make any
material change in the nature of their businesses as conducted at the date of
this Agreement or, without at least thirty (30) days prior written notice to the
Bank, change their name.
SECTION 7.16. Environmental Laws. The Borrowers shall comply with all
applicable Environmental Laws and shall immediately notify the Bank of any
actual or alleged failure to comply with or perform, breach, violation or
default under any applicable Environmental Laws.
SECTION 7.17. Ownership of Stock/Maintenance of Management. The
Borrowers shall not cause, permit, suffer or allow to exist any Change in
Control, or enter into any agreement contemplating or providing for a Change in
Control. Notwithstanding the foregoing, if either or both of the Borrowers shall
enter into any agreement contemplating or providing for a Change in Control, it
is understood and agreed that (so long as no other Potential Default or Event of
Default has then occurred and is continuing) (i) the availability of advances
under the Acquisition Facility shall immediately terminate, without the need for
further notice from the Bank, and (ii) the Borrowers shall continue to have
borrowing availability under the Working Capital Line of Credit at the interest
rate provided in Section 2.03 hereof, subject to the terms and conditions of
this Agreement (including but not limited to Section 8.04(b) of this Agreement)
and the Loan Documents; provided, however, that in all cases all Indebtedness
owing to the Bank shall, unless the Bank otherwise agrees in writing, be paid in
full immediately prior to, or simultaneously with, any Change in
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Control. The Borrowers shall also maintain at all times Senior
Management reasonably satisfactory to the Bank.
SECTION 7.18. Funded Debt to Cash Flow. The Borrowers shall maintain,
on a consolidated basis, a ratio of Funded Debt to Cash Flow of not more than:
(i) 4.25 to 1 from the date of this Agreement through July 25, 1998; (ii) 3.95
to 1 from July 26, 1998, through October 31, 1998; (iii) 3.50 to 1 from November
1, 1998 through October 30, 1999; and (iv) 3.00 to 1 at October 31, 1999 and at
the end of each fiscal year thereafter.
SECTION 7.19. Cash Flow Coverage.
The Borrowers shall maintain, a minimum ratio of four (4) quarters Cash Flow to
Fixed Charges of not less than 1.25 to 1.0.
SECTION 7.20. Funded Debt to Capitalization.
The Borrowers shall maintain, on a consolidated basis, a ratio of Funded Debt to
Capitalization of not more than 2.00 to 1.00.
SECTION 7.21 Interest Coverage. Borrowers shall at all times maintain
Interest Coverage Ratio of not less than 3.25 to 1.0.
SECTION 7.22 Methodology for Calculation. The calculations made
pursuant to Sections 7.18, 7.19, 7.20 and 7.21 shall be tested as of the end of
each fiscal quarter, on a rolling, prior four fiscal quarter basis. For purposes
of the calculations in Sections 7.18, 7.19 and 7.21, Permitted Acquisitions
consummated during the fiscal quarter will use such Permitted Acquisitions most
recently ended Adjusted Cash Flow.
SECTION 7.23. Capital Expenditures. With respect to the fixed assets,
including, for these purposes, water coolers, the Borrowers shall not expend or
become obligated to expend for fixed assets (by purchase or financing lease) an
amount which would cause the aggregate amount expended by the Borrowers for the
fixed assets (including the annual rental liability for the financing lease of
fixed assets and the annual deferred portion of any purchase price) to exceed
the amount of the VPSI's depreciation for the immediately preceding fiscal year.
SECTION 7.24. Deposit Accounts. As additional compensation to the Bank,
and in consideration of the rate of interest and fees being charged by the Bank
to the Borrowers on and in connection with this Agreement and other
Indebtedness, the Borrowers and their Affiliates shall maintain their primary
deposit accounts with the Bank. The Bank agrees that all charges, fees and
assessments levied in connection with any one or more such accounts shall be
consistent with those assessed by the Bank for similar type accounts.
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SECTION 7.25. Dividends, Capital Stock. The Borrowers shall not declare
or pay, directly or indirectly, any dividends, or make any other distribution of
payment (whether in cash, property, securities or accommodation thereof) with
respect to (whether by reduction of capital or otherwise) any shares of capital
stock of the Borrowers, or any options, warrants, rights or added equity
securities or agreements relating to any capital stock, or set apart any sum for
the payment of any of the foregoing purposes.
ARTICLE VIII
DEFAULT
SECTION 8.01. Events of Default.
The occurrence of any one or more of the following events shall constitute an
"Event of Default" under this Agreement:
(a) Any Borrower fails to pay the outstanding balance of the
Working Capital Line of Credit or any portion of the Acquisition Facility when
due, or any other portion of the Indebtedness when due; or
(b) Any Borrower fails to observe or perform any other
agreements, conditions, undertakings or covenants in this Agreement or the Loan
Documents to be observed or performed by the Borrowers; or
(c) Any representation or warranty made in this Agreement or
the Loan Documents, or furnished by any Borrower in connection with making this
Agreement or the Loan Documents or in compliance with their provisions, proves
to have been false or erroneous in any material respect when made or deemed
made; or
(d) Any Borrower becomes insolvent or unable to pay its or
their debts as they mature, or files a voluntary petition or suffers any
involuntary petition to be filed against it or them under any provision of any
state or federal bankruptcy or insolvency statute (and, in the case of an
involuntary petition, such petition is not dismissed within sixty (60) days
after filing), or makes an assignment for the benefit of its or their creditors,
or applies for or consents to the appointment of a receiver or custodian for its
or their assets, or any attachment or garnishment is initiated or filed against
its or their properties or assets and is not released discharged or bonded
against within thirty (30) days thereafter; or
(e) Any Borrower fails to pay any Credit Obligation owing by
it in excess of (whether individually or in the aggregate) $50,000, or any
interest or premium thereon, when due (whether such Credit Obligation has become
due by scheduled maturity, by required prepayment, by acceleration, by demand or
otherwise) or fails to perform any term, covenant or agreement on its part to be
performed
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under any agreement or instrument evidencing or securing or relating to any such
Credit Obligation when required to be performed, if the effect of such failure
is to accelerate the maturity of such Credit Obligation; or
(f) Any of the following events occurs or exists with respect
to any Borrower or any ERISA Affiliate: (i) any Prohibited Transaction involving
any Plan; (ii) any Reportable Event with respect to any Plan; (iii) the filing
under Section 4041 of ERISA of a notice of intent to terminate any Plan or the
termination of any Plan; (iv) any event or circumstance that might constitute
grounds entitling the PBGC to institute proceedings under Section 4042 of ERISA
for the termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings; (v) complete or
partial withdrawal under Section 4201 or 4202 of ERISA from a Multiemployer Plan
or the reorganization, insolvency, or termination of any Multiemployer Plan; and
in each case above, such event or condition, together with all other events or
conditions, if any, could in the opinion of the Bank subject any Borrower to any
tax, penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC or
otherwise (or any combination thereof) which in the aggregate would have a
material adverse effect on the financial connection, properties, or operations
of any Borrower; or
(g) Any one or more of the Borrowers terminates or has
terminated any distributorship or brokerage arrangement representing 15% or more
of the total revenues of such Borrower for the immediately preceding twelve (12)
month period unless, within forty-five (45) days of receiving notice or
obtaining knowledge of such termination, the Borrowers provide to the Bank
projections (satisfactory to the Bank) indicating that such lost revenues will
not cause or result in a Potential Default or Event of Default (it being
understood that such projections shall include, among other items, a compliance
certificate showing the anticipated effect of such loss on such Borrower's
revenues, and such projections contain assumptions satisfactory to the Bank); or
(h) The Borrowers make allowance for (or, in accordance with
GAAP, should make allowance for), any write-down of the value of their assets in
an amount equal to or greater than two and one-half percent (2.50%) of their net
sales, for the applicable fiscal year; or
(i) Any Borrower expresses an attempt to terminate, revoke or
disclaim responsibility for any of the Indebtedness, or their liability under
this Agreement or any of the Loan Documents; or
(j) (i) A judgment or judgments in excess of $200,000,
individually or in the aggregate, is entered against any Borrower provided that
such judgment or judgments shall have become final
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after the expiration or non-pursuit of available appeals, and assuming during
such appeal process that execution upon, or enforcement of, such judgment or
judgments has been stayed), or (ii) the property of any Borrower becomes subject
of any attachment, garnishment, levy or lien in excess of $200,000, whether
individually or in the aggregate; or
(k) A substantial part of the property of any of the
Borrowers is taken or condemned by any governmental authority, or
(l) Except as permitted by this Agreement, any Borrower sells,
assigns or otherwise transfers, or attempts to sell, assign or otherwise
transfer any of its right, title or interest in any of its assets of properties,
without the prior written consent of the Bank; or
(m) Any Borrower shall be in breach of, or lack full
compliance with, any law, statute, rule or regulation applicable to it or them
which, in the Bank's reasonable judgment, would impair their ability to perform
their obligations to the Bank;
(n) Any default, subject to any applicable notice and cure
period, otherwise occurs under the Loan Documents, which Events of Default are
incorporated by reference in this Agreement; or
(o) If the Bank determines, reasonably and in good faith, that
an event or series of events has occurred, or a condition or series of
conditions exists which has had, or is likely to have, a material adverse effect
on the financial condition or credit worthiness of any Borrower, or on the
ability of any Borrower to perform its obligations under this Agreement or any
of the Loan Documents; or
(p) A default occurs, and after the expiration of any
applicable notice and cure period, under any other agreement, document, or
instrument now or hereafter executed and delivered to the Bank by any other
person or entity now or hereafter liable, directly or indirectly, for the
Indebtedness.
SECTION 8.02. Cure of Default. The exercise by the Bank of its remedies
as set forth or referenced in Sections 8.03 and 8.04 below shall be subject to
the Borrower's right to cure such default as, and to the extent, set forth
below:
(a) With respect to defaults under clauses (b), (f), (m) and
(o) in Section 8.01, above, the Borrowers shall have the right to cure such
defaults (if cure can be effected to the reasonable satisfaction the Bank, and
provided further that the Borrower is using its best efforts to effectuate a
cure) within fifteen (15) days after notice of default with respect thereto has
been given by the Bank (which notice, if initially given by means other than in
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writing, shall be promptly confirmed in writing by the Bank); provided, however,
that no cure period is available for the existence of an Event of Default by
virtue of (i) exceeding the borrowing limitations set forth in Article II or
Article III of this Agreement, or (ii) failure to comply with the financial
covenants set forth in Sections 7.18, 7.19, 7.20, 7.21, 7.22, 7.23 and 7.25 of
this Agreement.
During any cure or grace period set forth in the Section 8.02, the Bank
shall refrain from the exercise of remedies provided to it upon default as
provided in Sections 8.03 and 8.04 below; provided, however, that the Bank may,
during such cure period:
(i) to the extent necessary to protect its security
interest in the Collateral, exercise its right of set-off against
assets or accounts in its possession, custody or control;
(ii) refrain from making additional advances under the
Loans; and
(iii) take all actions with respect to the Collateral necessary for
the protection of its interest therein including, if required, based upon a
reasonable and good faith determination made by the Bank that the value of the
Collateral is threatened, the exercise of default remedies set forth in Sections
8.03 and 8.04 below.
SECTION 8.03. Acceleration. Upon the occurrence of any Event
of Default or at any time during the continuance of any Event of Default, the
Bank may, at its election, declare all or any portion of the Indebtedness to be
immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are expressly waived by the Borrowers.
SECTION 8.04. Remedies Upon Default.
(a) Upon the occurrence of any Event of Default and after the
expiration of any applicable grace and cure periods (but subject to the
provisions of Section 8.02, above) or at any time during the continuance of any
Event of Default, the Bank, in addition to the rights specifically granted in
this Agreement or now or hereafter existing in equity, at law, by virtue of
statute or otherwise, may at its election exercise the rights and remedies under
the Loan Documents, or any other agreement, document, or instrument between the
Borrowers and the Bank, in accordance with their respective provisions.
(b) Upon the occurrence and during the continuance of any
Event of Default after the expiration of any applicable grace and cure periods,
interest on all of the Indebtedness shall accrue at the Base Rate plus three
percent (3.00%) per annum (the "Default Rate"); provided, however, that the
Default Rate shall not go into
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effect until ten days after the date upon which a payment is due under the
Working Capital Line of Credit or the Acquisition Facility if (i) the Sweep
Agreement is in effect, (ii) the Borrowers have not made such payment due under
the Working Capital Line of Credit or the Acquisition Facility, (iii) there is
availability under the Working Capital Line of Credit which is equal to or more
than the amount which is due by the Borrowers at the time the Bank debits from
the Working Capital Line of Credit the amount of such payment due, and (iv)
other than non-payment referred to herein, no other Event of Default exists. Any
amounts debited by the Bank from the Working Capital Line of Credit pursuant to
this Section shall be deemed a Direct Loan.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. No Waiver; Cumulative Remedies.
------------------------------
No course of dealing and no failure or delay of the Bank in exercising any
right, power or remedy under this Agreement or the Loan Document
shall operate as a waiver thereof or shall affect any other or
future exercise thereof or the exercise of any other right, power
or remedy nor shall any single or partial exercise of any such
right, power or remedy or any abandonment or discontinuance of such
exercise preclude any other or further exercise thereof or of any
other right, power or remedy under this Agreement or the Loan
Documents. The rights, powers and remedies of the Bank in this
Agreement are cumulative and not exclusive of any rights, powers,
or remedies which the Bank may otherwise have.
SECTION 9.02. Amendments and Waivers. The provisions of this Agreement
and the Loan Documents may be modified or amended only by a written agreement
entered into by the Borrowers and the Bank, and may be waived only by a written
waiver signed by the Bank. No waiver, modification or amendment shall extend to
or affect any obligation not expressly waived, modified or amended, or impair
any right of the Bank related to such obligation.
SECTION 9.03. Notices. All notices, requests, demands and other
communications that this Agreement or any other Loan Document requires or
permits shall be in writing and shall (other than a borrowing requests and other
communications in the ordinary course of the lending relationship), be given by
hand delivery, telecopier, certified mail, return receipt requested, or by
recognized overnight delivery services to the parties at their address specified
above, or at such other address as shall be designated by a party in a notice
complying with the terms of this Section 9.03. Notices, requests, demands and
other communications provided in accordance with the provisions of this
Agreement shall be effective (i) in the case of hand delivery, upon delivery of
the notice and receipt of the appropriate signature obtained to the
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recipient of such notice, (ii) if sent by telecopier, when the transmission is
sent and the appropriate confirmation has been received, (iii) in the case of
certified mail, return receipt requested, the date upon which the notice has
been accepted by the party receiving notice, and (iv) in the case of delivery by
recognized overnight delivery service, on the next day after the notice has been
given to such service for sending.
SECTION 9.04. Costs and Expenses. The Borrowers agree to pay on demand:
(a) all reasonable costs and expenses of the Bank in connection with the
preparation, execution, delivery and administration of this Agreement, the Loan
Documents and all other instruments and documents to be delivered under or in
connection with this Agreement, and any waivers or supplements or amendments
thereto, including the reasonable fees and expenses of counsel, fees and
expenses of appraisers, accountants and other professionals, costs of property
and lien searches; and (b) all costs and expenses of the Bank in connection with
the enforcement of this Agreement, the Loan Documents, and all other instruments
and documents to be delivered under or in connection with this Agreement,
including the fees and expenses of counsel and fees and expenses of appraisers,
accountants, and other professionals. Such costs and expenses shall include all
costs and expenses (including the fees and expenses of counsel for the Bank)
incurred in connection with: (A) the protection, exercise or enforcement of the
Bank's rights, and (B) the assertion, protection, exercise or enforcement of the
Bank's rights in any proceeding under the United States Bankruptcy Code,
including without limitation the preparation, filing and prosecution of (i)
proofs of claim, (ii) motions for relief from the automatic stay, (iii) motions
for adequate protection and (iv) complaints, answers and other pleadings in
adversary proceedings by or against the Bank or relating in any way to any of
the Collateral. With respect to any right granted to the Bank to perform or
cause to be performed environmental audits or assessments of any of the Real
Property, it is agreed that costs and expenses of the nature set forth in this
Section 9.04 shall (i) after the occurrence and during the continance of any
Event of Default or Potential Default, be borne by the Borrowers, and (ii) if an
Event of Default or Potential Default has not occurred and is not then
continuing, the Bank shall only be entitled to charge such costs to the Borrower
if, at the time it is requesting such environmental audit, it has a good faith
reason to believe that such audit is necessary under the circumstances. As of
the date of this Agreement, the Bank has no reason to believe that such an
environmental audit is currently necessary or advisable.
SECTION 9.05. Miscellaneous Payment Provisions.
(a) All payments to be made by the Borrowers under or in
connection with the Indebtedness shall be made to the Bank in immediately
available funds, without set-off, counterclaim,
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deduction or withholding, at such offices of the Bank or at such other places as
may be directed by the Bank.
(b) Whenever any payment to be made by the Borrowers under or
in connection with the Indebtedness is stated to be due on a day that is not a
Business Day, such payment shall be made on the next day that is a Business Day,
and such extension of time shall be involved in the computation of interest or
fees due from the Borrowers.
(c) If at any time any payment made by the Borrowers under or
in connection with the Indebtedness is rescinded or must otherwise be returned
by the Bank for any reason, including, but not limited to, the insolvency,
bankruptcy, or reorganization of any Borrowers, the rights of the Bank shall be
reinstated as though payment had not been made.
(d) If any payment to be made by the Borrowers under or in
connection with the Indebtedness is not paid on or before the due date thereof,
then in addition to and not in limitation of any other rights or remedies
available to the Bank, the Bank may impose a late charge equal to the greater of
$15.00 or one percent (1.00%) of the amount due and not paid on the due date.
(e) The Borrowers authorize the Bank to charge, when due,
against any deposit account of any Borrower with the Bank, any payments
(including payments of interest and fees) to be made by the Borrowers under or
in connection with the Indebtedness.
SECTION 9.06. Participation. The Bank may assign to one or more banks
or other entities all or any part of, or may grant participation to one or more
banks or other entities of all or any part of, the Indebtedness and, to the
extent of any such assignment or participation, unless otherwise stated in such
assignment or participation, the assignee and participant shall have the same
rights and benefits under this Agreement as it would have if it were the Bank
under this Agreement.
SECTION 9.07. Liability of Bank. The Borrowers and their Affiliates
agree that the Bank shall not have any liability (in tort or otherwise) for any
lost profits or other consequential damage sustained by any Borrower or
Affiliate as a result of any action taken or omitted by the Bank or any of its
officers, agents, or employees in connection with the administration or
enforcement of this Agreement, or the Loan Documents, other than for acts of
gross negligence or willful misconduct.
SECTION 9.08. Governing Law. This Agreement shall be governed in all
respects by the laws in effect in the Commonwealth of Pennsylvania (without
regard to the principles of conflicts of law), and for all purposes shall be
construed in accordance with such laws.
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SECTION 9.09. Headings. The headings used in this Agreement are for
convenience of reference only, and shall not affect the construction or
interpretation of this Agreement. Unless otherwise indicated, all references to
Sections and Exhibits shall be construed as references to sections of and
exhibits to this Agreement.
SECTION 9.10. Continuing Representations. All agreements,
representations, warranties and covenants made by the Borrowers in this
Agreement or in any certificate or other document delivered to the Bank in
connection with this Agreement, shall be continuing as long as the Indebtedness
shall remain outstanding and unpaid; provided, however, that the covenants set
forth in Sections 9.04, 9.07, and 9.13 through 9.15 shall survive the payment of
the Indebtedness.
SECTION 9.11. Binding Effect. This Agreement shall be binding upon and
operate for the benefit of the Borrowers and the Bank, and their respective
successors and assigns; provided, however, that the Borrowers may not assign or
delegate any of their rights or obligations without the prior written consent of
the Bank.
SECTION 9.12. Records. The outstanding balance of the Indebtedness, and
the unpaid interest and fees accrued thereon or in connection therewith, shall
at all times be ascertained from the records of the Bank, which shall be
conclusive evidence thereof absent protest by the Borrowers, within ten (10)
days after receipt of any document which the Borrowers believe to be in error,
which protest shall set forth with specificity the error or errors which the
Borrowers believe to exist in the records of the Bank.
SECTION 9.13. Indemnity.
(a) The Borrowers and the Sureties shall indemnify the Bank
against any loss or expense which the Bank may sustain or incur as a consequence
of any default by any Borrower or Surety in the performance or observance of any
term, condition, covenant or undertaking contained in this Agreement or the Loan
Documents to be observed or performed by any Borrower or Surety (including the
failure to pay when due, by acceleration or otherwise, any principal, interest,
fees, or other amount due under this Agreement or the other Loan Documents).
(b) In addition to and not in limitation of the provisions of
paragraph (a) of this Section 9.13, and notwithstanding anything to the contrary
contained in this Agreement, if any LIBOR Loan is repaid in whole or in part
prior to the last day of the Interest Period applicable thereto, whether
repayment is voluntary or involuntary, by acceleration or otherwise, the
Borrowers shall indemnify and hold harmless the Bank from and against all
losses, costs, and expenses resulting from such
41
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repayment. Such indemnification shall include any loss (including loss of
margin) or expense arising from the reemployment of funds obtained by the Bank
or from fees payable to terminate deposits from which such funds were obtained.
For the purpose of calculating amounts payable to the Bank under this paragraph
(b) the Bank shall be deemed to have actually funded the LIBOR Loan through the
purchase of a deposit bearing interest at the LIBOR Interest Rate in an amount
equal to the amount of the LIBOR Loan and having a maturity comparable to the
applicable Interest Period; provided, however, that the Bank may fund each of
the LIBOR Loans in any manner as it sees fit, and the foregoing assumption shall
be utilized only for the calculation of amounts payable under this paragraph
(b).
SECTION 9.14. Waiver of Jury Trial. THE BORROWERS AND THE SURETIES
WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR THE LOAN DOCUMENTS, OR ANY PROCEEDING
IN ANY WAY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE LOAN
DOCUMENTS, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, AND THE BORROWERS
AND THE SURETIES AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE
A COURT AND NOT BEFORE A JURY.
SECTION 9.15. Consent to Jurisdiction. THE BORROWERS AND THE SURETIES
SUBMIT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
COMMONWEALTH OF PENNSYLVANIA FOR THE DETERMINATION OF ANY CONTROVERSY ARISING
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE LOAN DOCUMENTS, AND THE
BORROWERS AND THE SURETIES WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT, OR
OTHER PROCESS IN AN ACTION IN ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
COMMONWEALTH OF PENNSYLVANIA AND AGREE THAT ALL SERVICE THEREOF MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED.
SECTION 9.16. Regulatory Changes. In the event that the introduction of
or any change in (i) the judicial, administrative, or other governmental
interpretation of any law or regulation or (ii) compliance by the Bank or any
corporation controlling the Bank with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law)
has the effect of requiring an increase in the amount of capital required or
expected to be maintained by the Bank or any corporation controlling the Bank,
and the Bank determines that such increase is based upon its obligations under
this Agreement, and other similar obligations, the Borrowers shall pay to the
Bank such additional amount as shall be certified by the Bank to be the amount
allocable to the Bank's obligations to the Borrowers under this Agreement. The
Bank will notify the Borrowers of any event occurring after the date of this
Agreement that will entitle the Bank to compensation pursuant to this Section
9.16 as promptly as practicable after it obtains knowledge of such event and
determines to request such compensation. Any determination by the Bank for
42
<PAGE>
purposes of this Section 9.16 of the effect of any increase in the amount of
capital required to be maintained by the Bank and of the amount allocable to the
Bank's obligations to the Borrowers under this Agreement shall be conclusive,
provided that such determination is made on a reasonable basis.
SECTION 9.17. Illegality. Notwithstanding any other provision in this
Agreement or any Loan Document, if the Bank determines that any applicable law,
rule, or regulation, or any change therein, or any change in the interpretation
or administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Bank (or its lending officer) with any request or directive
(whether or not having the force of law) or any such authority, central bank, or
comparable agency shall make it unlawful or impossible for the Bank (or its
lending officer) to (1) maintain its commitment, then upon notice to the
Borrowers by the Bank the commitment of the Bank shall terminate; or (2)
maintain or fund its LIBOR Loans, then upon notice to the Borrowers by the Bank
the outstanding principal amount of the LIBOR Loans, together with interest
accrued thereon, and any other amounts payable to the Bank under this Agreement
shall be repaid (a) immediately upon demand of the Bank if such change or
compliance with such request, in the judgment of the Bank, requires immediate
repayment; or (b) at the expiration of the last Interest Period to expire before
the effective date of any such change or request.
SECTION 9.18. Interpretation/Additional Borrowers.
-----------------------------------
This Agreement and the other Loan Documents shall be construed as one
agreement and shall be interpreted so as to expand, rather than
contract, the rights of the Bank; provided, however, that in the
-------- -------
event of inconsistency, the provisions of this Agreement shall
supersede and control the provisions of the other Loan Documents.
The use of the words "include", "including" and the like are
intended to be used as words of illustration, and shall not
construed as words of limitation. All references to a Borrower or
Borrowers shall be deemed to be joint and several references to
each of the Borrowers as identified in the Background to this
Agreement. Any one or more Persons now or hereafter acquired by
any of the Borrowers shall automatically be deemed to be a Borrower
for purposes of this Agreement and all of the Loan Documents. In
order to evidence this undertaking, such newly acquired Persons
shall, within five (5) Business Days of being acquired by any one
or more of the Borrowers, execute the certificate attached as
Exhibit 9.18.
SECTION 9.19. Integration. This Agreement and the other Loan Documents
constitute the entire agreement and understanding between the Borrowers and the
Bank related to the subject matter of this Agreement, and supersede all prior
proposals, negotiations, agreements, and understandings relating to such subject
matter.
43
<PAGE>
The Borrowers acknowledge that, in entering into this Agreement, they are not
relying on any statement, representation, warranty, covenant, or agreement of
any kind made by the Bank or any employee or agent of the Bank, other than the
agreements of the Bank set forth in this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
Attest: VERMONT PURE HOLDINGS, LTD.
[Corporate Seal]
By
Title
Attest: VERMONT PURE SPRINGS, INC.
[Corporate Seal]
By:
Title
CORESTATES BANK, N.A.
By
John T. Haurin, Vice President
The Undersigned, being identified in the above Agreement as Sureties,
do hereby confirm and agree to be bound by all terms, conditions,
representations, warranties, covenants and other matters set forth in the above
Loan and Security Agreement which refer to them, in addition to the other
undertakings agreed to by the Sureties in the Loan Documents signed by them.
ATTTEST EXCELSIOR SPRINGS WATER COMPANY,
INC.
__________________ By: _____________________________
[Corporate Seal]
44
<PAGE>
ATTEST: A. M. FRIDAYS, INC.
__________________ By: _____________________________
[Corporate Seal]
45
<PAGE>
EXHIBIT 1.01
SUBORDINATION AGREEMENT
[See Attached]
46
<PAGE>
EXHIBIT 4.05
PLACES OF BUSINESS, LOCATIONS OF COLLATERAL
[See Attached]
47
<PAGE>
EXHIBIT 4.07
PATENTS, TRADEMARKS, COPYRIGHTS, ETC.
[See attached]
48
<PAGE>
EXHIBIT 4.09
TRADE OR FICTITIOUS NAMES
Other than trademarks listed in Exhibit 4.07 to this
Agreement, the licensed names are as follows: "Happy",
"Greatwater", "Coffee Time" and "AKVA."
49
<PAGE>
EXHIBIT 6.01
AFFILIATES AND TRADENAMES
Vermont Pure Springs, Inc. is a subsidiary of Vermont
Pure Holdings, Ltd. A.M. Fridays, Inc. and Excelsior Springs Water
Company, Inc. are wholly owned subsidiaries of Vermont Pure
Springs, Inc.
50
<PAGE>
EXHIBIT 6.05
LITIGATION
In February 1996, VPSI commenced an action entitled Vermont
Pure Springs, Inc. v. Robert Beattie and John Maguire in Orange Superior Court
in the State of Vermont. The court assigned the case Docket No. S-33-2-96 Occv.
VPSI alleged that the defendants, who were former employees of VPSI, breached
their contractual and common law obligations concerning unfair competition and
preservation of Company trade secrets. VPSI 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 VPSI to a third party. The court denied VPSI's request for a writ
of attachment. Defendant Maguire has filed a counterclaim and a third party
complaint against VPSI's president and VPSI seeking compensatory damages and
punitive damages of not less than $250,000 and attorneys' fees for alleged
breach of contract and unfair trade competition. Defendant Beattie has filed a
counterclaim seeking unspecified damages and attorneys' fees. The case is in the
discovery phase and it is unclear when it will proceed to a trial on the merits.
VPSI does not believe that the counterclaims have any merit and intends to
pursue the litigation and defend itself vigorously.
In addition, VPSI has brought suit in Massachusetts against a
company doing business as Vermont Gold for trademark infringement. Vermont Gold
is a startup company. The case is tentatively scheduled to go to trial in May
and is presently in the discovery phase.
Neither of these suits is expected to have a material
financial impact on VPSI.
51
<PAGE>
EXHIBIT 6.07
CONTINGENT LIABILITIES
VPSI currently has an appeal outstanding with the Vermont
Department of Taxes concerning $220,000 of outstanding use taxes, interest and
penalties. The issue is that the department does not interpret the manufacturing
exemption under the code to include bottling. VPSI has rejected a settlement
offer by the commissioner and is considering a counteroffer. Effective January,
1998, the statute has been amended to include water bottling but the change is
not retroactive. VPSI has not reported this in its financial statements because
most of the total amount concerns capital equipment and would be depreciated
and, as a result, would be immaterial.
Also, VPSI has two acquisition notes outstanding that are
based on the performance of the acquired entities. The first, was due March 10,
1998 to Greatwater Refreshment Services in the amount of $75,000. It is prorated
up or down based on sales of $700,000 for the year ended that date. VPSI
reported sales of $670,000 and the former owner is now auditing that number.
Nothing has been paid yet. The second, a note for $200,000 payable May 1, 1999
to Happy Ice Corporation is based on EBITDA of the acquired company being at
least $400,000 for the first two years of operation. Through 21 months, EBITDA
is approximately $50,000. VPSI does not anticipate having to pay any of the
potential liability.
52
<PAGE>
EXHIBIT 6.09
EXISTING LIENS AND ENCUMBRANCES
[See Attached]
53
<PAGE>
EXHIBIT 6.11
ERISA MATTERS
None.
54
<PAGE>
EXHIBIT 7.01
COMPLIANCE CERTIFICATE
[See Attached]
55
<PAGE>
EXHIBIT 7.02
EXISTING INSURANCE COVERAGE
[See Attached]
56
<PAGE>
EXHIBIT 7.05
EXISTING INDEBTEDNESS
[See Attached]
57
<PAGE>
EXHIBIT 9.18
JOINDER AND CONSENT
The undersigned, having been acquired by __________ on or about
____________, 199_, do hereby execute this Joinder and Consent for purposes of
being deemed in all respects a "Borrower" pursuant to that Loan and Security
Agreement dated August __, 1997 between CoreStates Bank, as Lender, and Vermont
Pure Holdings, Inc. and Vermont Pure Springs, Inc., as co-Borrowers, as that
agreement may have been amended or modified from time to time. Without limiting
the general nature of the foregoing, the undersigned acknowledged that their
execution of this joinder and consent makes them for all purposes a "Borrower"
under the aforementioned agreement liable for repayment of all of the
Indebtedness and otherwise obligated under all of the Loan Documents as a
signatory. The undersigned shall further execute and deliver to the Bank,
immediately upon request, such further agreements, documents or instruments as
the Bank may request to further evidence this joinder and consent.
By:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000885040
<NAME> Vermont Pure Holdings, LTD.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> OCT-26-1997
<PERIOD-END> APR-25-1998
<EXCHANGE-RATE> 1
<CASH> 300,544
<SECURITIES> 0
<RECEIVABLES> 3,055,267
<ALLOWANCES> 302,929
<INVENTORY> 1,233,642
<CURRENT-ASSETS> 4,808,276
<PP&E> 11,054,920
<DEPRECIATION> 3,114,820
<TOTAL-ASSETS> 20,109,088
<CURRENT-LIABILITIES> 3,331,085
<BONDS> 9,039,145
0
0
<COMMON> 10,280
<OTHER-SE> 6,863,851
<TOTAL-LIABILITY-AND-EQUITY> 20,109,088
<SALES> 10,562,013
<TOTAL-REVENUES> 10,562,013
<CGS> 4,460,310
<TOTAL-COSTS> 4,460,310
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120,827
<INTEREST-EXPENSE> 345,780
<INCOME-PRETAX> (356,887)
<INCOME-TAX> 0
<INCOME-CONTINUING> (356,887)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (356,887)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
